Smallcap defence stocks have strong long-term potential as India increases defence spending, promotes Make in India, and pushes for self-reliance in weapons, electronics, aerospace and space technologies.
Defence production has reached record levels, creating opportunities for private companies supplying specialised products. Companies in areas like defence electronics, drones, radar systems, missiles, components and aerospace manufacturing could benefit from rising orders and exports.
However, investors should focus on companies with strong order books, technology capability, execution track record and reasonable valuations.
Small caps can deliver higher growth than large defence companies, but they also carry higher risks due to project delays, customer concentration and expensive valuations.
Let’s look at a few smallcap stocks with good growth plans. We have considered companies that have a market cap below Rs 50 bn or are a part of the NSE Microcap or BSE Smallcap Index.
#1 Avantel Ltd
With a market cap of Rs 47.81 bn, Avantel offers innovative, customized network centric solutions through products for defence platforms including Ships / Submarines / Aircraft / Helicopters.
The company’s products facilitate highly secured, seamless, long range communications over satellite and the HF medium for net centric operations of Defence Forces on the main land & high seas.
Moving ahead, the company is spending significantly on Research and Development (R&D). This is set to accelerate product development in Software Defined Radios (SDR), Wind Profiler Radar (WPR) systems as well as iDEX projects.
The management in its FY26 annual report has highlighted these investments are expected to enable the company to execute a substantially larger order book, emphasising sustained revenue growth and profitability in the years ahead.
Avantel presently has an order book of Rs 7,200 m to be executed across FY27 and FY28. This is in addition to the orders in pipeline and expected in the next two years.
Avantel Financial Snapshot
| Year Ending | March 2024 | March 2025 | March 2026 |
| Net Sales (m) | 1,976 | 2,222 | 1,886 |
| Sales Growth % | 44.9 | 12.5 | -15.1 |
| Net Profit (m) | 526 | 564 | 150 |
| Net Margin | 26.6 | 25.4 | 7.9 |
Source: Equitymaster
On the financial front, the company saw revenues surge to Rs 638 m in Q4 FY26 m vs Rs 493 m YoY. Avantel reported a drop in net profits to Rs 48 m vs Rs 61 m YoY.
Moving ahead, the company is executing five iDEX projects, of which three pertaining to MSS S-band Broadcast Receivers, Satphones, and Convoy Management Systems have been successfully developed and are awaiting final testing and trials by the Indian Army.
Additionally, it’s progressing on Ku-Band Systems, including Communication-On-The-Move (COTM) terminals, as well as shipborne and airborne applications as required by the Indian Navy.
In line with the company’s vision to expand its infrastructure to meet the increasing demands of indigenisation, Avantel has established the new state-of-the-art facility (Unit No. 2), comprising E City, Tukkuguda. The facility became operational in October 2025.
#2 MTAR Technologies
Next on the list is the stock of MTAR Technologies. The company is a part of the Nifty Microcap250.
The company is a leading precision engineering and manufacturing firm, delivering cutting-edge solutions to India’s prestigious space, civilian programmes and has a strong presence in defence. It has 10 plus manufacturing units within a 25 km radius.
MTAR Technologies Financial Snapshot
| Year Ending | March 2023 | March 2024 | March 2025 |
| Net Sales (m) | 5,738 | 5,808 | 6,760 |
| Sales Growth % | 78.2 | 1.2 | 16.4 |
| Net Profit (m) | 1,034 | 561 | 529 |
| ROCE % | 22.2 | 12.3 | 11.6 |
Source: Equitymaster
MTAR Technologies achieved record fourth quarter (Q4FY26) sales of Rs 3,060 m and EBITDA of Rs 618 m with a net profit of about Rs 443 m.
The 3-year average ROE of the company was placed at Rs 10.7%, while the ROCE for a similar period was at 15.4%.
In a recent conference call, the management of MTAR Technologies has raised its revenue guidance for FY27 from 50% revenue growth to 80% revenue growth, (+/- 5%), with EBITDA margins of around 24% for the year. This is mainly due to the initial expansion of capacities in various sectors in clean energy, which has already commissioned.
The closing order book for FY26 was Rs 25.8 bn, as against a guidance of Rs 28 bn. The marginal difference was due to some nuclear orders and the defence orders being deferred to the current quarter. As per the management this will not have any impact on its business outlook for this year.
The management estimates that the closing order book as at the end of FY27 will be much larger at around Rs 50 bn.
MTAR Technologies has positioned itself strongly due to its presence in the emerging clean energy, aerospace, defence and nuclear sectors. Rising demand for fuel cell components, defence localisation and space-related manufacturing should help.
#3 Paras Defence and Space Technologies
Next on the list is the stock of Paras Defence and Space Technologies. The company is a part of the Nifty Microcap 50.
Paras Defence and Space Technologies is a niche defence technology company engaged in manufacturing specialised products for the defence and space sectors.
The company focuses on areas such as electro-optics, infrared systems, defence electronics, precision engineering components, and space-related optical systems. It supplies products and solutions to organisations like DRDO, ISRO, defence PSUs and the armed forces.
Paras Defence is expanding its solution portfolio for Space Applications. It has partnered with Europe’s leader in Space Antennas. The company is in the process of setting up India’s first private Space Antenna manufacturing and integration plant.
In the drones segment, Paras Defence and Space Technologies has tied up with Israel-based HevenDrones for manufacturing advanced drones in India.
The partnership is aimed at developing logistics and cargo drones, including hydrogen-powered drone systems, for defence, surveillance and commercial applications.
