India’s defence sector is entering a period of sustained growth, supported by strong order books, rising domestic manufacturing, government policy support and a visible capital-expenditure pipeline.
According to a Jefferies report, companies including Hindustan Aeronautics Ltd. (HAL), Bharat Electronics Ltd. (BEL), Larsen & Toubro (L&T) and Data Patterns are well positioned to benefit from the sector’s long-term expansion.
The brokerage’s assessment is based on order flows, company financials, management commentary and sector trends. Defence and power equipment remain among the segments with the clearest capex visibility, even as order inflows for some companies may appear uneven because of high bases in previous years.
HAL and BEL have significant order books compared with their current revenue. HAL’s order book is equivalent to 7.7 times its 2026 revenue, while BEL’s order book stands at 2.6 times 2026 revenue.
This provides both companies with strong medium-term revenue visibility. However, the timing of order execution will remain important. Defence contracts are generally spread over several years, and the pace at which companies deliver equipment will determine when their order books translate into revenue and earnings.
“Robust order-book visibility remains one of the key strengths of the Indian defence sector,” Jefferies said in its assessment of the companies. The brokerage added that order flows could remain lumpy, but the medium-term outlook remains positive.
The report also noted that some companies have experienced slower or declining order flows because of high comparisons from previous years. This does not necessarily indicate a deterioration in the sector, as existing backlogs continue to support future performance.
‘Make in India’ drives demand
The government’s Make in India programme is accelerating the indigenisation of defence production. Policy support is encouraging Indian companies to design, manufacture and supply a larger share of the equipment required by the armed forces.
The shift towards domestic production is creating opportunities for established defence manufacturers as well as private-sector engineering and electronics companies. HAL and BEL are expected to benefit from their existing capabilities and relationships with the Indian defence establishment.
The policy focus is also expanding the role of private companies in defence manufacturing. This could benefit L&T and Data Patterns, particularly in areas such as advanced electronics, systems integration, aerospace components and other specialised defence technologies.
According to Jefferies, “increased indigenisation and government support are important structural drivers for the sector.” The brokerage expects higher domestic content to improve the long-term opportunity for Indian manufacturers.
Capex visibility remains strong
Defence equipment is among the sectors with strong capital-expenditure visibility. The government’s focus on military modernisation is supporting investment in aircraft, helicopters, radars, electronic systems, missiles, communications equipment and other platforms.
The report also identified power equipment and transmission and distribution equipment as segments with strong capex pipelines. This is important for L&T, which has exposure to defence as well as infrastructure, engineering, power and international markets.
Capital expenditure will be required not only for new equipment but also for production facilities, research and development, testing infrastructure and supply-chain expansion. Companies that can expand capacity while maintaining quality and delivery schedules are likely to be better positioned to capture the opportunity.
HAL: Earnings growth led by execution
HAL is expected to deliver strong earnings growth as it executes its large order book. Jefferies projects a 16% compound annual growth rate in earnings per share between 2026 and 2030.
The brokerage expects HAL’s revenue to increase from Rs 3,30,888 million in 2026 to Rs 5,70,336 million in 2030. This would represent significant growth over the forecast period.
HAL’s EBITDA margin is expected to improve from 27% in 2023 to more than 32% by 2030. The improvement would indicate stronger operating efficiency and better absorption of fixed costs as production volumes increase.
“HAL’s earnings outlook is supported by the execution of a robust order book,” Jefferies said. The company’s performance will depend on the timely delivery of aircraft, helicopters, upgrades and other aerospace and defence programmes.
HAL’s potential growth is also linked to the government’s efforts to increase domestic content in defence equipment. Faster indigenisation could improve the company’s strategic importance and create additional opportunities in the aerospace and defence supply chain.
HAL valuation offers upside
Jefferies assigned HAL a base-case target price of Rs 6,800, representing an estimated upside of 36%. In an upside scenario, the target price could reach Rs 8,000, implying potential upside of approximately 60%.
The higher target would depend on faster defence-order acceleration and a greater increase in domestic content. These projections are sensitive to the pace of order awards, production execution and the valuation multiple applied by the brokerage.
The report’s positive view on HAL is therefore based not only on current earnings but also on the company’s long-term role in India’s aerospace indigenisation programme.
BEL: Strong margins and capital returns
BEL has seen a short-term slowdown in new orders—mainly because last year’s numbers were unusually high—the company’s financial outlook remains very strong. Analysts expect BEL to keep its profit margins at 27% or more in 2027, and its return on capital employed (a measure of how efficiently it uses money to generate profits) is likely to stay above 30% right through 2030. This shows that BEL is not just profitable, but also highly efficient in turning its investments into earnings.
