From ₹4 to ₹170: This defence stock jumped over 4100% in 5 years!

Avantel, a telecom product manufacturing company, has witnessed a sustained spike in its shares over an extended period, resulting in substantial returns for investors. After a prolonged period of stagnation, the stock gained momentum in March 2023 and has since maintained a steady upward trajectory.

During this period, its share price has surged from ₹26 apiece to the current market price of ₹170, marking a significant gain of 554%. Notably, the stock closed positively in 13 out of the past 16 months, with June 2023 recording the highest monthly gain of 50%.

In the current month, the stock reached a new record high of ₹194 per share, nearing the ₹200 mark. It has already risen by 40% in June, driven by investor optimism bolstered by the company's steady stream of order wins.

The recent surge in the stock has propelled it to achieve a remarkable gain of 1800% over the past three years and an astounding 4150% over the past five years, rising from ₹4.

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Avantel specialises in designing, developing, and maintaining wireless and satellite communication products, defence electronics, radar systems, and network management software applications primarily for the aerospace and defence sectors.

Since the early 2000s, the company has strategically repositioned itself to focus on providing system-based solutions across four key verticals: satellite communications, HF communications, electronic warfare, and radar systems.

Increased capex for defence

The government's Atmanirbhar Bharat initiative has placed a significant emphasis on India's defence sector, aiming to promote indigenous production and reduce dependence on imports. As part of this initiative, the government is focusing on the defence industry as a critical area to achieve self-reliance.

Several policy initiatives have been introduced under the 'Make in India' program, along with reforms to encourage the indigenous design, development, and manufacture of defence equipment. These efforts benefit companies like Avantel.

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The government has also increased the budget for the defence sector for 2024–25 to ₹621,540.85 crore, constituting 13.04% of the total Union Budget. This allocation represents a 4.71% increase from the 2023–24 budget estimates of ₹593,537.64 crore.

The MoD notes that the interim budget for FY2024–25 continues the upward trend in capital outlay allocations aimed at addressing critical capability gaps through the modernisation of the Armed Forces.

Over the past decade, the modernisation budget and capital outlay on defence services have grown consistently. For BE 2024–25, ₹141,160.9 crore has been allocated under the modernisation heads, marking a 5.52 percent increase over the BE 2023–24 allocation of ₹133,871.26 crore.

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Well positioned

The company is well positioned in the strategic electronics segment, particularly with its indigenous offerings in satellite communications (satcom), high-frequency (HF) systems, and various types of software-defined radios.

The privatisation of the space domain has opened new avenues, and the company is poised to capitalise on these significant business opportunities. It is actively planning to enter additional segments of space technology to provide unique, customised solutions to the Indian defence sector, the company said in its FY24 annual report.

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The company plans to introduce several new products, including SCA-compliant HF Software Defined Radios and MSS Xponders for fishermen, expanding its current product lines.

It is also establishing a facility in E City, Shamshabad, Hyderabad, with a built-up space of about 70,000 square feet on approximately 4 acres of land. This facility, scheduled to be operational by October 2024, will feature state-of-the-art facilities and infrastructure for space technologies, according to the company’s FY24 annual report.

In line with its diversification plans, the company has embarked on new initiatives and submitted proposals to IN-SPACe, ISRO, and the Government of India for the establishment of a Ground Station as a Service (GSAAS) facility and SATCOM as a service through a dedicated satellite.

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Additionally, the company is setting up a state-of-the-art R&D and production center on about 2 acres of land, with a built-up space of approximately 30,000 square feet. This center is expected to become operational by Q3 FY2024–25, further enhancing its capabilities in the strategic electronics segment.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.