India plans to become a global defence manufacturing hub, aiming to achieve defence production worth ₹3 trillion and defence exports worth ₹50,000 crore by 2029. The Defence Acquisition Council has also recently approved proposals worth ₹670 billion for the Indian Army, Navy, and Air Force. The proposals include the procurement of everything from Compact Autonomous Surface Craft to Thermo-Imager-based Driverless Night Sight. These signs show a strong intent to deepen domestic manufacturing.
Furthermore, the Defence Ministry has signalled its intention to seek a 20% hike in the defence budget for FY27. Thus, the order activity in defence companies is expected to remain strong in the coming quarters as well. Coincidentally, defence company stock prices have also fallen from recent highs, warranting a fresh look. So, which stocks are likely to benefit?
#1 Bharat Electronics: Indigenized defence electronics leader
Bharat Electronics (BEL) is a leading aerospace and defence electronics company that develops electronics technology solutions for the defence and civilian segments. Its primary focus is advanced electronics equipment, systems, and services for India’s defence sector.
The company’s core businesses involve supplying state-of-the-art products/systems to the Indian Armed Forces. Its portfolio includes Radars (such as Aslesha, Lynx series, Weapon Locating, and 3D Surveillance Radars), Missile systems (Akash, LRSAM, C4I), and Defence communication systems.
The ₹75,000 Cr order book: Visibility for 3+ years
The company is focused on self-reliance through indigenization. In FY25, turnover from indigenously developed products accounted for 74%. The company order book stood at ₹756 billion (as of 31 October 2025).
Further, the company expects to receive order inflows of ₹570 billion in FY26, taking the order book to around ₹1,300 billion. The order book provides revenue visibility of over 5 years, based on FY25 revenue of ₹237.7 billion.
Margin stability supported by indigenization
In terms of financials, revenue grew 15.9% year-on-year to ₹101.8 billion in the first half of FY26, driven by strong order book execution. EBITDA (earnings before interest, tax, depreciation, and amortization) margin expanded 289 basis points (bps) to 30.2%, leading to a 19.7% increase in profit after tax (PAT) to ₹22.6 billion.
Revenue is expected to grow more than 15% year-over-year in FY26, and EBITDA margins will remain similar. Management also expects these high margins to be maintained through cost optimization, indigenization, and operating efficiency.
Expanding beyond defence to diversify revenue
Looking ahead, to reduce its dependence on the defence business, BEL aims to grow its presence in allied defence and non-defence areas. The company aims to increase non-defence business revenue to about 20% of total turnover in the coming year, up from 5.7% in FY25. To this end, BEL plans to focus on exports to Southeast Asia, Europe, the Middle East, and Africa.
Bharat Electronics Share Price
#2 Hindustan Aeronautics: India’s fighter jet powerhouse
Hindustan Aeronautics (or HAL) primarily serves the Indian Armed Forces and is a strategic company in the aerospace, defence, and space industries. HAL’s integrated business includes research and development, manufacturing, maintenance, repair, and overhaul. HAL has expertise in executing Transfer of Technology projects like the Su-30MKI, Jaguar, and Hawk.
A fighter plane powerhouse
Repair and Overhaul is the largest segment, accounting for 70% of the turnover. In this segment, HAL repairs, overhauls, maintains, and upgrades aircraft, helicopters, engines, and accessories. This business is expected to remain strong and generate consistent revenue.
About 7% of revenue comes from design and development activities and exports. The company is known for manufacturing the LCA Tejas aircraft, the Advanced Light Helicopter, the Light Utility Helicopter, and the Dornier Do-228 aircraft. HAL also supplies engines for the Sukhoi fighter plane.
HAL also manufactures aerospace structures for the Indian Space Research Organization. It has supplied structural assemblies for missions such as the GSLV-F15 and NVS-02 missions. HAL also delivered the first gas generator module for the CE-20 cryogenic engine from its Integrated Cryogenic Manufacturing Facility.
Revenue visibility: Booked until FY33
From a financial perspective, revenue increased 10.9% year-on-year to ₹114.5 billion in the first half of FY26, driven by order book execution. However, EBITDA margin declined 390 bps to 23.5%, leading to a 13% decline in PAT to ₹25.5 billion. This performance was dragged down by a poor first quarter, when its PAT declined 4% to ₹13.8 billion.
As of 14 November 2025, HAL’s order book stood at ₹2.3 trillion, providing revenue visibility for over six years. Management says these orders are expected to keep its manufacturing lines busy until FY33.
The MoD has signed an ₹624 billion contract with HAL to procure 97 additional LCA Mk1A aircraft for the Indian Air Force. Deliveries are scheduled to commence in FY28 and conclude within six years. The order carries at least 64% indigenous content, with 67 additional locally sourced components compared to the previous contracts.
HAL has also entered into a $1bn deal with GE Aerospace (USA) to supply 113 F404-GE engines. To meet the demand, HAL also completed the expansion of the Nashik production line in October 2025, increasing its annual LCA manufacturing capacity from 16 to 24 aircraft. The first Tejas Mk1A aircraft produced in HAL’s Nashik complex completed its maiden flight.
