If there is one sector that is witnessing some serious interest from investors, it is defence sector. The Nifty India Defence Index witnessed a surge of around 30% in the past 30 days. While everyone has now become interested in defense stocks, Domestic Institutional Investors (DIIs) have been holding these three defense stocks for quite some time now. Among the defence sector stocks, DIIs had the highest stakes in these select defence stocks during Q4FY25.
Let’s try to figure out why they hold these stocks so closely.
#1 MTAR Technologies Limited (MTARTECH)
MTAR Technologies is engaged in the manufacturing of varied equipment and components for the aerospace, defence, clean energy, and nuclear sectors. Domestic institutions and mutual funds, at the end of Q4FY25, held 24.40% stakes in this firm, which is the highest within the defence sector. In fact during the quarter, they increased their holding by 1.23% points.
While it would be difficult to say what caught the attention of the DIIs, here are a few factors that they might have considered. The sales growth of the firm on a Year-on-Year (YoY) basis was 47.56% during the December quarter, up from 14.07% in the September quarter.
Profits significantly grew during the December quarter by 55% YoY, which might be a reason for the increase in stakes by DIIs in the March quarter. It will be interesting to see whether DIIs further increase their stakes in this quarter or not, as profits grew by a whopping 180% YoY in the March quarter.
And this was not all, the firm grew its order book strongly during the March quarter. Only for the clean energy space and aerospace sector, the firm received orders over ₹400 crore. The total order book stood at ₹817 crore at the end of the year, FY25.
Another factor that might have attracted the DIIs is the diversification of the product portfolio, helping the firm expand its customer base and improve margins.
The top three DIIs that hold stakes in MTAR Technologies are –
- Nippon Life India Trustee Ltd. – A/C Nippon India SMA holds 6.74% stakes
- Kotak Mahindra Trustee Co Ltd. A/C Kotal Multicap Fund holds 3.41% stakes
- HDFC Mutual Fund – HDFC Defence Fund holds 3.40% stakes. It has raised its stake from 2.98% in Q3FY25.
#2 Bharat Electronics Limited (BEL)
Bharat Electronics is a seven-decade-old company specializing in manufacturing different electronic equipment and systems. It primarily supplies to the defense sector and has hardly any presence in the civilian market. DIIs held a 20.87% stake in this firm at the end of Q4FY25, which is their second-highest holding amongst the defence sector stocks. However, they cut down their holding marginally by 0.07% points during Q4FY25.
A strong revenue growth can be one of the reasons for DIIs holding this stock so closely. In the December quarter, the sales grew by 38.65% YoY compared to 14.86% YoY growth recorded during the September quarter.
Profits increased by 53% YoY during the Q3FY25, which might be another reason for the consistent interest of the DIIs in this company. During the last five years, the Compound Annual Growth Rate (CAGR) was 23.9%.
Furthermore, the 3-year Return on Equity (ROE) stood at 26.5%, which might also have caught the domestic institutions’ eyes.
Other factors that might have worked for the firm include its debt-free nature and healthy dividend payout of 39.1%.
BEL has a Price Earnings (PE) Ratio of 53.8 while that of the industry is 80.9, making the stock cheaper than its peers. However, the stock is trading at a premium compared to its 10-year median PE, which is at 24.2.
The top three DIIS holding stocks in BEL include –
- CPSE Exchange Traded Scheme (CPSE ETF) holds 3.38% stakes
- Kotak Flexicap Fund holds 2.51% stakes
- Life Insurance Corporation of India holds 1.89 % stakes.
#3 BEML Limited (BEML)
BEML is into manufacturing vehicles for the defence sector, and a wide variety of heavy earthmoving equipment and coaches for the construction and railways sectors, respectively. Domestic institutions and mutual funds held 18.69% stake in this firm, with an increase in holding by 0.59% points at the end of Q4FY25.
One of the reasons for DIIs perhaps buying and holding this stock, even when, during Q3FY25, both revenue and profits dropped year-on-year, is that the stock is trading cheaper than its peers. The price earnings ratio of the company is at 61.7 when the industry median PE is at 86.5. However, the 10-year average PE is 50.1, which makes the stock a bit expensive compared to its own 10-year median.
Furthermore, the company delivered a 35.8% CAGR over the past five years and maintains a healthy dividend payout ratio of 21.3%. Another reason could be the debt-free nature of the company.
Another interesting factor that might have caught the attention of the DIIs is the increase in Return on Equity (ROE) of the company. While the 10-year ROE stands at 6%, the 1-year ROE is 11%.
The top two DIIs having stakes in BEML Ltd. are –
- HDFC Small Cap Fund holds 7.51% stakes in Q4FY25, up from 6.15% in Q3FY25
- Kotak Mahindra Trustee Co. Ltd. A/C Kotak BSE PSU holds 4.76% Stake
Wrapping up
As the defence sector draws all the interest amidst the recent geopolitical developments, these stocks seem like favorites of the DIIs in the past few quarters. Now, given the recent developments, it will be interesting to see how they tweak their investments, whether DIIs hold on to these stocks, increase their stake or they will reshuffle. Only time will tell.
Disclaimer
We have relied on data from www.Screener.in throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.
The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.
Maumita Mitra is a seasoned writer specializing in demystifying the world of investment for a broad audience. She has a keen eye for detail and a knack for explaining complex financial concepts in the simplest manner possible.
Disclosure: The writer and his dependents do not hold the stocks discussed in this article.
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