14x returns, 30% ROCE & near-zero debt: Meet 2 defence Smallcaps quietly standing out

Two such names sit in the Aerospace and Defence pocket of the market. Neither is a household name. Both are smallcaps, with market caps under Rs 2,500 cr and both carry virtually zero debt. And both earn a return on capital employed (ROCE) of more than 30%, against an industry median that sits in the mid-teens, around 15%.

A high return on capital, held over years, with no borrowing to flatter it, is usually the sign of a business that has something others do not. Let us look at both side by side, and let the data lead.

#1 Sika Interplant: The High-Precision Quiet Achiever

Sika Interplant Systems is an engineering-led company that serves the Aerospace, Defence and Space sectors, with a smaller automotive line on the side. It does not make a single famous product. Instead, it builds engineered systems, handles electrical and interconnect work, runs maintenance and overhaul jobs, and distributes specialist components.

With a market cap of Rs 2,239 cr, the company holds a defence production licence from the government and works as a qualified offset partner, which means foreign defence firms can route part of their India obligations through it.

In plain terms, Sika is a behind-the-scenes supplier. The kind of firm that does the unglamorous, high-precision work that a fighter programme or a space launch need, without ever putting its name on the final machine.

Lumpy Revenues, Fat Margins: Decoding Sika’s Cash Flow

The first thing to know about Sika is that its revenue is lumpy. This is a project business. A big order can lift one year and leave a hole in the next. You can see it clearly in the numbers below.

Financial Year	FY21	FY22	FY23	FY24	FY25	FY26	5Y CAGR
Sales (Rs cr)	80	98	60	106	148	211	21%
EBITDA (Rs cr)	15	20	10	20	29	45	25%
Net Profit (Rs cr)	12	17	9	19	25	36	25%

The 5-year sales growth works out to about 21% a year and net profit to about 25%. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) grew at the compound rate of 25% in the last 5 years.

The board has approved the accounts and recommended a dividend of Rs 3.50 a share. The company has also kept its operating margin in a healthy 18% to 23% band through the recent quarters, which is strong for a parts-and-systems supplier.

Scaling Without Debt: Sika’s 35% ROCE Edge

Borrowings on the books are effectively nil. They have been zero or close to it every year since FY21. The company is almost debt free, and the cash it earns mostly stays as cash.

Return on capital employed has climbed with scale. It crossed 30% in FY22, dipped in the weak FY23 year, and on the latest FY26 figures sits at about 35%. Return on equity is around 26%. Put simply, the business earns a fat return on the capital it uses, and it does so without leaning on a bank.

Promoters hold 71.72% of the company and have not sold a single share across the last several years, going by the shareholding record. That kind of steady, high promoter stake is often a quiet vote of confidence.

Over 1,400% Jump in 5 Years

The share price of Sika was around Rs 70 in June 2021 and as of closing on 25^th June 2026 it was Rs 1,056 which is a return of over 1,400% in 5 years. Rs 1 lakh invested in the stock 5 years ago would have become Rs 15 lakh today.

However, in the last 1 year, the stock price has fallen from around Rs 1,440 to its current price of Rs 1,056, which is a drop of over 26%. The stock currently trades at a discount of 35% from its all-time high of Rs 1,625.

Regarding valuation, the company’s share is currently trading at a PE of 61x against the industry median of 60x. For a debt-free business earning 35% on capital, a buyer is at least getting the pullback rather than the top.

A clean 10-year median PE figure is hard to pin down here. For most of the past decade Sika was a thinly traded microcap whose earnings and multiple jumped around. A long-run median built on that history would mislead more than it helps, so I have left it out rather than dress up a number.

The company had also entered into an MoU with Hindustan Aeronautics to pursue strategic business cooperation in the Airborne Search & Rescue, Casualty/Medical Evacuation and Humanitarian Assistance & Disaster Relief domains for aviation, aerospace and defence platforms.

#2 Krishna Defence: From Dairy Equipment to Naval Warships

Krishna Defence and Allied Industries has one of the more unusual back stories in the sector. The company started by making equipment for the dairy industry and still has a presence there. Over time it built up an in-house ability to design and manufacture defence hardware, and that is now the growth engine.