Capacity expansion to meet rising aircraft demand
The company plans to invest around ₹150 billion in capacity expansion over the next five years. This includes increasing the manufacturing capacity of LCA aircraft further to 30. HAL is also expanding its Helicopter production capacity from the current 30 Light Combat Helicopters (LCH) per annum at Tumakuru.
However, HAL acknowledges external threats, including increased competition arising from Ministry of Defence reforms such as the Defence Acquisition Procedure 2020, which promotes private participation and competitive procurement. Despite this, the ministry gives priority to Indigenously Designed, Developed, and Manufactured products.
That said, the recent crash of the flagship Tejas at the Dubai air show did create a flutter in the markets on the future prospects of this aircraft. However, as per the management, it seems that it may not impact much. In fact, the company chairman DK Sunil has stated that Tejas remains completely safe and the Dubai crash will have no impact on its business.
#3 Bharat Dynamics: India’s Missile Technology Specialist
Bharat Dynamics is a public sector undertaking, specializing in missile technology and allied defence equipment. The company has evolved from being solely a missile manufacturer into a comprehensive weapon system integrator for various missile platforms.
BDL prepares for its next growth leg
It is a multi-product, multi-location organization serving the Army, Navy, and Air Force. The company is identified as the key player in manufacturing among indigenous entities and is the sole player in India for Surface-to-Air Missiles (SAMs), torpedoes, and Anti-Tank Guided Missiles.
Bharat Dynamics has a strong existing order book of nearly ₹235 billion, slated for execution over the next 3-4 years. The company has a robust order pipeline of ₹500 billion over the next 5 years, with management targeting ₹200 billion in orders to materialize over the next 2-3 years.
BDL is well-positioned to benefit from recent DAC approvals (totalling ₹2.5 trillion since the start of FY26) that focus heavily on missile systems, naval armament, and undersea warfare equipment. This includes projects such as surface-to-air missile systems, moored mines, upgrades to the BARAK-1 system, BrahMos systems, and the Nag missile system Mk-II.
To meet its ambitious growth targets, BDL has initiated several strategic measures. The company prioritizes increasing indigenization of critical defence technologies (e.g., missile seekers, homing systems, avionics, specialized warheads), with many DRDO-designed systems already achieving over 90% indigenization.
BDL plans to allocate 9% of revenue to R&D over the next five years to achieve technology leadership and integrate technologies like AI, ML, and Industry 4.0. It also aims to significantly increase its export revenue share to 25% by FY30, up from historical levels of below 10%, by strengthening ties with friendly nations.
The company plans capex for projects such as the construction of the Jhansi Unit (for missile propulsion systems), Phase-II development at Ibrahimpatnam, and a ceramic radome facility at Kanchanbagh. The company has an ambitious target of achieving a turnover of ₹100 billion by FY31.
Strong execution fuelled record financial performance
From a financial perspective, the company’s revenue increased 110.6% to ₹11.5 billion in 2QFY26, driven by accelerated performance. EBITDA increased 89.7% to ₹1.9 billion, while margins declined 180 basis points to 16.3%. PAT nearly doubled to ₹2.2 billion, from ₹1.2 billion in the September quarter last year.
Conclusion
Bharat Electronics and Hindustan Aeronautics deliver high return ratios including Return on Capital Employed (RoCE) and Return on Equity (RoE), due to consistent and strong profitability and execution. Bharat Dynamics, on the other hand, has inconsistent profitability, which impacts its return ratios.
Valuation Assessment (X)
| Company | P/E Ratio | 5-Year Median P/E | RoCE (%) | RoE (%) |
| Bharat Electronics | 52.3 | 29.4 | 38.9 | 29.2 |
| Hindustan Aeronautics | 35.4 | 20.6 | 33.9 | 26.1 |
| Bharat Dynamics | 84.8 | 48.5 | 14.2 | 14.4 |
| Industry Median P/E | 62.4 | 18.7 | 14.4 | |
In terms of valuation, both Bharat Electronics and Hindustan Aeronautics are trading at a discount to the industry median multiple. At the same time, they are also trading at a premium to their 5-year median valuations. Bharat Dynamics’ valuation is expensive compared to both the industry and the 5-year medians. But a consistent order book and long-cycle defence programmes can keep the momentum intact.
Disclaimer
Note: Throughout this article, we have relied on data from http://www.Screener.in and the company’s investor presentation. 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 educational purposes only.
About the Author: Madhvendra has been deeply immersed in the equity markets for over seven years, combining his passion for investing with his expertise in financial writing. With a knack for simplifying complex concepts, he enjoys sharing his honest perspectives on startups, listed Indian companies, and macroeconomic trends.
A dedicated reader and storyteller, Madhvendra thrives on uncovering insights that inspire his audience to deepen their understanding of the financial world.
Disclosure: The writer and his dependents do not hold the stocks discussed in this article.
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