The defence sector is in focus on the back of a slew of announcements by the Defence Minister, Rajnath Singh. Earlier this month, the Defence Ministry gave a green light to the procurement of Rs 67,000 crore worth of drones and autonomous surface vessels. The move has generated excitement across the defence sector.
The Q1 performance of most defence sector stocks has been encouraging. The majority of the leading defence companies saw robust revenue growth and sustained profit margins in Q1. A report by Jefferies indicates that companies such as Hindustan Aeronautics (HAL), BHEL, BEL, L&T, and Siemens Energy are poised to outperform.
Defence sector margin boost
In the first quarter of FY26, the public sector companies HAL grew 387 bps while BEL clocked growth of 576 basis points. HAL’s margin grew 26.7 per cent while BEL’s margins jumped 28.1 per cent in Q1.
Several private sector companies also saw a good margin growth in the quarter. Siemens Energy saw a strong 469 basis points margin growth in Q1. The company’s profit margin stood at 19.1 per cent in the quarter. L&T’s margin remained stable at 7.6 in the quarter.
Defence sector order growth
According to Jefferies, the defence sector’s order book grew 56 per cent YoY in Q1 FY26. State-owned BHEL saw a 33 per cent YoY order growth in the quarter. One prominent order won by the company is the Bhadla-Fatehpur HVDC order. BEL, another public sector major, saw a 54 per cent YoY order growth in Q1. The majority of the orders received by the company are for spares and systems.
Private sector companies like L&T and Siemens also saw a good order growth in the quarter. While L&T’s order book grew 33 per cent YoY in the quarter, Siemens reported an overall 94 per cent order growth in Q1. ABB’s order book saw a 12 per cent YoY decline in the quarter.
Defence sector outlook
Jefferies remains positive on the outlook for defence sector driven by the Make in India push. As per their estimates, HAL has a 19 per cent EPS growth visibility for the next 5 years. In the private sector, Jefferies remains confident about Siemens Energy and projects a 50 per cent EPS CAGR for FY27. Further, Jefferis remains optimistic about other defence majors like L&T and KEI.
