Sector Update | 7 December 2025
Defense
BEL - Financials & Valuations (INR b)
Y/E MARCH
FY26E FY27E FY28E
Sales
276.7 325.5 386.4
EBITDA
78.9 92.8 108.2
Adj PAT
60.8 72.1 83.8
EPS (INR)
8.3
9.9 11.5
EPS Gr. (%)
15 18.6 16.2
BV/Sh (INR)
34.3
43
53
Ratios
RoE (%)
24.2
23 21.6
RoCE (%)
27.2 25.6 23.9
Payout (%)
12.4 12.4 12.4
Valuations
P/E (x)
48.8 41.2 35.4
P/BV (x)
11.8
9.5
7.7
EV/EBITDA (x)
35.5 29.5 24.7
Div Yield (%)
0.3
0.3
0.4
HAL - Financials & Valuations (INR b)
Y/E MARCH
FY26E FY27E FY28E
Sales
375 453.4 584.6
EBITDA
111.2 129.4 159.2
Adj PAT
95.6 107.6 132.3
EPS (INR)
142.9
161 197.8
EPS Gr. (%)
14.3 12.7 22.9
BV/Sh (INR)
625.9 741.9 894.7
Ratios
RoE (%)
22.8 21.7 22.1
RoCE (%)
23.6 22.3 22.6
Payout (%)
28
28 22.8
Valuations
P/E (x)
31 27.6 22.4
P/BV (x)
7.1
6
5
EV/EBITDA (x)
22.5 18.7 14.4
Div Yield (%)
0.9
1
1
BDL - Financials & Valuations (INR b)
Y/E MARCH
FY26E FY27E FY28E
Sales
45.8 61.1 81.5
EBITDA
10.9 15.1 20.8
Adj PAT
10.4 13.9 19.1
EPS (INR)
28.3 37.9
52
EPS Gr. (%)
88.6 33.9 37.3
BV/Sh (INR)
131.6 162.5 206.5
Ratios
RoE (%)
21.5 23.3 25.2
RoCE (%)
22.1 23.8 25.6
Payout (%)
21.4 18.4 15.4
Valuations
P/E (x)
53.5 39.9 29.1
P/BV (x)
11.5
9.3
7.3
EV/EBITDA (x)
45.5 31.7 21.8
Div Yield (%)
0.4
0.5
0.5
Several catalysts at play
India’s defense sector has been witnessing many developments lately, such as ongoing
negotiations with various countries for defense deals, including export ramp-up; recent DAC
approvals; TPCR roadmap; ongoing emergency procurement; and expectations of higher
budgetary allocation. All these factors allay concerns about order inflow prospects in the
sector, and hence we expect the ordering momentum to stay strong for the sector. We expect
export opportunities to gradually open up for the sector as several defense PSUs are
developing larger platforms. Increasing indigenization supports the margin trend for
companies. We maintain our positive stance on the defense sector and we have a BUY rating
on BHE (TP: INR500, based on 45x two-year forward EPS), HAL (TP: INR5,800, premised on DCF
and 32x two-year forward EPS), and BDL (TP: INR2,000, based on 42x two-year forward EPS).
We remain Neutral on Zen Technologies.
Long-term visibility intact
We expect the defense sector to continue to benefit from 1) the expected increase
in fund allocation in the upcoming budget, supporting continued increase in TAM; 2)
AoNs worth INR7t approved during FY24-10MFY26, supporting incremental order
inflows over next few years; 3) incremental spending on defense across NATO
countries, thereby opening opportunities for defense exports; and 4) additional
momentum from the INR400b emergency procurement program under the ‘Fast
Track Procedure (FTP)’ category, which mandates significantly shorter acquisition
timelines.
Strong prospect pipeline across platforms
Our analysis of management commentaries of most defense players suggests a
strong prospect pipeline. In the
defense electronics
space, companies are
witnessing strong TAM for long-term radar, avionics, communication, and EW
orders. Bharat Electronics is expecting a subsystems order from next-generation
corvettes and an avionics order from LCA MK1A, mountain radar, Shatrughat and
Samaghat EW systems, apart from a large QRSAM order. Similarly, Astra Microwave
is expecting orders from QRSAM, Uttam radar from Tejas Mk1A, EW suite and
Virupaksha AESA radar from Su-30 MK1 upgrade, weapon locating radar, etc. In
missile and explosives,
companies expect near-term inflows from tactical missile
systems, air-defense systems, and follow-on orders for precision-strike and guided-
rocket programs. Bharat Dynamics is expecting orders from emergency
procurement, QRSAM, follow-on Astra orders from HAL, VSHORADS, etc. Solar
Industries is targeting orders from loitering munitions, counter-drone systems,
missile programs like Project Kusha as well as orders on the ammunition side from
global markets. In
defense aircraft,
HAL has recently been awarded a follow-on
order of 97 Tejas Mk1A aircraft, and the focus is on execution.
Teena Virmani - Research Analyst
(Teena.Virmani@MotilalOswal.com)
Research Analyst: Prerit Jain
(Prerit.Jain@MotilalOswal.com) |
Vatsal Magajwala
(Vatsal.Magajwala@MotilalOswal.com)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.