Two small cap stocks riding India’s defense wave – Stock Insights News

By Suhel Khan

India has over the last decade been very clear about one thing. It isn’t the same country that is used to be a couple of decades ago. Emerging as not only a financial super power, but also a strong power to reckon with when it comes to national security. If you look at the recent budget, the government has allocated Rs 6.81 lakh crore for the defense sector, the highest ever.

Out of this, Rs 1.80 lakh crore is allocated under Capital Budget of Armed Forces with modernisation as a key focus area and Rs 1.12 lakh crore is earmarked for procurement from domestic industries. It is no doubt that the push for defense will be one of the biggest priorities for the government and thee country.

At such a time, it is very interesting to look at Defense stocks that the Warren Buffetts or super investors of India have already caught on to. These super investors, known for their knack for spotting winners early, have already placed their bets on some companies, signalling confidence in their long-term prospects considering the massive budgetary infusion. Could these small cap stocks be the next multibaggers in the making?

CASL is a vertically integrated defense electronics solutions provider catering to the indigenously developed defense products industry in India.

With a market cap of Rs 1,248 cr, CASL specializes in vertically integrated defense electronics solutions for air, sea, and land defense platforms. The company develops proprietary software-driven systems and sub-systems, leveraging AI/ML, big data analytics, IIOT, and embedded systems.

CASL raised Rs 99 cr through its IPO and was listed in November 2024.

Ace investors Ashish Kacholia and Mukul Agarwal bought a 2.59% and 1.86% stake respectively in the company post listing, as per the exchange filings made by CASL for the quarter ending 2024.

CASL’s sales have grown from Rs 1 cr in FY21 to Rs 41 cr in FY24, which is a compounded growth of about 236%.

The EBITDA grew from almost zero in FY21 to Rs 12 cr in FY24.

The net profits have also been on the upward trend. The company which recorded a loss of Rs 2.4 cr in FY21 turned in a profit of Rs 10.12 cr in FY24.

Add to the big jumps in sales and net profits the jump in EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), and it becomes quite clear what caught the attention of Kacholia and Agarwal.

Listed in November 2024 at a price of around Rs 450 and as of the closing on 7^th February 2025, C2C’s stock price was Rs 750 which is a jump pf 67% in just over two months.

The stock’s current PE is 101x while the industry average is 87x.

CASL will be using the money raised through the IPO towards the purchase of fixed assets for its existing operations (the upgradation of the existing Experience Centre and set up of Training Centre at Bengaluru) and the proposed set up of Experience Centre at Dubai. Also, for working capital requirements.

Incorporated in 2011, DCX Systems Ltd is in the business of System Integration and Cable & Wire Harnessing.

With a market cap of Rs 3,425 cr, DSL is a highly regarded Indian Offset Partner (“IOP”) for foreign original equipment manufacturers (“OEMs”), particularly in the aerospace and defence manufacturing sector. They are one of the largest Indian Offset Partner (“IOP”) for ELTA Systems Limited and Israel Aerospace Industries Limited, System Missiles and Space Division (together, the “IAI Group”), Israel, for the Indian defence market for manufacture of electronic sub-systems and cable and wire harness assemblies.

One of the Warren Buffetts of India and a widely followed super investor, Ajay Updhayay, who holds 17 stocks worth about Rs 1,080 cr, has been holding a stake in the company since a few quarters. As for the quarter ending December 2023, Upadhayay held 1.24% stake which has grown steadily to 2.86% as of the quarter ending December 2024.

The company’s sales were Rs 300 cr in FY19, which went up to Rs 1,423 cr in FY24, making it a CAGR of 37% in 5 years. And in the first 3 quarters of FY25 (April to December 2024), the company has already recorded sales of over Rs 616 cr.

EBITDA went from Rs 5 cr in FY19 to Rs 70 cr in FY24, which means it grew at a compounded annual rate of around 76%.

The net profits have also gone up from Rs 5 cr in FY19 to Rs 68 cr in FY24, which is a compounded growth of 72%. Between April to December 2024, the company recorded a net profit of Rs 27 cr.

DSL was listed in November 2022 at a price of around Rs 307. It is currently at the same level, Rs 307 as on the closing of 7^th February 2025, making it a flat growth.

The company’s share is trading at a current PE of 66x while the industry average when compared to peers is 76x. While it would be too soon to calculate the 10-year median PE for the company, the industry 10-year median is around 31x.

As per the company’s last investor presentation released in November 2024, DSL will be focusing on transfer of technology (ToT) especially from US and Israel. Also, the company aims to get ToT of products from the government identified list of indigenous products, which cannot be imported and must be manufactured in India.

Ready to Make War Profits?

It’s interesting to see how investors like Ashish Kacholia, Mukul Agarwal, and Ajay Upadhayay seem to have a real talent for spotting high potential from a mile away. They’ve clearly taken a shine to C2C Advanced Systems Ltd (CASL) and DCX Systems Ltd (DSL), and it’s easy to see why. Both companies are showing impressive growth in sales and profits, and they’re perfectly positioned to benefit from India’s push for self-reliance in defense due to the massive influx of funds. That makes them look like very attractive investments right now.

Of course, the fact that these investing heavyweights are on board is a great sign and it gives one confidence about the company’s prospects. But it’s also wise to remember that even the best sectors, like defense, can face unexpected bumps in the road. Things like changes in government policy or just the overall state of the economy can have a big impact. So, while it’s smart to pay attention to where the big players are putting their money, it’s even smarter to do your own homework.

Disclaimer:

Note: 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. 

Suhel Khan has been a passionate follower of the markets for over a decade. During this period, He was an integral part of a leading Equity Research organisation based in Mumbai as the Head of Sales & Marketing. Presently, he is spending most of his time dissecting the investments and strategies of the Super Investors of India.

Disclosure: The writer and his dependents do not hold the stocks discussed in this article. 

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