The proposed joint venture combines Paras Defence’s manufacturing and engineering capabilities with HevenDrones’ drone technology. The focus is on long-endurance drones with higher payload capacity, which can be used for military logistics, border surveillance and homeland security
Paras Defence & Space Technologies has a state-of-the-art manufacturing setup and the capability to offer turnkey solutions from design to commissioning of small to large systems. The focus is on technology development and R&D.
Financial Highlights of Paras Defence and Space Technologies
| Rs m | FY 23 | FY 24 | FY 25 |
| Total Revenues | 2,224 | 2,535 | 3,647 |
| Total Expenses | 1,648 | 2,000 | 2,651 |
| Net Profit Margin % | 16.2 | 11.8 | 16.9 |
| Profit After Tax | 359 | 300 | 615 |
Source: Equitymaster
In Q4FY26 the revenues of Paras Defence and Space technologies surged to Rs 1,713 from Rs 1,082 m YoY. Net profits too grew to Rs 389 m from Rs 208 m.
The 3-year average ROE of the company was Rs 8.4%, while the ROCE was at 12.8%.
On balance, Paras Defence seems well positioned in long-term trends, such as India’s push for defence self-reliance, increased budgets, increasing use of sophisticated military technology, and the slow growth of its space capabilities.
#4 Centum Electronics
Next on the list is the stock of Centum Electronics. The company has a market cap around the Rs 50 billion mark.
Centum Electronics is a Bengaluru-based electronics design and manufacturing company focused on high-reliability products for aerospace, defence, space, medical, transportation and industrial sectors.
It designs and manufactures electronic systems, subsystems and components used in mission-critical applications. Centum has partnerships and supplies to organisations in the space and defence ecosystem, including applications linked to ISRO and defence programmes.
Centum Electronics Financial Snapshot
| Year Ending | March 2023 | March 2024 | March 2025 |
| Net Sales (m) | 9,230 | 10,908 | 11,554 |
| Sales Growth % | 18.3 | 18.2 | 5.9 |
| Net Profit (m) | 67 | -28 | -19 |
| ROCE % | 14.8 | 17.4 | 11.0 |
Source: Equitymaster
The company closed FY26 with a standalone order book of Rs 16.45 bn, representing a growth of around 23% year-on-year and providing strong visibility for the coming years.
For FY26, standalone revenue stood at a record Rs 9,730 m, reaching a strong growth of 25% YoY. The EBITDA stood at Rs 1,210 m, a growth of 28% YoY, translating into a margin of 12.42%.
Profit before exceptional items and tax for the period was at Rs 1,000 m reflecting an exceptional growth of 63% YoY. During FY26, the profitability was impacted by onetime exceptional item amounting to Rs 2,030 m relating to provisions and impairments in overseas subsidiaries.
“Overall Centum Electronics is entering the next phase of growth on a significantly stronger operational and strategic footing,” the management said in a recent conference call.
With the overseas restructuring actions now substantially progressing towards closure, the company is increasing focus on scaling its core ESDM platform supported by strong execution, robust order book, expanding customer engagements, and healthy long-term opportunity pipeline across both BTS and EMS businesses.
The management remains optimistic on the medium to long term outlook across Defence, Aerospace, Industrial and Electrification, Semiconductor segments, where they continue to see strong customer traction and increasing strategic relevance.
#5 Astra Microwave
Finally on the list is the stock of Astra Microwave.
The company is a part of the Nifty Microcap250. Astra Microwave Products is a Hyderabad-based defence electronics company specialising in RF (radio frequency) and microwave sub-systems used in radars, electronic warfare, missiles, satellites, telemetry and communication systems.
The company has an array of assembly and test facilities that include 3 Automatic assembly lines for PCBA assembly, Seven Class 10K and one Class 100K clean rooms, functional test infrastructure that extends from 30MHz up to 40GHz, in-house environmental test facilities.
Astra Microwave Financial Snapshot
| Year Ending | March 2023 | March 2024 | March 2025 |
| Net Sales (m) | 8,155 | 9,088 | 10,512 |
| Sales Growth % | 8.7 | 11.4 | 15.7 |
| Net Profit (m) | 698 | 1,211 | 1,535 |
| ROCE % | 19.6 | 19.4 | 23.0 |
Source: Equitymaster
On the financial front, Astra Microwave reported revenues of Rs 4,882 m in Q4FY26 vs Rs 4,079 m YoY. The net profits of the company were placed at Rs 1,069 vs Rs 746 m YoY.
The 3-year average ROE of the company was placed at Rs 12.5%, while the ROCE for a similar period was at 12.5%.
The management sees growth across all segments and has reaffirmed its FY27 top line growth at 15% to 20% rate, with a potential for much stronger growth over the coming years.
Going forward, according to the management the company has visibility of Rs 16 bn plus orders which can be booked in FY27. Around 25% of this expected to come from R&D programs, while balance are basically driven by the production orders.
Astra Microwave has made steady progress in its joint venture company, Astra Rafael Comsys. The JV closed the financial year FY26 with an order book of about Rs 6,250 m and continued to receive significant orders from PSUs and Ministry of Defence.
The management expects it to deliver a top line of over Rs 6,000 m in FY27. Although the profitability during the year was impacted due to forex-related provisions, the company expects improved profitability in the coming year.
Should you consider smallcap stocks with strong growth plans?
Smallcap defence stocks are well placed due to India’s focus on defence manufacturing, import substitution, modernisation, and exports.
Companies involved in defence electronics, aerospace components, drones, and specialised systems could benefit from rising opportunities.
However, investors should be cautious as many stocks have already seen sharp rallies and may trade at expensive valuations. Defence orders can be unpredictable, execution delays are common, and smaller companies may face competition and limited financial strength.
Investors should focus on companies with strong technology, consistent profitability, healthy order books, and reasonable valuations rather than buying only on sector excitement.
Happy investing.
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