Kotak Institutional Equities anticipates a strong second quarter for the financial year 2027 (Q2 FY27) across the Indian defence sector, driven primarily by solid performance from key players like Solar Industries, Bharat Electronics Ltd (BEL), and Hindustan Aeronautics Ltd (HAL).
The brokerage firm noted that India's defence spending and procurement momentum remain robust. Defence capital expenditure (capex) surged by 37 percent year-on-year in the first five months of FY27. Furthermore, Acceptance of Necessity (AoN) approvals have surpassed Rs 1.6 lakh crore year-to-date, with cumulative approvals since FY2024 exceeding Rs 18 lakh crore, providing substantial long-term visibility for Indian defence companies.
Company-Specific Outlooks
Solar Industries India Ltd is projected to lead the growth curve, fueled by a significant increase in its defence revenues. Kotak expects the company to maintain stable margins.
Bharat Electronics Ltd (BEL) and Hindustan Aeronautics Ltd (HAL) are both forecast to achieve healthy double-digit growth. This is attributed to ongoing program execution, including deliveries of Tejas trainers, HTT-40 aircraft handovers, and Dhruv NG helicopter deliveries. Investor attention for BEL will largely focus on the conversion of the QRSAM program into confirmed orders, while HAL's performance is tied to faster execution of the Tejas Mk1A and securing GE engine supplies. Both companies are expected to see improved profitability.
Conversely, Mazagon Dock Shipbuilders Ltd is likely to report flat revenues due to slower execution visibility. Its margins, along with those of Cochin Shipyard Ltd, will largely depend on their project mix. Both shipbuilders will require significant naval order wins to replenish their order books, with Cochin Shipyard specifically looking at large orders like the survey vessel contract, estimated at Rs 50,000 crore.
Key Triggers and Challenges
While the order pipeline remains healthy, timely approvals from the Cabinet Committee on Security (CCS) for major programs such as QRSAM (approximately Rs 30,000 crore), P75I submarines, and Next Generation Corvettes (around Rs 25,000 crore) are crucial. These approvals are vital for converting existing mandates into firm orders and supporting revenue growth through FY2029. Recent approvals predominantly favor domestic procurement, creating diverse opportunities across platforms, radars, electronic warfare systems, helicopters, and naval programs.
Kotak's Ratings and Target Prices
Kotak Institutional Equities has issued the following ratings and target prices for the defence sector:
- Hindustan Aeronautics Ltd (HAL): 'Add' rating with a target price of Rs 5,305.
- Bharat Electronics Ltd (BEL): 'Reduce' rating with a target price of Rs 420.
- Aequs Ltd: 'Reduce' rating with a target price of Rs 240.
- INDO-MIM Ltd: 'Reduce' rating with a target price of Rs 1,110.
- Cochin Shipyard Ltd: 'Sell' rating with a target price of Rs 860.
- Solar Industries: 'Sell' rating with a target price of Rs 11,200.
- Mazagon Dock Shipbuilders Ltd: 'Sell' rating with a target price of Rs 1,950.