Defence Sector

Product Import – Embargo List

Aug 2020

Aug 10, 2020

Import embargo on 101 Defence items; Big push to
“Atmanirbhar Bharat” initiative

The Ministry of Defence (MoD) announced an import embargo list of 101 defence items to be progressively
implemented between 2020 and 2024 to boost indigenisation of defence production providing a big push to

MOMENTUM PICK
“Atmanirbhar Bharat” and “Make in India” Initiatives. This was one of the major steps proposed in Draft
Defence production and Export Promotion policy (DPEPP) 2020. The decision offers a great opportunity to
the Indian defence industry to manufacture the items in the negative list by using their own design and
development capabilities or adopting technologies designed & developed by DRDO to meet the
requirements of armed forces in coming years.

Key Highlights:

 The list of 101 embargoed items comprises not just simple parts but also some high technology weapon

ICICI Securities – Retail Equity Research

systems like artillery guns, assault rifles, corvettes, sonar systems, transport aircrafts, light combat
helicopters (LCHs), radars and many other items to fulfil the needs of our Defence Services

 Almost 260 schemes of such items were contracted by the Tri-Services at a cost of ~| 3.5 lakh crore
between April 2015 and August 2020

 With the latest embargo on import of 101 items, it is estimated that contracts worth almost | 4.0 lakh
crore will be placed upon the domestic industry within the next five to seven years. Of these, items
worth almost | 1.3 lakh crore each are anticipated for the Army and the Air Force while items worth
almost | 1.4 lakh crore are anticipated by the Navy over the same period
Key Highlights (Continued…):

MOMENTUM PICK
 The 101 embargo list creating opportunity worth ~| 4.0 lakh crore for the domestic industry over five to
seven years includes key prominent items/ products/ platforms like 1) wheeled armored fighting vehicles
(AFVs) with indicative import embargo date of December 2021, of which the Army is expected to
contract almost 200 AFVs worth ~| 5,000 crore, 2) Similarly, the Navy is likely to place demands for
submarines with indicative import embargo date of December 2021, of which it expects to contract
about six submarines worth ~| 42,000 crore, 3) For the Air Force, it is decided to enlist the light combat
aircraft LCA MK 1A with an indicative embargo date of December 2020. Of these, 123 are anticipated at
an approximate cost of over ~| 85,000 crore

ICICI Securities – Retail Equity Research

Outlook:

MOMENTUM PICK
The embargo list is in line to reduce needs for imports and push 'Make in India' and ‘Atmanirbhar Bharat’
initiative through design and development or adopting technologies designed and developed by DRDO. It
focuses on support to MSMEs, R&D, export promotion, ease of doing business etc. The estimated embargo
list to enable estimated | 4.0 lakh crore worth of contracts would be placed to the domestic industry over
the next five to seven years. This comes to average contract of | 57000 crore to | 80,000 crore per annum.
This would provide significant thrust to defence manufacturing companies in scaling up their production
capabilities in long term. In our coverage universe, companies like L&T, Bharat Electronics (BEL) and Cochin
Shipyard (CSL) with strong indigenous capabilities in products like artillery systems, missile sub-systems,
aerospace, radars, electronic warfare systems, shipbuilding, etc, are likely to benefit from the move in the

ICICI Securities – Retail Equity Research

long run. Companies like Bharat Dynamics (BDL), Hindustan Aeronautics (HAL), BEML, Mahindra Defence
Systems (MDSL), Tata Advance Systems (TASL) to benefit across their varied product portfolio. However,
bulk of future contracts are between LCA MK1A and submarines (~| 1.27 lakh crore). Excluding these
contracts, average contracts comes down to | 39000 to | 54000 crore per year. Though the embargo list is
sentimentally positive, the execution on ground in terms of rapid indigenisation, pick-up in ordering, which
usually takes bit longer and get delays, allocation of funds to defence capital expenditure and working
capital management would be key monitorables to achieve the desired results.
101 Defence embargo import list and beneficiary companies…..

