..... . VALI disclosures . .....: 17/08/25, Defensive Stocks we prefer add to Portfolio

Sunday, August 17, 2025

17/08/25, Defensive Stocks we prefer add to Portfolio

BEL: The Defence Giant with a Bulletproof Order Book

Bharat Electronics Ltd. (BEL) is a leading manufacturer and supplier of electronic equipment to the defence sector. The company develops advanced electronic equipment, systems, and solutions for the defence sector, which includes fire control systems, radar systems, weapon systems, network and communication-centric systems, electronic warfare systems, and more.

During Q1FY26, FIIs increased their holding in this company by 1.01% points, taking the total holding to 18.56%. Within the defence sector, this stock has the highest FII holding. Let's see what is perhaps driving FIIs so strongly towards BEL.

Solid Order Book

One of the reasons why FIIs may be keen on BEL could be its solid order wins.

On 3 July, the Defence Acquisition Council (DAC) approved BEL's Quick Reaction Surface to Air Missile project. The company is expecting to get the order by the end of FY26. The potential order size is around ₹30,000 to ₹40,000 crore.

BEL is also expecting an order worth ₹6,000 to ₹10,000 crore for the configuration of subsystems for developing Next-generation Corvettes (NGC). Around 5 or 6 subsystems are being ordered, which are expected to be delivered by Q3 or Q4 of this fiscal year.

BEL, along with Hindustan Aeronautics Ltd. (HAL), is developing electronics Line Replaceable Units (LRUs) for 83 aircraft. This order is worth ₹1,000 crore. Also, BEL is expecting the next order for 97 aircraft for which the order value will be around ₹3,000 crore.

The total order book of BEL stood at ₹74,859 Crore as of 1 July 2025.

Firing on All Cylinders: A Look at the Q1 Numbers

Sales at BEL increased from ₹4,244 crore in Q1FY25 to ₹4,440 crore in Q1FY26, rising around 4.6% YoY. The operating profit margin grew from 22% to 28% during the same period. The net profit went up from ₹791 crore to ₹969 crore during the period, registering a 23% YoY growth.

During the June quarter, the company grew its margins owing to a good product mix and reduced their costs by increasing in-house manufacturing. The management has commented that they are anticipating an EBITDA margin of around 27% for FY26.

Financial Snapshot

Particulars	Q1FY25	Q1FY26
Sales	₹4,244 Cr.	₹4,440 Cr.
Net Profit	₹791 Cr.	₹969 Cr.
Operating Profit Margin	22%	28%

Coming to the valuation…

The stock is trading at a PE of 51.2x while its industry median is at 65.9x. This is one of the few stocks in this industry that has a lower P/E than the industry median, underscoring its relatively cheaper valuation. The Price Earnings to Growth (PEG) ratio of BEL is 1.7, which is, however, slightly higher than the industry median of 1.3.

One-Year Stock Price Chart

Data Patterns: A High-Tech Player with a Growing Arsenal of Orders

Data Patters (India) operates in the defence and aerospace electronics sector.

It offers indigenous electronic products which are used in aircraft, ships, missiles, helicopters, and other defence products. Some of the products that Data Patterns mainly focuses on are advanced light helicopter radars, fire control radar for Su-30 and MIG-29.

The company offers radar warning receivers, airborne software-defined radios, jammer pods, and other similar products for electronic warfare. For communication systems, it offers airborne programmable radio hardware, manpack radio, VUHF manpack, etc.

FIIs have a 12.78% stake in Data Patterns at the end of the June quarter, and during the quarter, they increased their stake by 0.03% points.

Staggering Order Book

Similar to BEL, Data Patterns also has a solid order book. The total order book as of 30 June 2025 stood at ₹814 crore. The order book has grown compared to the end of FY25, when it stood at ₹730 crore.

Some of the major orders received during Q1FY26 are -

AMC Orders for Brahmos - ₹105 crore
AMC orders for MOD - ₹28 crore
Development orders from MOD - ₹12 crore
Radar Development order from DoS - ₹11 crore
Avionics production order from DRDO - ₹4.8 crore

Additionally, the company is expecting orders worth ₹2,000 to ₹3,000 crore for the coming two years.

The growing order book might be one of the reasons why FIIs are holding on to this defence stock so closely.

