Discover 2 Lesser-Known Smallcap Stocks Championing the Indian Armed Forces

In recent years, India’s “Make in India” initiative has significantly boosted several sectors, especially defense. Notably, this has benefitted companies like Dixon, Amber, and EPack Durables. The biggest winner? Defense stocks.

Recently, the Cabinet Committee on Security approved India’s largest domestic ammunition contract, worth over Rs 100 billion. This deal will provide rockets for the Army over the next decade. Private firms like Economic Explosives Ltd and Munitions India Ltd will utilize technology developed by the Defence Research and Development Organisation (DRDO) for this mission.

The contract focuses on the Pinaka rocket system, which can fire multiple rockets quickly. Several listed companies stand to gain from this push for local production, including Solar Industries, Premier Explosives, and Bharat Electronics Ltd. Solar Industries expects 20% of its revenue this year to come from defense, while they expressed optimism about the Pinaka order in a recent earnings call.

Bharat Electronics plays an indirect role, contributing subsystems for communication interfaces. However, I want to highlight two smaller companies in this space: Goodluck India and Nibe Ltd.

Goodluck India, led by a first-generation tech entrepreneur and founded by IIT alumni, is primarily focused on the steel industry. They produce cold-rolled sheets, precision forgings, and metal solutions for sectors like auto and aerospace. Recently, the company upgraded its facilities to significantly boost its forging capacity, enabling a shift toward high-margin, value-added products, including defense applications. They’ve secured contracts with major players like HAL, DRDO, and ISRO and even contribute to projects like BRAHMOS missiles and Pinaka rockets. Currently, defense sales account for just 2% of their revenue, but this is set to change with the upcoming opening of a new facility, poised to serve the aerospace and defense sectors, projected to add Rs 3-3.5 billion to revenues.

Nibe Ltd is also making waves, producing components for both the electric vehicle (EV) and defense sectors, particularly for the Pinaka system. They recently struck a manufacturing deal with Munitions India Ltd for ammunition exports. Their financials look solid, though their PE ratio is high at 60 times. Despite this, their sharp earnings growth keeps the PEG ratio below 1, indicating potential future value.

Both Goodluck India and Nibe Ltd are exciting prospects to consider as India aims for self-sufficiency in defense. According to a report by the Indian Ministry of Defence, the defense sector is estimated to reach a market size of $130 billion by 2025. As the country invests in local production, these small-cap companies could play a vital role.

For those looking to keep tabs on the defense market, these companies are worth watching as India progresses towards greater autonomy in defense manufacturing.

Check out this related article: India Boosts Air Defense: $7.4 Billion Rafale Jet Deal Amid Escalating Tensions with Pakistan