As the Q2 earnings season approaches, ICICI Securities has highlighted Hindustan Aeronautics Ltd (HAL), Bharat Electronics Ltd (BEL), and Azad Engineering as its premier defence sector stock recommendations. The brokerage anticipates that these companies will be significant beneficiaries of evolving warfare dynamics and increased procurement in the aerospace segment.
Strategic Sector Growth and Government Backing
ICICI Securities maintains a structurally positive outlook on India's defence sector, citing strong government policy support. The Ministry of Defence's ambitious capital outlay target of Rs 3 lakh crore by 2029 and a growing export footprint underscore this commitment. Analysts project sustained double-digit compound annual growth rate (CAGR) in defence capital expenditure. Furthermore, with defence procurement approvals totaling Rs 8 lakh crore over the past 18 months, a notable acceleration in order inflows is expected in the second half of fiscal year 2027.
The firm predicts that orders worth Rs 2–3 lakh crore will materialize into Request for Proposals (RFPs) and contracts within the next 12-18 months. The geopolitical landscape, particularly conflicts in the Middle East, has reinforced the urgency of defence budgets across the GCC region, providing a structural tailwind. Indian Original Equipment Manufacturers (OEMs) with established export records or Memoranda of Understanding (MoUs) are particularly well-positioned to capitalize on this, especially in areas like missiles, drones, aerospace, defence electronics, and radars.
Q2 Expectations Across Defence Players
For the September quarter, ICICI Securities projects a generally muted performance for Public Sector Undertakings (PSUs), with revenue growth likely ranging from flat to lower-double digits, consistent with historical trends. Conversely, certain private sector players are expected to demonstrate strong execution, potentially achieving revenue growth of 10–50 percent year-over-year, deviating from previous patterns.
Key highlights for Q2 include:
- Strong Performers: Zen Technologies (55% YoY revenue growth), Solar Industries India (52% YoY), and Azad Engineering (30% YoY) are expected to lead with robust execution.
- Margin & EBITDA Growth: Azad Engineering's margins are likely to remain elevated, partly boosted by rupee depreciation. Data Patterns (India) Ltd is forecasted to see approximately 31% YoY EBITDA growth, driven by aerospace deliveries and strong hydraulics demand.
- Steady PSU Execution: Bharat Electronics Ltd (15% revenue YoY) and Mishra Dhatu Nigam (MIDHANI) (15% revenue YoY) are anticipated to show steady execution, with BEL's margins at the upper end of its guided range.
- Muted Performance: Hindustan Aeronautics Ltd (HAL) could experience a softer quarter (6% revenue YoY) due to a higher base and delays in Tejas Mk-1A deliveries. Bharat Dynamics Ltd (BDL) is projected to see declines in revenue (-2%), EBITDA (-15%), and PAT (-17%) YoY, despite increased Akash missile execution.
- Moderate Growth: Astra Microwave Products is expected to post moderate growth (+10% revenue YoY), with execution predominantly back-ended in H2FY27.
Future Catalysts for the Sector
Looking ahead, several factors are poised to drive the defence sector's growth. These include order accretion for P75(I) submarines, various missile platforms (QRSAM, MRSAM, and VL-SRSAM), new radar systems, and advanced anti-drone technologies. The commencement of Tejas Mk-1A fighter jet deliveries is also identified as a crucial catalyst for sustained momentum in the industry.