A Temporary Blip? Decoding the Q1 Slowdown

During the first quarter of FY26, even when the order book shot up, the sales and profits declined. The sales of the company dropped from ₹104 crore in Q1FY25 to ₹99 crore in this June quarter, declining by 4.5%. The operating profit margin also decreased from 36% in Q1FY25 to 32% in Q1FY26. Net profit declined by 22.2% from ₹33 crore to ₹26 crore.

Financial Snapshot

Particulars	Q1FY25	Q1FY26
Sales	₹104 Cr.	₹99 Cr.
Net Profit	₹33 Cr.	₹26 Cr.
Operating Profit Margin	36%	32%

Strong EBITDA Margin

The EBITDA margin was at 32% during the quarter, and the management expects it to remain between 35% to 40% during the entire fiscal year.

The company also expects its revenue to grow at a 20 to 25% CAGR for the next two to three years.

Coming to the valuation…

Data Patterns is trading at a PE of 65.7x, which is at par with the industry median of 65.9x. The PEG is at 2.07, significantly higher than the industry median of 1.25.

One-Year Stock Price Chart

Another Stock on FIIs Radar

Hindustan Aeronautics Limited (HAL): Even though FIIs reduced their stake in this company by 0.18% points during the Q1FY26, it continues to be one of the three top defence companies when it comes to the scale of FII holding. The total FII holding in this company stood at 11.9% at the end of the June quarter.

The stock is trading at a PE of 36.7x, way lower than the industry median of 65.9x. However, the PEG ratio is higher at 2.03, while the industry median is 1.25.

Wrapping up

FIIs seem quite optimistic about the defence stocks in India. Probably, the recent geopolitical scenario fueled the interest even more. Even though the market has rallied significantly during the past few months, and valuations seem stretched, these select stocks showcase growth prospects driven by strong order books, EBITDA margins, and relatively cheaper valuations as well.

Disclaimer

We have relied on data from www.Screener.in throughout this article.

source:Financial Express, Screener

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Trade Cycles

The four important features of Trade Cycle are (i) Recovery, (ii) Boom, (iii) Recession, and (iv) Depression!

The trades cycle or business cycle are cyclical fluctuations of an economy. A full trade cycle has got four phases: (i) Recovery, (ii) Boom, (iii) Recession, and (iv) depression. The upward phase of a trade cycle or prosperity is divided into two stages—recovery and boom, and the downward phase of a trade cycle is also divided into two stages—recession and depression.

Phases of Trade Cycle:

The phases of trade cycle are explained with a diagram:

(1) Recovery:

In the early period of recovery, entrepreneurs increase the level of investment which in turn increases employment and income. Employment increases purchasing power and this leads to an increase in demand for consumer goods.

As a result, demand for goods will press upon their supply and it shall, thereby, lead to a rise in prices. The demand for consumer’s goods shall encourage the demand for producer’s goods.

The rise in prices shall depend upon the gestation period of investment. The longer the period of investment, the higher shall be the price rise. The rise of prices shall bring about a change in the distribution of income. Rent, wages, interest do not rise in the same proportion as prices.

Consequently, the margin of profit improves. The wholesale prices rise more than retail prices. The prices of raw materials rise more than the prices of semi-finished goods and the prices of semi-finished goods use more than the prices of finished goods.

(2) Boom:

The rate of investment increases still further. Owing to the spread of a wave of optimism in business, the level of production increases and the boom gathers momentum. More investment is possible only through credit creation. During a period of boom, the economy surpasses the level of full employment and enters a stage of over full employment.

(3) Recession:

The orders for raw materials are reduced on the onset of a recession. The rate of investment in producers’ goods industries and housing construction declines. Liquidity preference rises in society and owing to a contraction of money supply, the prices falls. A wave of pessimism spreads in business and those markets which were sometime before sellers markets become buyer’s markets now.

(4) Depression:

The main feature of a depression is a general fall in economic activity. Production, employment and income decline. The prices fall and the main factor responsible for it is, a fall in the purchasing power.

The distribution of national income changes. As the costs are rigid in nature, the margin of profit declines. Machines are not used to their full capacity in factories, because effective demand is much less. The prices of finished goods fall less than the prices of raw materials.