In d icativ e y e ar o f Be n e ficiar y co m p an ie s w ith lo cal

Nam e o f p latfo r m /w e ap o n /s y s te m /e q u ip m e n t
Im p o r t e m b ar g o p r o d u ct m fg . C ap ab ilitie s
2020

MOMENTUM PICK
1. 120mm Fin S ta bilis e d A rmour Pie rc ing Dis c a rding S a bot (FS A PDS ) Ma rk II A mmunition De c -20 L &T
2. Tra c ke d S e lf Prope lle d (S P) G un (155mm x 52 C a l)
3. 7.62x 51 S nipe r R if le
4. Tow e d A rtille ry G un (155mm x 52 C a l)
5. Tra c ke d S e lf Prope lle d (S P) G un (155mm x 52 C a l)
6. Fie ld A rtille ry Tra c tor (FA T) 6X 6 f or Me dium G uns
1. S hort R a nge S urf a c e to A ir Mis s ile s (L a nd v a ria nt) De c -20 Bha ra t Dy na mic L td (BDL ), L &T, BEL
2. S hipborne C ruis e Mis s ile s
3. Multi Ba rre l R oc ke t L a unc he r (MBR L ) (Pina ka V a ria nt)
4. Mis s ile De s troy e rs
1. S imula tors Pre s e nting S ma rt R a nge s A nd Multi-Func tion Ta rge ts De c -20 Bha ra t Ele c tronic s L td (BEL ), L &T, HA L
2. Ba tta lion S upport We a pons S imula tors
3. C onta ine r-ba s e d S imula tors f or L iv e Fire Tra ining
4. Ta ilor-ma de S imula tors f or C ounte r Ins urge nc y (C I)/C ounte r Te rroris m (C T) ba s e d Tra ining
5. Forc e -on-f orc e L iv e Ta c tic a l S imula tors / Inf a ntry We a pon

ICICI Securities – Retail Equity Research

6. Ta nk S imula tors (driv ing, a s w e ll a s , c re w gunne ry )
7. S imula tors f or A V e hic le s / B V e hic le s
8. S of tw a re De f ine d R a dio (TA C ) f or IN
8. S imula tors f or Tow e d a nd S e lf Prope lle d G uns of A ir De f e nc e
9. S imula tors f or C orre c tion of Fire by O bs e rv e rs
10. Ne x t G e ne ra tion Ma ritime Mobile C oa s ta l Ba tte ry (L ong R a nge )
11.A dv a nc e L a nding G round C ommunic a tion Te rmina ls (A L G C Ts )f or A G L s

1. 155mm/39 C a l Ultra -L ight How itz e r De c -20 Ma hindra De f e nc e S y s te ms L td (MDS L )

1. S uc c e s s or of Fly c a tc he r & Upgra de d S upe r Fle de rma us (US FM) / A ir De f e nc e Fire C ontrol R a da r (A DFC R ) De c -20 Bha ra t Ele c tronic s L td (BEL ), L &T, Ta ta
2. R a da r Wa rning R e c e iv e r (R WR ) f or Tra ns port A irc ra f t A dv a nc e S y s te ms L td (TA S L )
3. G round Ba s e d Mobile EL INT S y s te m
4. Digita l Tropo S c a tte r/L O S C ommunic a tion S y s te m
5. L ow L e v e l Tra ns porta ble R a da r
6. High Pow e r R a da r (HPR )
7. C BR N De te c tion & Monitoring S y s te m
8. C BR N De c onta mina tion & Prote c tion S y s te m
9. S hipborne S ona r S y s te m f or L a rge S hips
10. Hull Mounte d S ubma rine S ona r

Source: Ministry of Defence (MoD), ICICI Direct Research

August 10, 2020 ICICI Securities Ltd. | Retail Equity Research 5
101 Defence embargo import list and beneficiary companies…..

