HAL to BEL: Strong defence order pipeline, but execution is the real test 

However, Anand Rathi said that “discussions are now shifting from demand visibility to execution, order conversion and valuations” after the sharp re-rating in several defence stocks.

India’s defence manufacturing enters serial production phase

One of the biggest reasons why Anand Rathi is  bullish on the sector is because they believe that India’s defence manufacturing sector is entering a key phase as several large indigenous programmes move from development and qualification towards serial production. 

Programmes including P-75(I), LCA Mk-1A and Next Generation Corvettes are progressing towards serial production.

QRSAM opportunity: A key near-term trigger

One of the biggest near-term catalysts for the sector is the Quick Reaction Surface-to-Air Missile (QRSAM) programme. BEL is the system integrator, but the opportunity is expected to benefit several listed defence companies. “Rising inter-dependency across listed companies is one of the major sectoral developments,” Anand Rathi noted.

Anand Rathi said BEL’s award, which management expects by September 2026 subject to CCS approval, could trigger the missile package for Bharat Dynamics (BDL). This, in turn, could create opportunities for Apollo Micro Systems in missile electronics and actuation, Astra Microwave in radar/RF content and BEML in support vehicles.

The Army tender is estimated at around Rs 300 billion, while Apollo estimates the BDL missile package for an initial 1,000 missiles at around Rs 110-120 billion. Astra expects another Rs 7-8 billion from the first three regiments, while BEML sees a Rs 6-7 billion opportunity in support vehicles. Apollo has indicated content of more than Rs 10 million per missile.

AMCA could create another defence ecosystem

Another major opportunity for listed defence companies is the Advanced Medium Combat Aircraft (AMCA) programme.

The prototype and development programme has three shortlisted consortiums — L&T-BEL, Tata Advanced Systems and a Bharat Forge-led consortium comprising BEML and Data Patterns.

Astra Microwave has separately emerged as L1 for the AMCA active antenna array unit, with BEL at L2. Anand Rathi said this shows how different companies could benefit from the aircraft programme even if they are not part of the winning aircraft consortium.

The defence sector’s growth pipeline extends well beyond QRSAM and AMCA. It includes programmes such as, Su-30 Virupaksha/Angad upgrades, Uttam AESA, MIGM, Next Generation Corvettes, P-17 Bravo, MCMVs, LPDs and drone and counter-drone systems. 

Naval orders offer a broad opportunity

Beyond missiles and aircraft, naval procurement remains one of the biggest opportunity pools for the sector.

The pipeline includes Next Generation Corvettes, P-17B frigates, Mine Counter-Measure Vessels and Landing Platform Docks. Garden Reach Shipbuilders & Engineers (GRSE) is also seeing opportunities in offshore vessels, electric tugs, fast interceptor craft and Coast Guard vessels.

The brokerage said naval programmes could create further opportunities for electronics, propulsion and other specialist suppliers once platform orders are awarded.

Defence orders face long execution cycles

However, large defence orders does not mean immediate revenue generation. Many programmes involve lengthy design, qualification, first-article production and manufacturing phases. 

Anand Rathi estimates that the first QRSAM award could have a seven-to-eight-year execution cycle, while the Uttam programme could run for four to five years. The Next Generation Corvette programme could take around eight years to complete.

This means investors should not directly convert large programme values or total addressable markets into near-term revenue estimates.

FY27 could be a year of execution

While execution and timing risks remain high for the sector, Anand Rathi expects FY27 to be an execution-and-order-conversion year, with the bigger production inflection likely to come in FY28 and FY29.

GRSE expects revenue from the Next Generation Corvette (NGC) programme to start in FY28, while Apollo expects meaningful execution from QRSAM and MIGM largely from FY28. Astra’s Uttam order is expected to run for four to five years.

BEL also expects large new platform awards to generate meaningful turnover only after roughly two years.

H2 execution becomes crucial

The brokerage also highlighted the sharp increase in revenue run-rates that some companies will need to achieve their FY27 guidance.

Data Patterns, for instance, will need quarterly revenue of around Rs 3.31-3.47 billion in Q2-Q4, compared with Rs 1.1 billion in Q1. This represents a nearly three-fold increase in its quarterly run-rate.

Astra will need around Rs 3.9-4 billion in quarterly revenue during Q2-Q4 against Rs 1.76 billion in Q1. Apollo will need around Rs 4.2-4.3 billion per quarter against Rs 2.5 billion in Q1.

BEL appears better placed, with its required Q2-Q4 revenue run-rate at around 1.5 times Q1. Anand Rathi said BEL’s traditional second-half weighting and large order backlog support the target.

Capacity expansion could support FY28-FY30 growth

Defence companies are also bringing forward capacity and engineering investments to prepare for the expected rise in production.

GRSE is expanding shipbuilding capacity, BEML is adding aerospace and manufacturing space, while Bharat Forge is building new defence and energetics capacity. Data Patterns continues to spend heavily on engineering, while Astra is strengthening its procurement and supply chain.

Anand Rathi said these investments should support growth in FY28-FY30, although they could weigh on near-term margins and cash conversion.

Defence sector outlook; HAL remains top pick

Order books are expected to expand materially before companies see the full earnings benefit. Existing backlogs should drive FY27 earnings, while QRSAM, AMCA, Next Generation Corvettes, Su-30 upgrades, MIGM, drones and naval programmes should build the revenue base for FY28-FY30.

HAL remained Anand Rathi’s Top Pick and only ‘Buy’ among its covered defence stocks. 

The brokerage has set a target price of Rs 5,431 for HAL against a current market price of Rs 4,860.

Anand Rathi said HAL offers the best combination of earnings visibility, a broad platform-level order pipeline and valuation.

On the other hand, the brokerage has ‘Hold’ ratings on Solar Industries and Astra Microwave Products. It said the sharp rise in their share prices has reduced the valuation upside despite healthy fundamentals and order-book prospects.

Disclaimer: This article summarizes sectoral observations and stock ratings from third-party brokerage reports (Anand Rathi) for informational purposes only. Specific price targets, recommendations (such as ‘Buy’ or ‘Hold’), and growth estimates do not constitute financial advice, nor do they represent an offer or solicitation to buy or sell securities. Stock investments in sector-specific equity markets are subject to high volatility and execution risks. Readers should conduct independent evaluation and consult a SEBI-registered financial advisor before making investment decisions.

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