When India rolls out a fighter jet or introduces a new missile system, the attention automatically falls on Hindustan Aeronautics Limited (HAL) and Bharat Electronics Limited (BEL). Steel, thrust, and radar groups make for formidable imagery. These are the visible faces of India’s defence objective.
The Transition from Metal to Silicon
But modern defence platforms are no longer identified by metal.
They are characterized by electronics.
Inside every single cockpit, radar dome, missile guidance system, and electronic warfare collection sits a solid network of high-reliability printed circuit boards (PCBs), embedded systems, and signal-processing components.
The electrical system enables precision targeting, coded communication, and real-time battlefield intelligence.
And gradually, two companies, Kaynes Technology and Avalon Technologies, are becoming vital suppliers of those invisible “brains” in India’s ₹50,000 crore defence electronics ecosystem.
They don’t build the aircraft.
They build the brains inside them.
Why the Economics of “Brains” Are Beating the Platforms
Conventional defence platforms are capital-heavy and procurement-driven. Revenue growth is stable but tied to long budget cycles and policy approvals.
Electronics, however, behave differently.
Every new generation of defence gear carries more sensors, more rooted software, and more processing levels than the last. Electronics content per platform is fundamentally rising.
This shift changes the economics.
Unlike full platforms, focused electronics companies benefit from:
- Faster repeat orders across programmes
- Design-led pricing power
- Higher value addition per unit of material
- Better operational leverage
Changing a certified electronics supplier in a defence programme is neither fast nor easy. Qualification phases are long, consistency standards are strict, and the switching risks are very high. That builds structural gluiness.
Numbers Show This Positioning
Kaynes Technology had a consolidated Q3 FY26 revenue of ₹804 crore, growing 22% YoY. While its net profit excluding exceptional items was ~₹78 crore, rising 18% YoY. The 9M FY26 revenue: ₹2,383.7 crore, up ~37% YoY.
Per its latest investor presentation, the return on equity (RoE) was 12.5%, while the return on capital employed for 9M FY26 was 14.1%. However, the stock price fell 8% over the past one year.
Kaynes Technologies 1-Year Share Price Trend
Similarly, Avalon Technologies posted a revenue of ~₹418 crores, up 48.7% YoY. Its profit after tax, excluding exceptional items, was ~₹33 crores, marking a growth of 35.9% YoY.
Per its latest investor presentation, the return on equity (RoE) was 10%, while the return on capital employed for 9M FY26 was 18.8%.
The stock price rose was up 49% over the past year.
Avalon Technologies Share Price Trend
These are not one-off. They represent multi-quarter visibility in high-consistency electronics and subsystem integration.
For context, Kaynes’ order book of ~₹9,000+ crore alone signifies multiple years of revenue exposure.
That kind of backlog depth is uncommon in conventional EMS businesses.
From “Make in India” to “Design in India”
The first wave of India’s electronics momentum was assembly-led.
The second wave is design-led.
That distinction matters.
Kaynes has diversified into embedded systems, high-density Printed Circuit Boards (PCBs), and Outsourced Semiconductor Assembly and Test (OSAT) capabilities, moving beyond contract fabrication into value-added electronics design.
Avalon, on the other hand, has built a vertically unified structure merging PCB assembly, cable coupling, magnetics, and box builds, which lets it deliver subsystem-level solutions.
This move up the value chain is important in defence.
Assembly margins are thin.
Design margins are robust.
And it is visible in the operating margins for Kaynes, which rose from 14% in FY24 to 16% in 9MFY26, growing 190 bps YoY.
Following a similar trend, Avalon Tech has operating margins that grew from 7% in FY24 to 10% in FY25 and 10.4% in 9MFY26, up 68 bps YoY from the same period the previous year. These margins are often driven by factors such as the ability to withstand extreme environments, mission-critical trustworthiness, long-term use, management of unforeseen changes and issues when designing, and quality certifications needed.
Businesses that can offer all these features in their defence products command high margins.
Both companies increasingly work in sectors that need engineering inputs, customisation, and compliance certifications, naturally raising entry barriers for new entrants.
This expansion into value-added electronics aligns directly with India’s defence indigenisation push, as the government continues to increase its negative import lists and prioritise native electronics sourcing.
In short, this is no longer about compiling imported parts.
It is about engineering mission-critical circuitry nationally.
Order Books: The Signal Beneath the Noise
In defence-linked production, order books are more telling than quarterly earnings.
Kaynes’ ~₹9,072 crore and Avalon’s ~₹2,016 crore order book as of December 2025 provides clear revenue visibility.
More importantly, the characteristics of these orders have changed. Orders are now in larger ticket sizes, longer-tenure programmes, and subsystem-level jobs instead of basic assembly
This trend echoes a deeper assimilation into defence and aerospace ecosystems. And the revenue mix is not solely domestic. Kaynes exports to North America, Europe, SE Asia, and other geographies, while Avalon caters to EMSs in the US.
Both firms get a substantial share of revenue from exporting and participating in global aerospace and electronics supply chains.
That export exposure signals compliance with international standards, a prerequisite for defence-grade electronics.
In a geopolitical environment where global Original Equipment Manufacturers are differentiating sourcing away from concentrated geographies, Indian high-consistency electronics suppliers are acquiring strategic relevance.
Margins, Capital Intensity, and Valuation
Markets have noticed.
Kaynes trades at a premium P/E multiple of ~66x compared to the industry median of ~28x.
Avalon also trades at multiples of ~71.5x, which is higher than the P/E of legacy EMS peers ~25x.
The reason is not simply growth, but perceived strength.
But risks aren’t far behind. The high capital expenses needed for complex PCB lines, the risk of technology obsolescence, delays in government purchasing, and implementation challenges in scaling complex programmes
The valuation question is not whether progress exists.
It is whether these companies are closer to becoming design-led defence electronics platforms, or remain high-quality contract manufacturers.
If order books convert efficiently and margin profiles stick, earnings compounding could explain premium multiples.
However, if execution fails, de-rating risk remains.
The Real Leverage in India’s Defence Bet
India’s defence transformation is entering a stage where hardware alone is no longer the differentiator.
The competitive edge now lies in processing speed, electronic warfare competence, secure communication levels, and system integration, all of which sit inside the integrated circuit rather than the chassis.
That has profound economic implications.
As defence platforms become more electronics-dense, value migrates upstream, to companies that design and manufacture the intelligence layers.
Unlike large platforms that are tied to erratic mega-orders, electronics suppliers participate across multiple programmes simultaneously.
Their revenues scale not just with new platforms, but with upgrades, retrofits, and subsystem refresh cycles.
Kaynes and Avalon are positioned at that fork, where indigenisation policy, export diversification, and rising electronics content converge.
The market has begun pricing this transition in.
But here is the more important question:
If India’s defence budget continues expanding and electronics content per platform keeps growing, will the next phase of value creation accrue more to those constructing the aircraft, or to those engineering the circuitry that makes it decisive?
For investors, the answer may determine where the real compounding lies over the next decade. To keep track of the story as it unfolds, perhaps add these stocks to your watchlist.
Disclaimer:
Note: We have relied on data from www.Screener.in 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.
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Archana Chettiar is a writer with over a decade of experience in storytelling and, in particular, investor education. In a previous assignment, at Equentis Wealth Advisory, she led innovation and communication initiatives. Here she focused her writing on stocks and other investment avenues that could empower her readers to make potentially better investment decisions.
Disclosure: The writer and her dependents do not hold the stocks discussed in this article.
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