✳Reality Tips to Traders

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..BANKING TERMINOLOGY

There are various types of Banks: PSU Banks, Private Banks, Co-operative/Regional Banks, Small Finance Banks and Foreign Banks. When you deposit money in a bank, let's say the bank gives you an interest rate of 4%. But when the bank lends out this money, they lend it out at say, 12%. The difference of 8% in the above scenario is effectively the profit of the bank! The loans that do not pay interest for 90 days are known as Non-performing Assets. Banks have to provide for such bad loans. Structure of a Bank Asset for a Bank: The asset portion of a bank's capital includes cash, government securities, and interest-earning loans (e.g., mortgages, letters of credit, and inter-bank loans). Liabilities for a Bank: The bank's main liabilities are its capital (including cash reserves and, often, subordinated debt) and deposits. The latter may be from domestic or foreign sources (corporations and firms, private individuals, other banks, and even governments). Banks are required to maintain Liquidity with the Reserve Bank of India: SLR (Statutory Liquidity Ratio): It is the money a bank needs to preserve in the form of cash, gold or government Bonds before providing credit customers. This limitation is added by RBI on banks to make funds available to customers on-demand at your earliest convenience. Banks are required to maintain SLR at 18%. CRR (Cash Reserve Ratio): Banks are required to hold a certain proportion of their deposits in the form of cash. Banks don’t hold these as cash with themselves, but deposit such amounts with RBI / currency chests. CRR rate is at 4.5% currently. Repo Rate: The rate at which the RBI lends short-term money to the banks. The RBI through its Monetary Policy committee changes the repo rate to balance growth and Inflation. Reverse Repo rate: The rate at which banks park their short-term excess liquidity with the RBI. Now let us understand various terminologies for Banks Net Interest Income (NII): This is the spread the bank makes on its lending. It is calculated as Interest Income – Interest Expended Net Interest Margin (NIM): This is the spread the bank makes on its lending. It is the earning which is left after deducting the cost paid to depositors from its yields on Loans. This is denoted in % terms. The formula is Yield on Loans – Cost of funds Capital Adequacy Ratio (CAR): The capital adequacy ratio (CAR) is a measure of a bank's available capital expressed as a percentage of a bank's risk-weighted credit exposures. Essentially, it is the Capital that is available to lend. Tier I Capital – In simple words this capital is freely available with the bank to lend out. Tier II Capital- This is the capital tied up somewhere and is less freely available to lend. In case of an adverse event, the bank can use this capital to lend. Under Basel III norms, a bank’s tier 1+tier 2 capital must be a minimum of 8% of its risk-weighted holdings. The minimum capital adequacy ratio, also including the capital conservation buffer, is 10.5%. Current Account Saving Account (CASA)- There is no interest paid on the Current Account and a small interest rate is paid on a savings account. The combination of both is called CASA which shows the liabilities of the bank on which it pays relatively less interest. Deposits: Bank deposits are a savings product that customers can use to hold an amount of money at a bank for a specified length of time. In return, the financial institution will pay the customer the relevant amount of interest, based on how much they choose to deposit and for how long. Now let us come to NPA. Gross NPA (GNPA): It is the total loans on which no payment has been paid for 90 days or more. GNPA % is usually shown in each Bank’s quarterly results. The percentage is basically the GNPA amount as a % of the total advances. Slippages: Slippages denote the fresh amount of loans that have turned bad in a year. The slippage ratio of a bank is calculated as Fresh accretion of NPAs during the year /Total standard assets at the beginning of the year multiplied by 100. Provisioning Coverage Ratio (PCR): This is the ratio of provisioning to GNPA and indicates the extent of funds a bank has kept aside to cover loan losses. For Instance, a company has GNPAs of Rs 100 and they have set aside 50 Rs, then the PCR is 50%. Net NPA (NNPA): The total figure left after deducting provisions made for bad loans from GNPA. (GNPA – Provisions+upgrades/writeoffs = NNPA) Special Mention Account (SMA) SMA-0 is a category in which stress with respect to the principal and interest has remained overdue for a period of 0 to 30 days. SMA-1 is a category in which stress with respect to the principal and interest has remained overdue for a period of 30-60 days. SMA-2 is a category in which stress with respect to the principal and interest has remained overdue for a period of 60-90 days

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Sunday, August 17, 2025

17/08/25, Defensive Stocks we prefer add to Portfolio

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