ICICI Securities choose Solar Industries, Azad Engineering and Zen Technologies as key picks after the massive increase in allocation towards aircraft engines in the budget.

What Happened: The government has allocated ₹6.22 lakh crore to the defence ministry in the Budget, an increase of 4.79% from the previous year.

For capital acquisition it has earmarked ₹1.72 lakh crore. The allocation for aircraft and aero engines in the budget increased 67% year on year to ₹40,800 crore, but for other equipment it has fallen 12.8%, the brokerage said.

Revised estimates for naval fleet remained unchanged while Defence Research & Development Organisation (DRDO) was raised slightly to ₹13,200 crore, and allocation for Air Force projects has increased four fold to ₹1,697 crore.

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The research firm said the increased thrust on nuclear power will aid component manufacturers like Azad Engineering as it is the only company to be qualified for airfoils for turbines for generating nuclear power.

The increase in basic custom duty (BCD) on ammonium nitrate from 7.5% to 10% will increase costs for Solar Industries. However, the research firm said the company can pass the costs to Coal India and other sectors through their contracts. The company’s competitiveness in exports is likely to ensure that margins won’t be affected, ICICI Securities added.

While the brokerage firm believes HAL, BEL, BDL, Astra Microwave and Solar Industries are likely to benefit, considering the order outlook from the budgetary allocation, it remained cautious on shipbuilder stocks like Mazagon Dock and Garden Reach as budgetary allocation shows these companies need to execute the current order book and doesn’t indicate new orders.

Price Action: Shares of Solar Industries were down 0.58% to ₹10,659.95, while shares of Azad Engineering climbed 1.57% to ₹1,618.20.

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