BHEL vs BEL vs Data Patterns vs HAL: Why Jefferies sees up to 34% upside in 3 stocks  but rates one Underperform?

The big capex bets

The four companies have different business profiles despite their exposure to government-led capital spending. Hindustan Aeronautics Ltd. manufactures military aircraft and helicopters for the Indian armed forces, BEL is a government-owned defence company and a market leader in advanced electronic products for the armed forces, while Data Patterns is a vertically integrated defence and aerospace electronics solutions provider. BHEL is primarily an integrated power plant equipment manufacturer, with operations across power, transmission, industry, transportation, oil and gas and defence.

Jefferies on BHEL: ‘Underperform’

Bharat Heavy Electricals Ltd. sits at the bottom of the four-stock comparison, with Jefferies retaining an ‘Underperform’ rating and raising its target price to Rs 270 from Rs 220. The valuation summary shows 38% downside to the target.

The negative call does not stem from a lack of orders. BHEL’s June-quarter order flow rose 2x YoY, led by a jump in Power segment orders, although Jefferies cautioned that quarterly order flow can be lumpy.

The brokerage’s investment thesis is direct: “We remain concerned on execution and hence would prefer to play the theme through other companies.” Its assessment also points to competitive pressure leading to margin decline, while BHEL’s high fixed-cost base remains a concern.

Jefferies expects BHEL’s EBITDA margin to improve to 8.7% in FY27 from 6.9% in FY26, and reach 12.9% by FY30. The brokerage said the government’s thrust on renewables may lead to renewable power eating into captive power demand. It also sees aggressive pricing on power equipment bids as a risk.

BHEL’s defence exposure does not change its core business profile. The company is an integrated power plant equipment manufacturer with a 62% share in India’s total installed generating capacity, and is also engaged in transmission, industry, transportation, oil and gas and defence.

Jefferies on Bharat Electronics: ‘Buy’

Bharat Electronics Ltd. moves into positive territory with a ‘Buy’ rating and a target price of Rs 490, implying 19% upside in the valuation summary. Jefferies has cut the target price to Rs 490 from Rs 550, citing some delays in the QRSAM order, while lowering its target multiple to 40x September 2028 earnings from 45x earlier.

BEL’s investment case rests on its position as a market leader in Indian defence electronics. Its current order book is equivalent to 2.6 times FY26 revenue, while Jefferies sees a visible pipeline of Rs 1.2 lakh crore providing medium-term revenue visibility.

The June-quarter order flow declined 49% YoY, but the comparison was against a high base in June 2025, which included spillover of around Rs 5,000 crore of orders from FY25.

Margins also came under pressure. BEL’s margins fell to 25.1% from 28.1%, while gross margins declined 775 basis points YoY because of product mix. Strong execution and operating leverage partly offset the pressure, and FY27 guidance was retained at 27% or higher.

Jefferies said the visible pipeline and rising indigenisation provide support for the stock. Its catalysts include BEL receiving orders at a fast pace, revenue growth returning to double digits, a recovery in return on equity and a reduction in debtor and inventory days.

Jefferies on Data Patterns: ‘Buy’

Data Patterns carries a ‘Buy’ rating with a target price of Rs 5,545, implying 22% upside in the valuation summary. The company has an order book equivalent to 1x FY26 revenue, according to Jefferies.

The brokerage describes Data Patterns as a “Niche sector player in defence electronics.” Its investment thesis also says the company has an existing order book of 1x FY26 revenue and earnings delivery on the existing order book with greater clarity on the margin trajectory.

Jefferies expects rising indigenisation and India’s export focus to support Data Patterns’ order-flow growth. The visible order book and pipeline are expected to provide medium-term revenue visibility, while faster defence ordering could support fresh business.

The company’s catalysts include receiving orders at a faster pace, revenue CAGR surprising on the upside and greater visibility on export ordering.

Technology obsolescence remains a risk, along with a lack of management bandwidth for diversification. Jefferies also identifies margin pressure on execution as a risk if the proportion of complex projects moves higher than expected.

Jefferies on Hindustan Aeronautics: ‘Buy’

HAL is the strongest stock in the four-company comparison on the normal target-price upside used in Jefferies’ valuation summary. The brokerage has retained a ‘Buy’ rating and raised its target price to Rs 6,800 from Rs 6,300, implying 34% upside.

Jefferies describes HAL as a “Market leader in India defence aircraft manufacturing”, with an order book equivalent to 7.7 times FY26 revenue. Its investment thesis also says the company has earnings delivery on its existing order book with clarity on the margin trajectory.