In d icative ye ar o f Be n e ficiar y co m p an ie s w ith lo cal

Nam e o f p latfo r m /w e ap o n /s ys te m /e q u ip m e n t
Im p o r t e m b ar g o p r o d u ct m fg . C ap ab ilitie s

MOMENTUM PICK
2020
1. S hipborne C los e in Wea pon S ys tem Dec-20 BDL

1. Bullet Proof Ja ckets Dec-20 S ma ller PS U a nd Priv a te Pla yers

2. Ba llis tic Helmets
1. Multi-Purpos e V es s el Dec-20 C ochin S hipya rd L td (C S L ), G a rden Rea ch
2. O f f s hore Pa trol V es s el S hipbuilders & Engineers (G RS E), L a rs en &
3. Nex t G enera tion Mis s ile V es s els Toubro (L &T)
4. A nti-S ubma rine Wa rf a re S ha llow Wa ter C ra f ts
5. Wa ter Jet Fa s t A tta ck C ra f t
6. A mmunition Ba rges
7. 50ton Bolla rd - Pull Tugs
8. S urv ey V es s els
9. Floa ting Dock

ICICI Securities – Retail Equity Research

10. Div ing S upport V es s els
11. Pollution C ontrol V es s els
12. 500 Ton S elf Propelled Wa ter Ba rges

1. S hipborne Medium Ra nge G un Dec-20 BDL , L &T

2. Torpedo Tube L a uncher f or L ight Weight Torpedoes
3. A ll v a ria nts of Depth C ha rges
1. S hort Ra nge Ma ritime Reconna is s a nce A ircra f t Dec-20 L &T
2. A nti-S ubma rine Rocket
3. C ha f f Rockets
4. C ha f f Rocket L a uncher
5. Integra ted S hip’s Bridge S ys tem

1. L ight C omba t A ircra f t (L C A ) MK I A - Enha nced Indigenis ed C ontent Dec-20 Hindus ta n A erona utics L td (HA L )
2. L ight C omba t Helicopters
3. Tra ns port A ircra f t (L ight)
4. A eria l Deliv ery S ys tems f or Tra ns port A ircra f t

Source: MoD, ICICI Direct Research

August 10, 2020 ICICI Securities Ltd. | Retail Equity Research 6

101 Defence embargo import list and beneficiary companies…..

In d icative ye ar o f Be n e ficiar y co m p an ie s w ith lo cal

Nam e o f p latfo r m /w e ap o n /s ys te m /e q u ip m e n t

MOMENTUM PICK
Im p o r t e m b ar g o p r o d u ct m fg . C ap ab ilitie s

2020
1. G S A T-6 S atellite Terminals Dec-20 HA L , L &T

1. Parachute Tactical A s s ault (PTA )- G 2 Dec-20 L &T

2. Dragunov Upgrade S ys tem
3. PK MG Upgrade S ys tem

1. Military trucks of 4x4 and abov e v ariants : 12x12, 10x10, 8x8, 6x6 Dec-20 BEML

1. Fixed Wing Mini UA V s Dec-20 L &T, TA S L , HA L

In d icative ye ar o f Be n e ficiar y co m p an ie s w ith lo cal

ICICI Securities – Retail Equity Research

Nam e o f p latfo r m /w e ap o n /s ys te m /e q u ip m e n t
Im p o r t e m b ar g o p r o d u ct m fg . C ap ab ilitie s
2021
1. Wheeled A rmored Fighting V ehicle (A FV ) Dec-21 MDS L , BEML

1. L ight Machine G un Dec-21 L &T

2. 125 mm Fin S tabilis ed A rmour Piercing Dis carding S abot (FS A PDS ) New G eneration A mmunition
3. A s s ault Rif le 7.62 x 39mm
4. 30 mm A mmunition f or Inf antry Fighting S ys tems

1. Mine Fragmentation Dec-21

2. Mine A nti-tank
3. Mine A nti-Pers onnel Blas t
4. Multipurpos e G renade
1. Conv entional S ubmarines Dec-21 G RS E, CS L
1. Inertial Nav igation S ys tem f or S hip A pplication Dec-21 BEL

