The Indian defence sector has been on a strong run, buoyed by a robust budgetary outlay of ₹1.8 lakh crore in Budget 2025. Beyond the substantial budget, utilization has also remained robust, with over 50% utilised in the H1FY26, as per Nuvama Institutional Equities. This provides strong revenue visibility.
The revenue visibility roadmap: H1 FY26 utilization update
Beyond the immediate fiscal budget, the sector is supported by a large accumulation of approvals. Over the past 36 months, approximately ₹9 lakh crore in Acceptances of Necessity have been approved. Also, the pipeline for Defence Public Sector Undertakings is estimated at ₹10 lakh crore, thereby ensuring strong order visibility.
India Defence Budget Trend
Not only this, given the macroeconomic instability that is reshaping the global arms race, India is expected to hike its defence budget by 10-15% in Budget 2026. This is likely to take the defence budget to around ₹2 lakh crore. Defence spending has transitioned from discretionary to essential, as India’s defence budget still hovers around 1.9% of GDP, below the recommended 3%.
This article focuses on three companies that remain well-positioned to deliver amid rising defence outlays. Valuations, which have been derated post-recent correction, also make this an opportune time to relook at these names. Let’s take a look…
#1 Bharat Electronics: The Systems Integrator with a ₹1 Lakh Crore Pipeline
Bharat Electronics (BEL) is a state-owned enterprise under the Ministry of Defence and designs and manufactures advanced electronic equipment for the Indian Armed Forces. The company is a key player in Missile Systems, Radars and Surveillance, Electronic Warfare, Naval Systems, and Avionics.
A ₹1 Lakh Crore Roadmap
As of 31 October 2025, BEL’s order book stood at about ₹75,600 crore, providing revenue visibility of about 3 years, based on trailing 12-month (TTM) revenue of ₹25,152 crore. The top orders currently held include LRSAM (₹5,000 crore), Electronic Fuses (₹4,500 crore), BMP-2 upgrade (₹3,000 crore), and Akash systems (₹2,700 crore).
BEL has a project pipeline exceeding ₹1 lakh crore over the next 18-24 months. It is expected to benefit from the modernization and localization drive, growing at 2-3 times the rate of the defence budget, Nuvama states.
BEL consistently beats margin estimates, with guidance of an operating profit margin of 27%+. It has demonstrated execution capabilities with a 90-95% on-time delivery confidence.
The ₹30,000 crore QRSAM Catalyst
A key trigger is the potential ₹30,000 crore order for the QRSAM (Quick Reaction Surface-to-Air Missile) system. The company is fully confident of receiving the QRSAM order by March 2026.
This program will involve a “First of Production Model” (FoPM) realization phase lasting 12 to 18 months. Revenue recognition is likely to begin in the financial year following FoPM clearance. The total execution timeline is estimated at 5 to 6 years.
Beyond QRSAM, BEL expects orders for the Next Generation Corvette subsystems (₹4,500 crore this fiscal), avionics packages for 97 LCA Mark 1A aircraft (₹2,500 crore), and various emergency procurement orders. BEL is currently a development partner for radars and control centers under Project Kusha (Sudarshan Chakra).
A production order is expected by December 2029, following prototype development and trials. To capitalise on the strong budget pipeline and deliver orders on time, BEL has pledged to invest at least ₹1,400 crore over the next 3-4 years. The budget will be used to set up a defence system integration complex in Andhra Pradesh.
This 920-acre facility will focus on the integration, testing, and qualification of complex missile systems, such as QRSAM. BEL has formed a consortium with L&T to bid for the Advanced Medium Combat Aircraft (AMCA) program. The strategic goal is to move beyond supplying electronic modules to becoming a system integrator for airborne platforms.
#2 Hindustan Aeronautics: Navigating the GE Engine Supply Chain Bottleneck
Hindustan Aeronautics (HAL) manufactures aircraft and helicopters, and also provides repair and maintenance services. It is currently in transition. While it holds an unprecedented order book, its ability to translate these orders into revenue is currently constrained by supply chain bottlenecks.
The ₹2.3 lakh crore Order Book
HAL holds a backlog of about ₹2.3 lakh crore, providing revenue visibility of about 7 times TTM revenue. Beyond this backlog, there is a “staggering pipeline” of over ₹4 lakh crore expected to materialize over the next decade. However, subdued execution is expected to persist for the next 2-3 years.
Navigating a 7x Revenue Backlog Amid Global Supply Constraints
HAL has received only five GE engines so far. This delay in the delivery of GE-404 engines for the LCA Tejas Mk1A fighter jets is expected to affect the execution of the order book. While the commitment was for 8-10 units, HAL is estimated to deliver only 3 units in FY26, contributing roughly 5% to the top line. Thus, the delivery schedule for the LCA Tejas is a critical monitorable for HAL’s near-term performance.
