India's Defence Ambition Ignites: ₹3 Trillion Target, Huge Orders & Stocks Set to Soar!

India is strategically positioning itself as a global defence manufacturing powerhouse, with ambitious targets for production and exports. Recent significant approvals by the Defence Acquisition Council and an anticipated budget increase signal a robust commitment to deepening domestic capabilities, making defence stocks a renewed focus for investors.

India aims to achieve defence production worth ₹3 trillion and defence exports of ₹50,000 crore by 2029. This vision is bolstered by recent approvals from the Defence Acquisition Council (DAC) for proposals totaling ₹670 billion for the Indian Army, Navy, and Air Force. The Defence Ministry is also seeking a substantial 20% increase in the defence budget for the Financial Year 2027. These initiatives underscore a strong governmental intent to foster and deepen indigenous defence manufacturing capabilities.

Three prominent public sector undertakings (PSUs) are identified as key beneficiaries: Bharat Electronics Limited (BEL), Hindustan Aeronautics Limited (HAL), and Bharat Dynamics Limited (BDL). The recent dip in defence stock prices from their peaks presents a potential opportunity for investors to re-evaluate these companies.

Bharat Electronics Limited (BEL)

• BEL is a leader in aerospace and defence electronics, serving both defence and civilian sectors with advanced technology solutions.
• Its core operations involve supplying state-of-the-art products like Radars, Missile systems (e.g., Akash, LRSAM), and Defence communication systems to the Indian Armed Forces.
• The company has a strong focus on self-reliance, with 74% of its FY25 turnover derived from indigenously developed products.
• BEL boasts an order book of ₹756 billion as of October 31, 2025, providing over five years of revenue visibility based on FY25 revenue.
• It anticipates receiving ₹570 billion in new orders in FY26, potentially growing its order book to approximately ₹1,300 billion.
• Financially, BEL reported a 15.9% year-on-year revenue growth to ₹101.8 billion in H1 FY26, with a 19.7% increase in profit after tax (PAT) to ₹22.6 billion, driven by strong order execution and expanding EBITDA margins to 30.2%.
• BEL plans to diversify, aiming to increase non-defence revenue to 20% of its total turnover by FY27 through exports to various global regions.

Hindustan Aeronautics Limited (HAL)

• HAL is a strategic player in aerospace, defence, and space, providing research, development, manufacturing, and MRO services primarily to the Indian Armed Forces.
• Its expertise includes Transfer of Technology projects for aircraft like Su-30MKI and Jaguar.
• Repair and Overhaul is HAL's largest segment, contributing 70% of turnover and ensuring consistent revenue.
• The company manufactures key platforms such as the LCA Tejas, Advanced Light Helicopter, and supplies engines for Sukhoi fighter jets.
• HAL also manufactures aerospace structures for the Indian Space Research Organization (ISRO).
• Its order book stood at ₹2.3 trillion as of November 14, 2025, offering revenue visibility for over six years, potentially extending to FY33.
• A significant recent development is the ₹624 billion contract for 97 additional LCA Mk1A aircraft for the Indian Air Force, with deliveries starting in FY28.
• HAL also secured a $1 billion deal with GE Aerospace for 113 F404-GE engines, necessitating production capacity expansion.
• The company plans ₹150 billion in capex over five years to boost aircraft manufacturing capacity.
• While facing competition from private players due to reforms like the Defence Acquisition Procedure 2020, HAL benefits from government priority for indigenous products.
• The recent Tejas crash at the Dubai air show is not expected to significantly impact the company's prospects, according to management.

Bharat Dynamics Limited (BDL)

• BDL specializes in missile technology and allied defence equipment, evolving into a comprehensive weapon system integrator.
• It is a key player in manufacturing Surface-to-Air Missiles (SAMs), torpedoes, and Anti-Tank Guided Missiles in India.
• BDL holds an order book of nearly ₹235 billion for execution over the next 3-4 years.
• It projects a robust pipeline of ₹500 billion over the next five years, targeting ₹200 billion in new orders in the next 2-3 years.
• BDL is well-positioned to capitalize on DAC approvals focused on missile systems and undersea warfare equipment, including projects like BrahMos and Nag missile systems.
• The company is enhancing indigenization of critical technologies and plans to allocate 9% of revenue to R&D for technology leadership.
• BDL aims to significantly increase its export share to 25% by FY30.
• Capex plans include a new Jhansi Unit for missile propulsion systems and facility upgrades.
• Financially, BDL reported significant revenue growth of 110.6% to ₹11.5 billion in Q2 FY26, with PAT doubling to ₹2.2 billion, although EBITDA margins slightly declined to 16.3%.

Valuation and Financial Health

• BEL and HAL exhibit strong return ratios (RoCE, RoE) due to consistent profitability and execution.
• BDL shows inconsistent profitability, impacting its return ratios.
• BEL and HAL are trading at a discount to the industry median P/E ratio but at a premium to their 5-year median valuations.
• BDL's valuation appears expensive compared to industry and 5-year medians.
• The consistent order book and long-cycle nature of defence programs are expected to sustain momentum for these companies.

Impact

• The government's push for domestic defence manufacturing is expected to significantly boost revenue and profitability for BEL, HAL, and BDL.
• This strategy aligns with national security objectives and aims to reduce import dependency, creating long-term value for shareholders.
• Increased defence spending and order activity will likely lead to sustained positive market sentiment for defence stocks.
• Impact Rating: 9/10

Difficult Terms Explained

• ₹ (Rupee): The official currency of India.
• Trillion: A number equal to one million million (1,000,000,000,000).
• Crore: A unit in the Indian numbering system equal to ten million (10,000,000).
• FY (Financial Year): A 12-month period for accounting and budgeting purposes. In India, it typically runs from April 1 to March 31.
• Defence Acquisition Council (DAC): The highest body in the Ministry of Defence responsible for approving defence procurement proposals.
• Billion: A number equal to one thousand million (1,000,000,000).
• Indigenous: Produced or originating in a particular country.
• EBITDA: Earnings Before Interest, Tax, Depreciation, and Amortization; a measure of a company's operating performance.
• PAT (Profit After Tax): The net profit of a company after all taxes have been deducted.
• Basis Points (bps): A unit equal to 1/100th of 1% (0.01%). Used to describe small changes in percentages.
• MRO (Maintenance, Repair, and Overhaul): Services provided to keep aircraft and equipment in operational condition.
• LCA Tejas: A light, single-engine, delta-wing, multirole fighter aircraft developed by Hindustan Aeronautics Limited.
• GE Aerospace: An American company that designs, manufactures, and sells jet engines for commercial and military aircraft.
• Defence Acquisition Procedure (DAP) 2020: The policy framework governing defence procurements in India.
• DRDO: Defence Research and Development Organisation; India's government agency responsible for the research and development of defence technologies.
• AI (Artificial Intelligence): Technology that enables machines to simulate human intelligence processes.
• ML (Machine Learning): A subset of AI that allows systems to learn from data without explicit programming.
• Industry 4.0: The fourth industrial revolution, characterized by automation, data exchange, and connectivity in manufacturing.
• RoCE (Return on Capital Employed): A profitability ratio that measures how efficiently a company uses its capital.
• RoE (Return on Equity): A profitability ratio that measures how much profit a company generates with the money shareholders have invested.
• P/E Ratio (Price-to-Earnings Ratio): A valuation ratio that compares a company's stock price to its earnings per share.
• Public Sector Undertaking (PSU): A company owned by the Indian government.