Source: MoD, ICICI Direct Research

August 10, 2020 ICICI Securities Ltd. | Retail Equity Research 7

101 Defence embargo import list and beneficiary companies…..

In d icative ye ar o f Be n e ficiar y co m p an ie s w ith lo cal

Nam e o f p latfo r m /w e ap o n /s ys te m /e q u ip m e n t
Im p o r t e m b ar g o p r o d u ct m fg . C ap ab ilitie s

MOMENTUM PICK
2022
1. 40mm UBG L (Under Barrel G renade L auncher) Dec-22 L &T
2. L ightw eight Rocket L auncher
1. 155 mm A rtillery A mmunition Dec-22 & Dec-24 L &T
2. 30MM HEI/HET
3. G RA D BM Rocket
4. Clos e in Weapon Sys tem (L and bas ed)
5.23 mm Z U A mmunitions
6. 30mm V O G 17
1. EW Sys tems Dec-23 & Dec-24 BEL , L &T
2. EW Suit for MI-17 V 5

ICICI Securities – Retail Equity Research

3. L ight L ow L evel Terrain Radar (L L L WR)
4. Electronic Fus es for A rtillery A mmunitions
5. Bi- Modular Charge Sys tem (BMCS )

1. Material Handling Crane 2.5 to 7.5 Tons (V ehicle Mounted) Dec-23

1. A STRA -MK I Beyond V is ual Range A ir to A ir Mis s ile (BV R A A M) Dec-23 & Dec-25 BDL
2. L ong Range – L and A ttack Cruis e Mis s ile
1. Communication Satellite G SA T-7C Dec-23 HA L , L &T
2. Satellite G SA T 7R
1. Bas ic Trainer A ircraft (BTA ) Dec-23 & Dec-24 HA L
2. Expendable A erial Targets
3. Small Jet Engines w ith 120kgf thrus t

Source: MoD, ICICI Direct Research

August 10, 2020 ICICI Securities Ltd. | Retail Equity Research 8

 MOMENTUM PICK
ICICI Securities – Retail Equity Research
Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com

ICICI Direct Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC
Andheri (East)
Mumbai – 400 093
research@icicidirect.com

7
Disclaimer

ANALYST CERTIFICATION

MOMENTUM PICK
I/We, Pankaj Pandey Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately
reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific
recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies
mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.

A. Disclaimer in retail research report

ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of
financial products. ICICI Securities Limited is a SEBI registered Research Analyst with SEBI Registration Number – INH000000990. ICICI Securities Limited SEBI Registration
is INZ000183631 for stock broker. ICICI Securities is a subsidiary of ICICI Bank which is India’s largest private sector bank and has its various subsidiaries engaged in
businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which
are available on www.icicibank.com

ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates
might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI
Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any
companies that the analysts cover.

Recommendation in reports based on technical and derivative analysis centre on studying charts of a stock's price movement, outstanding positions, trading volume etc as
opposed to focusing on a company's fundamentals and, as such, may not match with the recommendation in fundamental reports. Investors may visit ICICI Direct.com to

ICICI Securities – Retail Equity Research

view the Fundamental and Technical Research Reports.

Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein.

ICICI Securities Limited has two independent equity research groups: Institutional Research and Retail Research. This report has been prepared by the Retail Research. The
views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, target price of the Institutional Research.

The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained
herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any
other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a
reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may
prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in
compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or
in certain other circumstances.

This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or
completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of
offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this
report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal,
accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances.

10
Disclaimer

The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own
investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient.

MOMENTUM PICK
The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates
or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not
necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities
markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without
notice.
ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject
company for any other assignment in the past twelve months.
ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the
date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or
other advisory service in a merger or specific transaction.
ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates
or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research
report. Accordingly, neither ICICI Securities nor Research Analysts and their relatives have any material conflict of interest at the time of publication of this report.
Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.
ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the Company mentioned in the report
as of the last day of the month preceding the publication of the research report.

ICICI Securities – Retail Equity Research

Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies
including the subject company/companies mentioned in this report.
ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.
Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report.
We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities.
This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other
jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any
registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of
investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.

11