The ₹4 Lakh Crore Long-Term Pipeline for AMCA and IMRH
Execution risks are not limited to Tejas alone. Other platforms, such as the ALH Dhruv, Dornier, and HTT-40, are also facing delays due to global supply chain issues and domestic regulatory hurdles. Despite near-term hurdles, HAL remains the primary integrator for Indian military aviation. The ₹4 lakh crore pipeline includes several major indigenous platforms.
On the helicopter side, the Indian Multi-Role Helicopter (IMRH) alone represents a potential outlay of ₹94,200 crore around FY28-29, complemented by ₹62,700 crore for Light Combat Helicopters and ₹26,600 crore for Light Utility Helicopters spread over ten years.
In combat aircraft, capital intensity rises further, with the AMCA programme estimated at ₹1.1 trillion by FY34-35, the LCA Mark 2 at ₹96,000 crore by FY29-30, and ₹14,000 crore earmarked for the Twin Engine Deck-Based Fighter. Higher competition risks also persist.
Private players have formed consortia to bid for upcoming projects, potentially diluting HAL’s incumbency. Consortia involving L&T, Bharat Forge, and Adani Defence are participating in the bid process for the AMCA program. HAL is working to localize critical components through partnerships with companies like MIDHANI and PTC Industries.
#3 Solar Industries: The Pivot from Industrial Explosives to High-Tech Munitions
Solar Industries is one of the largest domestic manufacturers of bulk and cartridge explosives, detonators, detonating cord, and components. It has about 24% market share in the explosives sector. Its Nagpur plant is the world’s largest single-location cartridge plant.
Aiming for 50% Revenue Contribution by FY28
Solar is viewed as a “structurally high-growth company” that is currently undergoing a massive pivot. Historically known for industrial explosives, it is rapidly scaling into a major defence player. Defense revenue exceeded ₹900 crores for the first half of FY26, accounting for 22% of revenue.
Solar aims to scale its defence revenue share from 30% (FY26E) to 50% by FY28. Exports act as a second major pillar of growth, driven by global ammunition shortages and the company’s expansion into new markets. Solar is setting up operations in Australia and Kazakhstan and plans to enter Saudi Arabia.
It targets 15% annualised growth in its international business geographies. The company holds a defence order book of approximately ₹15,500 crores, providing revenue visibility of around 2 years, based on a TTM of ₹8,376 crore.
Scaling Pinaka Rocket Production and 155mm Shell Trials
Approximately ₹6,000 crore of the order book is attributed to Pinaka rockets. Commercial sales for Pinaka rockets are scheduled to begin in the third quarter. The company expects significant growth from this vertical starting in Q3. Additionally, it has participated in the guided Pinaka rocket program and anticipates receiving commercial orders within 1 to 2 quarters.
The company has commenced trial production of 155mm shells and will supply them for technical qualification. Commercial production is expected to begin in Q4, with the strategic aim of manufacturing the full round of 155mm ammunition. Also, Solar has supplied Nagastra loitering munitions, which were used in recent conflicts, and has received repeat orders.
The Export Frontier: Capitalizing on Global Ammunition Shortages
Bhargavastra (Counter-Drone) is currently in development, with initial trials proving successful. The company aims to complete field trials by March 2026. It is developing a solution that includes both “hard kill” and “soft kill” capabilities. In addition, the company has received orders for energetic materials and is capitalizing on the global ammunition shortage.
The Execution Credibility Test
All three companies boast strong return ratios, Return on Capital Employed (ROCE), and Return on Equity (ROE). This reflects their strong profitability over the past few years, as defense has become a structural long-term theme. BEL’s valuation is now below its historical multiple and in line with the industry.
| Peer Comparison (X) | |||||
| Company | P/E | 3Y Median P/E | Industry Median P/E | ROCE (%) | ROE (%) |
| BEL | 52.7 | 45.2 | 53.8 | 38.9 | 29.2 |
| HAL | 34.0 | 33.7 | 33.9 | 26.1 | |
| Solar | 86.7 | 88.6 | 23.3 | 38.1 | 32.6 |
Solar Industries is currently trading at a premium to both standalone multiples and the industry median. HAL is trading at a multiple in line with historical levels and below the industry median. That said, order backlogs now equivalent to 3-5 times their annual revenues, the primary constraint for the sector is no longer order inflows but rather execution credibility.
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 were unavailable have we used an alternate, widely accepted, and widely used 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.
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