Goldman Sachs reveals 8 defence picks with upto 58% upside — 3 reasons private players outshine PSUs

Goldman Sachs has initiated coverage on India’s aerospace and defence sector with a detailed analysis of the market’s expansion, indigenisation opportunities, and export ambitions. The report placed strong emphasis on private-sector companies, arguing that they were better positioned than public-sector undertakings (PSUs) to capture growth from the changing defence spending landscape.

According to the research, the total domestic defence capital outlay was expected to expand more than six-fold to Rs 10.4 trillion in FY47 from Rs 1.6 trillion in FY25. The government’s targets for exports were equally ambitious to Rs 500 billion by FY29 from Rs 236 billion in FY25. Goldman Sachs argued that these structural drivers including rising procurement budget, deeper indigenisation, and a surge in exports created the foundation for a new cycle of growth for Indian defence companies.

Goldman Sachs 8 top picks in aerospace and defence sector

Goldman Sachs initiated coverage on eight companies across the aerospace and defence sector The report mentioned that while public-sector enterprises remained important, private players had stronger earnings trajectories, superior exposure to new-age technologies and higher participation in global supply chains.

Goldman Sachs on Solar Industries: Buy

Goldman Sachs has a Buy rating on Solar Industries with a target price of Rs 18,215 per share. This implies an upside of 36% for the Solar Industries share price.

As per the research report, Solar Industries is expected to benefit from its moat in energetic materials and ammunition. The company’s export order book and diversification into higher technology areas reinforced its positioning. Earnings were forecast to grow at more than 25% CAGR in FY25–FY28, though free cash flow is expected only by FY28 due to heavy capex. The estimate FY28 price to earnings ratio at 69.3x.

Goldman Sachs on PTC Industries: Buy

Goldman Sachs has a Buy rating on PTC with a target price of Rs 24,725. This implies a whopping 58% upside for the share price of PTC. According Goldman Sachs, this is one of the “highest earnings growth story in its coverage, projecting 123% CAGR through FY28.” The company’s focus on aerospace-grade titanium and superalloy castings, coupled with contracts from global majors, positioned it as a direct beneficiary of disruptions in global titanium supply chains. The international brokerage house estimates FY28 PE at 52.9x.

Goldman Sachs on Astra Microwave: Buy

Astra Microwave is another stock with a Buy rating. Goldman Sachs has set a target of Rs 1,455 per share. This implies upside of 45% for the Astra Microwave share price. The report noted Astra Microwave’s strengths in radar electronics, electronic warfare, and communications systems. Profitability is expected to improve as domestic business rose, with free cash flow turning positive by FY27.

Goldman Sachs on Data Patterns: Buy

Goldman Sachs emphasised Data Patterns’ IP-driven model, which gave it a cost and margin edge over peers. Its role in the BrahMos missile system and electronic warfare made it a unique play in defence electronics.They have a Buy rating with a target price of Rs 3,640 per share. This implies a 12-month upside of 38% for the share price of Data Patterns.

Goldman Sachs on Azad Engineering: Buy

Azad Engineering, identified as the only Indian producer of titanium aerofoils, is expected to see over 30% annual earnings growth for the next decade. However, high capex meant free cash flow would only be a possibility by FY35. Goldman Sach has a target Price: Rs 2,055 per share. This implies 28% upside for the Azad Engineering share price from current levels.

Goldman Sachs on Bharat Electronics (BEL): Buy

As per the report, Bharat Electronics remained the lead integrator for defence electronics across the armed forces. It offered steady order flow and cash generation, though earnings growth was lower compared to private peers. The international brokerage house has a target price of Rs 455. This implies 12% upside for the stock from current levels.

Goldman Sachs on Hindustan Aeronautics (HAL): Neutral

The research expressed caution on Hindustan Aeronautics despite its large order book. Execution challenges and margin pressures from greater private-sector participation led to a Neutral rating.The target Price for HAL is at Rs 5,255, implying 9% upside from current levels.

Goldman Sachs on Bharat Dynamics (BDL): Sell

Goldman Sachs initiated coverage with a Sell on Bharat Dynamics, citing contracting margins and expensive valuations relative to growth. It flagged risks from rising dependence on externally sourced components. The target price for BDL is at Rs 1,375 with 11% downside from current levels.

Goldman Sachs’ rationale for for picking private players

As per the research, the decisive factor was earnings growth. According to Goldman Sachs, private players under coverage are expected to deliver a 32% EPS CAGR from FY25–28, compared to only 13% for public-sector peers. The report also stressed that new defence spending, particularly in AI-enabled systems, electronic warfare, UAVs, and radar electronics, was tilted toward areas where private companies had a stronger foothold.

The valuation argument was equally blunt: while sector P/Es had doubled in the last 18 months, Goldman Sachs contended that companies with moats and steep earnings trajectories deserved richer valuations.

Goldman Sachs theme for defence and aerospace sector

Goldman Sachs broke down its thesis into three key themes:

1. Total Addressable Market (TAM): defence procurement was forecast to grow far faster than overall defence spending, ensuring sustained demand for systems, ammunition, and components.
   
2. Indigenisation: Despite lower foreign procurement, large gaps remained in radars, weapon systems, and aero-engine parts. This created openings for firms like Astra Microwave, Data Patterns, PTC Industries, and Azad Engineering.
   
3. Exports: With defence exports already at INR 236bn in FY25, the MoD’s targets of INR 500bn by FY29 were considered achievable.
4. Goldman Sachs argued that platforms such as Tejas, Prachand helicopters, Akash-NG systems, and naval corvettes could help India move from component exports to full system exports.
   

Goldman Sachs on key risks investors should watch out for

The report mentioned three risks that investors should be cautious about: a potential shift in government capital allocation away from defence, delays in companies’ product development cycles, and global original equipment manufacturers shifting sourcing priorities away from India.