The defence industry in India is entering a phase where the biggest opportunity may not lie in selling a new fighter, helicopter or engine, but in what comes after delivery.

For Hindustan Aeronautics Limited (HAL), maintenance, repair and overhaul (MRO), spares, upgrades, engine work and life-extension programmes are creating a recurring revenue stream as India’s military fleet expands and ageing platforms need increasingly sophisticated support.

According to Kotak Institutional Equities, HAL’s Repair, Overhaul & Spares (ROH) business made up around 62% of company revenue in FY26, up from about 49% in FY19. Kotak calls it an “annuity-like” stream, since demand tracks the installed base of aircraft and helicopters rather than new orders alone – significant as India simultaneously ramps up indigenous production.

A lifecycle business

For a defence manufacturer, delivery doesn’t end the commercial relationship. Military aircraft can stay in service for decades, requiring routine maintenance, replacement parts, periodic overhauls, avionics and engine upgrades, and eventual mid-life modernisation.

HAL’s ROH arm covers this full lifecycle – fleet support across aircraft, helicopters, engines, avionics and accessories, from routine maintenance to major overhauls and capability upgrades, plus supply of critical spares like line-replaceable units and components. Demand scales with fleet size and utilisation: the more aircraft India operates, the greater the long-term maintenance and spares requirement.

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Rs 24,000 crore order book

Kotak estimates HAL’s ROH, spares and upgrade contracts carried an order book of around Rs 24,000 crore in FY26. These contracts typically execute in one to 1.5 years – a steadier revenue stream than large manufacturing programmes, which take much longer.

Kotak also views ROH as higher-margin, protected by high entry barriers: servicing military aircraft demands specialised infrastructure, technical expertise and platform-specific knowledge, favouring established players like HAL.

Growth outlook: Rs 29,000 crore by FY31

Kotak projects ROH and spares revenue rising from Rs 20,500 crore in FY26 to Rs 22,200 crore (FY28E), Rs 23,900 crore (FY29E), Rs 26,300 crore (FY30E) and Rs 29,000 crore (FY31E) – a roughly 9% CAGR through FY35, slower than the ~14% CAGR clocked between FY16 and FY26, but still a meaningful recurring-revenue source.

Ageing fleets, fresh opportunity

As aircraft age, militaries often upgrade rather than replace them. HAL undertakes avionics, engine and system upgrades alongside mid-life modernisation and life-extension work – meaning a single aircraft can generate revenue across several distinct phases: manufacture, entry into service (spares and maintenance), major overhaul, and eventually upgrades and life extension.

Su-30MKI: the scale of the opportunity

The IAF has received 272 Su-30MKI aircraft over roughly 25 years – 50 imported from Russia and 222 built by HAL. HAL won a Rs 13,500 crore order in FY25 for 12 replacement jets, but the bigger prize may be the fleet upgrade: Kotak expects HAL to secure the Super Sukhoi programme, covering 80+ aircraft in its first phase and potentially worth over Rs 50,000 crore, though mass production likely won’t begin until FY33-34.

Indigenous platforms building the next pool

HAL’s aftermarket pipeline isn’t limited to legacy Russian platforms. Kotak expects the Tejas Mk1A, LCH and LUH to expand future ROH revenue as more indigenous aircraft enter service, letting HAL participate across their entire lifecycle – reinforcing India’s push to cut reliance on foreign suppliers.

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But manufacturing is growing faster

Despite ROH’s strength, Kotak doesn’t expect it to stay dominant in the revenue mix. Manufacturing, at ~28% of FY26 revenue, is projected to grow at a 32% CAGR and reach ~42% by FY31 – pushing ROH’s share down from 62% to 42% over the same period. This reflects manufacturing’s faster expansion, not a shrinking aftermarket business.

A margin trade-off

The shift could pressure profitability, since manufacturing is more material-intensive and often fixed-price, while ROH carries higher margins. Kotak expects HAL’s EBITDA margin to ease from 29.5% in FY26 to 27.9% in FY30 – still above its 10-year average of 24.4%. In effect, HAL’s manufacturing boom could dilute the contribution of its higher-margin aftermarket business.

A Rs 4.6 lakh crore pipeline – and exports

Kotak estimates HAL could potentially be awarded projects worth around Rs 4.6 lakh crore beyond its recurring ROH business – a pipeline, not confirmed orders. If a meaningful share materialises, it would expand the installed base requiring lifecycle support.

The opportunity extends overseas too. Exports have historically made up just 1-3% of HAL’s topline, but the company is pushing platforms like Tejas Mk1A, ALH, LUH and LCH abroad. Since opening a regional office in Malaysia in 2023 – despite missing out on Malaysia’s 18-fighter tender – HAL sees ROH opportunities on Su-30MKM and Hawk fleets, plus prospects around HTT-40, Dornier 228, ALH and LCH.