With a market cap of Rs 1,904 cr, it supplies critical components to the Indian Navy for warships and makes special products for the Army, with a clear focus on import substitution. As India tries to build at home what it once bought abroad, a firm that can design, test and deliver naval and army hardware locally has a long runway in front of it.

The Growth Caveat: Reading Behind a 48% Sales Surge

The growth numbers here are eye-catching, and they need a caveat attached, so let us do both.

Financial Year	FY21	FY22	FY23	FY24	FY25	FY26	5Y CAGR
Sales (Rs cr)	35	50	63	106	194	245	48%
EBITDA (Rs cr)	5	7	9	16	31	53	60%
Net Profit (Rs cr)	2	2	5	10	22	38	83%

Sales have grown at about 48% a year over five years and net profit at roughly 83%. The caveat is the starting point. FY21 was a small, soft base, so the growth rates look steeper than the underlying business pace. Even so, sales going from Rs 35 cr to Rs 245 cr in five years, with the operating margin rising to 21% in FY26 from the low teens earlier, is a genuine step change.

The more interesting turn is in cash. For three years running, from FY23 to FY25, the company burned cash from operations as it stocked up on inventory and stretched its working capital to feed the ramp.

In FY26 that reversed sharply, with operating cash flow swinging to a positive Rs 86 cr as working capital days fell from 137 to about 53. A growth story that finally starts paying for itself is a healthier one than a story that only grows.

The Return on Capital Reversal

Like Sika, Krishna Defence carries almost no debt. Borrowings have been paid down from Rs 27 cr in FY19 to about Rs 2 cr in FY26, and the interest line has shrunk to nothing. Return on capital employed has risen every single year, from single digits a few years ago to about 31% on the latest figures. Return on equity is around 24%. So here too you have the rare mix of fast growth, high returns and a clean balance sheet.

The Promoter Dilution Flag

One honest flag worth mentioning. Promoters held 100% before the company listed in 2022 and have since brought their stake down to about 60%. Some of that is normal for a firm that sells shares to the public, but it is worth watching whether the selling stops here.

On the other hand, institutions are starting to show up. Domestic funds now hold about 2% and foreign funds a little under 1%, both up from nothing a year ago. The number of shareholders has jumped past 12,900, a sign the stock is being discovered.

The Math Behind 1,400% Returns

The share price of Krishna Defence was about Rs 80 when listed in April 2022 and as of closing on 25^th June 2026 it was Rs 1,275 which is a 1,493% jump in listing. Rs 1 lakh invested in the stock at listing would have turned to close to Rs 16 lakhs today.

As for the valuation the company’s current PE is 50x against the industry median of 60x. Do note the window here. Krishna Defence only listed in 2022, so it does not have a five-year share price record at all.

Value vs. Momentum: Which Defence Play Makes Sense?

Put the two side by side and the resemblance is clear. Both are small. Both are nearly debt free. Both earn a return on capital of more than 30%, close to double the roughly 15% industry median. And both are exposed to the same powerful tailwind, a country trying to make more of its own defence equipment at home.

The difference is price, and that is the whole point of looking closely. Sika has been sold down to about 35% below its high even as its FY26 profit rose, so a buyer there is leaning into weakness. Krishna Defence sits at a record, growing faster but already priced for it, so a buyer there is paying up for momentum. Neither is obviously right or wrong. They are simply two different bets on the same theme.

For a retail investor, the useful lesson is to separate the business from the share price. A great business at a high price and a great business at a fair price are not the same investment, even when the underlying story rhymes. Both companies pass the quality test on the numbers. Whether either passes the price test is the question to sit with. A sensible first step is to add both to a watchlist and track the next few quarters before doing anything.

Disclaimer:

Note: We have relied on data from http://www.Screener.in and http://www.trendlyne.com throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.

The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.

Suhel Khan has been a passionate follower of the markets for over a decade. During this period, he was an integral part of a leading Equity Research organisation based in Mumbai as the Head of Sales & Marketing. Presently, he is spending most of his time dissecting the investments and strategies of the Super Investors of India.

Disclosure: The writer and his dependents do not hold the stocks discussed in this article. The website managers, its employee(s), and contributors/writers/authors of articles have or may have an outstanding buy or sell position or holding in the securities, options on securities or other related investments of issuers and/or companies discussed therein.