Looking ahead, BEL’s earnings per share—the portion of profit allocated to each outstanding share—is expected to grow from Rs 8.3 in 2026 to Rs 14.4 by 2030. This growth will be driven by the steady execution of its large existing order book, ongoing demand for advanced defence electronics like radars and communication systems, and the company’s ability to maintain healthy operating margins. In short, despite a temporary dip in fresh orders, BEL’s strong fundamentals and strategic role in India’s defence sector position it well for sustained profitability.
“BEL retains strong profitability and order-book support despite a temporary decline in order flow,” the report said. The brokerage’s assessment indicates that a high base in the previous year should not be viewed in isolation from the company’s longer-term earnings potential.
BEL’s high ROCE also reflects the company’s efficient use of capital. Its position in radars, communications, electronic warfare, missile systems and other defence electronics provides exposure to the increasing technology content of modern military platforms.
L&T: Diversified growth platform
L&T’s diversified business model provides exposure to both defence and broader infrastructure and industrial spending. Jefferies noted that L&T’s international order growth was 25% year on year, while conservative management guidance supports a positive outlook.
The company’s revenue is expected to rise from Rs 2,858,744 million in 2026 to Rs 4,298,278 million in 2029. Its return on equity is projected to remain stable at 17% to 18%.
L&T’s defence operations benefit from its engineering capabilities, systems-integration expertise and exposure to complex projects. Its wider businesses in infrastructure, power equipment and transmission and distribution also provide additional growth avenues.
The company’s scale and diversified order book may reduce dependence on any single defence programme. However, execution, working capital and project costs will continue to influence its financial performance.
Data Patterns benefits from electronics demand
Data Patterns is among the companies that Jefferies believes are well positioned to benefit from India’s defence-indigenisation drive. Its focus on defence and aerospace electronics gives it exposure to the growing demand for domestically designed and manufactured systems.
The increasing use of radar, surveillance, communications, avionics, electronic warfare and other high-technology systems is expanding the addressable market for specialised electronics companies.
Data Patterns could also benefit from export opportunities as Indian defence platforms and subsystems gain wider acceptance in international markets. However, its smaller scale compared with HAL, BEL and L&T means that order timing and customer concentration may result in greater financial volatility.
Opportunities for the sector
Jefferies identified several factors that could accelerate growth in India’s defence industry:
- Faster placement and execution of defence orders.
- Higher domestic content in military equipment.
- Continued government support for indigenisation.
- Expansion of defence exports.
- Increased private-sector participation.
- Greater capital expenditure on manufacturing facilities and technology.
- Rising demand for defence electronics and advanced systems.
- Execution of large defence, power and transmission projects.
The brokerage’s view is that the sector’s growth opportunity extends beyond government spending. It includes the development of a broader domestic industrial base, greater private-sector participation and the potential creation of globally competitive Indian defence companies.
Key risks
The sector’s positive outlook is subject to several risks.
- Regulatory delays: Delays in approvals, procurement procedures, testing or contract awards could slow revenue growth.
- Uneven order flows: Defence orders are often lumpy. A weak order-flow period may reflect a high comparison base rather than a permanent decline in demand, but it can still affect near-term investor sentiment.
- Execution challenges: Companies must deliver large and technically complex projects on time. Delays can affect revenue recognition, cash flows and customer relationships.
- Margin pressure: Higher indigenous content may initially increase production costs as companies develop new suppliers and manufacturing capabilities. Commodity-cost inflation could add to the pressure.
- Currency depreciation: A weaker rupee could increase the cost of imported components, equipment and technology for companies with exposure to overseas suppliers.
- Slower defence spending: Any slowdown in government procurement or a change in spending priorities could affect new orders and future growth estimates.
Sustainability and ESG
HAL is pursuing initiatives related to sustainable sourcing, energy management and employee health and safety. These measures are becoming increasingly important for long-term competitiveness, regulatory compliance and institutional-investor expectations.
Although ESG initiatives are not the main driver of near-term defence earnings, better energy management and responsible sourcing can improve operating efficiency. Stronger workplace safety and employee-health practices can also support productivity and help companies meet compliance requirements.
Long-term outlook
India’s defence sector has a positive medium- to long-term outlook, according to Jefferies. Strong order books, policy support, visible capital expenditure and greater indigenisation are expected to support revenue and earnings growth.
HAL is positioned to benefit from aerospace and aircraft-production opportunities. BEL has strong exposure to defence electronics, high margins and returns on capital. L&T offers diversified exposure across defence, infrastructure and power equipment, while Data Patterns provides a focused opportunity in specialised defence electronics.
The brokerage’s central view is that the sector’s long-term potential remains intact despite uneven order flows and execution risks. “The overall outlook remains positive, supported by order-book visibility, policy support and capex momentum,” Jefferies said.
However, investors will need to monitor order conversion, project execution, margins, regulatory timelines and the pace of new defence procurement. These factors will determine whether the sector’s strong order-book potential translates into the double-digit earnings growth projected for leading companies.