The brokerage expects HAL to have visibility of a 16% EPS CAGR over FY26-30E on order-book execution. It sees a visible pipeline of more than Rs 1.8 lakh crore, while rising indigenisation is expected to support order-flow growth.

HAL’s revenue is projected to rise to Rs 37,700 crore in FY27 from Rs 33,089 crore in FY26, and reach Rs 57,034 crore by FY30. EBITDA margin is expected to improve to 30.1% in FY27 from 29.6% in FY26, reaching 32.7% by FY30.

Jefferies lists faster order flow and greater visibility on export ordering as catalysts. Manufacturing execution delays remain a downside risk, while a higher proportion of indigenous manufacturing could put pressure on margins.

Defence and aerospace ordering remains the key support

The four stocks show why Jefferies is separating direct defence and aerospace exposure from broader industrial exposure. HAL, BEL and Data Patterns have businesses directly linked to defence procurement, while BHEL’s earnings remain much more dependent on the power equipment cycle.

HAL has the largest order-book coverage at 7.7 times FY26 revenue. BEL follows at 2.6 times, while Data Patterns has an order book equivalent to 1x FY26 revenue. Jefferies sees these order books as important sources of revenue visibility, although the scale and nature of the programmes differ.

The procurement cycle is particularly important for the defence electronics companies. BEL is expected to benefit from rising indigenisation, while Data Patterns is exposed to the pace of domestic defence ordering and export opportunities.

HAL has a different earnings profile because its large aircraft and helicopter programmes provide a much larger existing order base. That gives the company greater visibility into revenue and earnings as those orders are executed.

Aerospace and defence electronics have different business drivers

HAL and Data Patterns have the most direct combination of aerospace and defence exposure among the four stocks, but the sources of growth differ.

HAL is focused on military aircraft and helicopters, giving it exposure to large defence manufacturing programmes. Data Patterns operates in defence and aerospace electronics and is more dependent on new proposals, tenders and orders for incremental growth.

BEL is also a defence electronics company, but operates at a larger scale. Its 2.6-times FY26 revenue order book and Rs 1.2 lakh crore visible pipeline give it more existing-order visibility than Data Patterns.

Jefferies expects all three ‘Buy’-rated companies to benefit from domestic procurement and indigenisation, but company-specific execution remains important. HAL faces manufacturing execution risks, BEL has QRSAM-related delays, while Data Patterns faces technology obsolescence and management bandwidth risks.

Defence exposure alone does not change BHEL’s rating

BHEL’s position shows why defence exposure alone is not enough for Jefferies to take a positive view. Its June-quarter order flow doubled YoY, but the brokerage continues to focus on execution, margins and competitive pressure.

The company’s fixed-cost base remains a concern, while the renewable push could affect captive power demand. Jefferies also sees aggressive pricing in power equipment bids as a risk to profitability.

The brokerage’s preference is therefore for other companies when playing the broader capex theme. Its wording is unambiguous: “We remain concerned on execution and hence would prefer to play the theme through other companies.”

That makes BHEL the negative call in this four-stock aerospace and defence comparison, even though the company reported a sharp increase in quarterly order flow.

Jefferies’ aerospace and defence stock view

HAL therefore has the highest normal target-price upside among the four, backed by a 7.7-times FY26 revenue order book and expected 16% EPS CAGR through FY30. Data Patterns follows with 22% upside and a specialised defence and aerospace electronics business, while BEL has 19% upside but a larger order book and visible defence pipeline.

BHEL remains at the other end of the spectrum. Its order flow has improved, but Jefferies continues to see execution and margin problems that outweigh the improvement in orders.

Conclusion 

The difference in rating across the 4 companies is therefore not simply based on their exposure to the Govt’s defence spending. Jefferies is placing greater weight on order-book visibility, execution, domestic procurement and the ability to convert defence demand into earnings. On that measure, HAL leads the group, followed by Data Patterns and BEL, while BHEL remains the weakest-rated stock.

Disclaimer: The ratings, target prices, earnings estimates, order-book figures and other financial information in this article are based solely on Jefferies’ equity research report. They are provided for informational purposes only and should not be treated as investment advice or a recommendation to buy or sell any security. Jefferies states that past performance is not an indication or guarantee of future results and that financial instruments can rise or fall in value because of economic, financial and political factors. Readers should conduct their own research and consult a SEBI-registered financial adviser before making investment decisions.