Defence stocks Hindustan Aeronautics Ltd (HAL), Bharat Dynamics Ltd (BDL) and Bharat Electronics Ltd (BEL) have fallen sharply in the past few months on concerns over project execution and earnings growth. Elara Securities maintained its positive stance on the sector though.
The broking firm, which visited the 15th Aero India 2025 Defence Exhibition recently noted the event hosted 900 exhibitors, including global companies, and featured the showdown between the fifth-generation fighter aircraft, the Russian Su-57 and the US F-35. The number of participants, it noted was the highest-ever, showcasing a growing focus on indigenisation and rising private sector contribution to domestic defence production.
"With higher budgetary allocation and focus on self-reliance, we remain positive on India’s defence industry in the long term," it said.
In the listed space, it prefers HAL, BEL and BDL among PSU names. It also likes Zen Technologies, Data Patterns, Azad Engineering and Astra Microwave Products. For HAL and BEL, it suggested 'Buy' with target prices of Rs 5,160 and Rs 370, respectively. The brokerage has 'Accumulate' on BDL with a target price of Rs 360.
Shares of HAL are down 31 per cent in the past six months. BDL and BEL shares are down 23 per cent and 16 per cent, respectively, during the same period.
In the case of BEL, Elara said the company has retained order inflow guidance of Rs 25,000 crore for FY25 despite YTD inflows of Rs 11,900 crore to date. BEL expects to receive large orders in the upcoming weeks, which are currently at the finalisation stage and is confident of achieving inflow guidance. Further, the company expects order momentum to continue in FY26 with the receipt of large order of quick reaction surface to air missile (QRSAM) worth Rs 25,000 crore. BEL expects margin to sustain around 24-25 per cent in the upcoming years, led by better margin orderbook.
On BDL, Elara said the defence company has a robust orderbook and strong order pipeline. The company is looking to double its production in the upcoming 3-5 years and triple its production in the next 10 years. Elara aid BDL may post a 30 per cent sales CAGR during the next 2-3 years, aided by execution of both domestic and export orders. The current capacity utilisation for BDL stands at 60 per cent.
In the case of HAL, the management expects FY26 orderbook at Rs 2.5-2.6 lakh crore, up from Rs 1.3 lakh crore as on December 2024. This would be led by two large orders for 97 LCA Tejas Mk 1A, in addition to 83 already ordered. It is also looking at 156 light combat helicopters (LCH) Prachand orders, which may together amount to Rs 1.3 lakh. These two orders are likely to materialise in the next 3-6 months.
"Additionally, orders worth INR 350bn are set to accrue for Su-30 MKI upgrade, Indian Multi-Role Helicopter (IMRH) design & development, and Repairs and Overhaul (ROH) orders, taking total expected inflows to Rs 1.7 lakh crore for FY26," it said.