Up 275% in a year, this defence stock's growth is just getting started

This year’s profit could be the highest ever as Nibe’s order wins from the past 15 months come to fruition. (Image: Pixabay)
This year’s profit could be the highest ever as Nibe’s order wins from the past 15 months come to fruition. (Image: Pixabay)

Summary

  • Foreign investors have increased their holding in this defence stock from 1.4% to 11.4% in less than a year.

The Russia-Ukraine war exposed numerous weaknesses in the global defence sector.

For India, the most significant revelation was the lack of domestic manufacturing and the widespread reliance on international supply chains. Decades of importing defence equipment from various countries highlighted India's vulnerability.

In response to this crisis, the narrative swiftly changed.

The Narendra Modi-led government took decisive action, implementing import bans and ambitious plans to boost the domestic defence industry. Today, India's defence sector is flourishing, driven by a newfound focus on self-reliance.

India has achieved remarkable success in bolstering its domestic production of defence equipment. Government spending on defence has increased substantially, making India the third-largest spender on defence globally.

This increased spending, coupled with necessary regulatory changes and a focus on indigenous procurement, has invigorated the entire sector, benefiting companies across the defence ecosystem.

For investors, the prospect of exponential growth in the defence sector presents a significant opportunity. One company poised to capitalize on this megatrend is Nibe Ltd.

Nibe: Seizing opportunities

Incorporated in 2005, Nibe Ltd is a versatile manufacturer specializing in critical components for the defence sector, electric vehicles (EVs), and software development.

The company produces structures, sub-assemblies, and assemblies for mobile weapon launchers, including programs such as the BrahMos Missile, MRSAM, and Pinaka rocket launcher.

Additionally, Nibe manufactures structural and engineering systems for naval applications and develops sensors, wiring, control systems, and military software.

Nibe's CEO, Balakrishnan Swami, has emphasized the company's commitment to the defence sector, stating that they are pursuing every available project. With the right resources, qualified welders, and a competitive team, Nibe has secured a strong position in the industry.

Their clients include all three branches of the Indian defence forces and L&T Defence.

Beyond defence, Nibe has also ventured into the high-growth EV segment through its subsidiary, Nibe E-Motor, which deals in e-bicycles, e-rickshaws, batteries, motors, hybrid PCUs, solar induction cookers, and water treatment units.

Recent developments

In the past year, Nibe's share price has surged, tripling investors' wealth with a 275% increase. This impressive performance is largely due to multiple order wins.

Recently, Nibe signed a 10-year exclusive manufacturing agreement with Munitions India Ltd (MIL) to supply hardware for the export of ammunition, explosives, rockets, and bombs. They also secured an order from Ordefence Systems for assemblies and sub-assemblies, valued at 3.1 billion, and a purchase order from L&T for machining modular bridge structures and assemblies worth 1.3 billion.

Nibe has also been registered by Hindustan Aeronautics Ltd (HAL) for outsourcing various CNC machining tasks. Additionally, the company inaugurated a new production facility in Pune to expand its manufacturing capabilities.

In non-defence related projects, the company has signed a collaboration agreement with Hewlett Packard (HP) Enterprise India Pvt Ltd for green lag cloud services.

Nibe also has a licensing agreement with Defence Institute of Physiology & Allied Sciences (Dipas), a constituent laboratory under the Defence Research and Development Organisation (DRDO) for transfer of technology of solar heated shelters.

Financial performance

Nibe's financials have shown significant improvement due to a progressive order book.

In December 2023, the company reported sales of 627 million, up from 412 million in September 2023 and 152 million in December 2022.

Net profit soared from 7.2 million in December 2022 to 44.2 million in December 2023.

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This year’s profit could be the highest ever as Nibe’s order wins from the past 15 months come to fruition.

Looking ahead?

Nibe is currently under the radar but is ticking all the right boxes with a heavy order book providing future revenue visibility. Its long-term deal with Munitions India ensures continued progress in the defence sector, contributing to overall growth.

Despite the stock's recent rise, industry experts believe Nibe remains undervalued, not yet widely recognized as a major defence player.

The company trades at a high price-to-earnings multiple, with its price-to-book value (P/BV) at around 20x, above its median P/BV of 8x. In FY23, Nibe reported a net profit compared to a loss in FY22.

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Foreign investors have taken a keen interest, increasing their holdings from 1.4% last year to 11% at present.

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With India's ambitions to become a defence superpower, Nibe is poised to play a critical role in this journey. As the company executes its pending order book, revenues are expected to surge, presenting a significant opportunity for investors.

Nibe's share price performance

In the past five days, Nibe's share price has declined by 7%. However, in 2024 so far, the stock has delivered multibagger returns, rising by 119%.

Nibe's 52-week high is 1,770, reached on 4 March 2024, and its 52-week low is 317, touched on 20 June 2023.

Over the past year, Nibe's share price has rallied over 275%, reflecting its robust performance and promising future.

Nibe stock performance.
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Nibe stock performance.

Happy Investing!

Disclaimer:This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com

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