BEL, Dixon Tech, RITES, HAL, BEML: Top picks from defence & CapGoods; check Q3 preview

Domestic brokerage firm Elara Capital sees muted Q3 order inflows in capital goods and defence space. Order inflows for Elara's coverage universe of capital goods companies, excluding Larsen & Toubro (L&T), declined 20% year-on-year (YoY) in Q3FY26. Defence inflows fell 52% YoY, mainly due to a large prior-year order for Hindustan Aeronautics. Adjusting for these one-off orders, overall inflows saw a 6% reduction.

Adjusted Q3 inflows dropped 37% YoY to about Rs 25,830 crore. Major capital goods companies (excluding L&T) announced cumulative orders of Rs 32,400 crore, down 20% YoY, with a substantial thermal order by BHEL partially offsetting the decline. Defence order inflows were Rs 9,900 crore, reflecting the absence of a large Rs 13,500 crore order for 12 Su-30MKI aircraft won by Hindustan Aeronautics in the previous year.

Within capital goods, inflows rose 12% YoY to Rs 22,530 crore, supported by demand in power generation, transmission & distribution, and EPC. Excluding the large defence order, sector inflows actually rose 38% YoY, showing underlying strength.

Elara Capital projects a 10% YoY revenue increase for its capital goods universe in Q3FY26E, citing strong industrial demand and robust execution. ABB India’s Q4CY25E revenue may grow 9% YoY, Siemens’ Q5FY26E by 12%, Thermax by 6%, and Cummins by 6%. KEI Industries’ revenue may grow 31% YoY on strong infra demand and higher copper prices.

BEML Ltd revenue may rise 6% due to a railway order execution slowdown, and RITES Ltd could grow 5% YoY. KEC International’s revenue may grow 14%, driven by T&D execution. In defence, Bharat Dynamics’ sales may rise 16%, Garden Reach Shipbuilders & Engineers by 32%, Bharat Electronics Ltd by 10%, and Hindustan Aeronautics Ltd by 6%. ZEN Technologies’ revenue may drop 5%.

KEI Industries reached an intraday high of Rs 3,001.90 and closed at Rs 2,935.95. Its 1-month return is 8.6%, and 1-year return is 122%, outperforming the Sensex (1-month: 2%, 1-year: 22%). KEI's P/E is 41.1, P/B 8.8, dividend yield 0.17%, and 52-week high/low is Rs 3,001.90/Rs 1,323.65.

Industry peers include BHEL, ABB India, Siemens, Cummins India, KEC International, Bharat Dynamics, Garden Reach Shipbuilders & Engineers, and Hindustan Aeronautics. In consumer durables and electronics: Voltas, Amber Enterprises, Dixon Technologies, V-Guard, Havells India, Polycab, Crompton Greaves Consumer, and Eureka Forbes.

Elara Capital’s research notes that while muted inflows may constrain short-term revenue visibility, order momentum in cables & wires and power infrastructure remains resilient. The brokerage’s preference for select names reflects confidence in their execution and order visibility.

According to the report: "Growth likely to be muted in Q3 for durables; EMS to continue to grow. Consumer Electricals, Durables, and Electronics firms may see a 14% YoY sales growth in Q3FY26E, led by electronics. Room air conditioners are set for a moderate recovery in Q3 versus Q2, despite higher channel inventory and upcoming BEE norms. Voltas’ revenue may fall 6% YoY. AMBER may grow 2%, KAYNES 48%, Dixon Technologies 11%, V-Guard 7%, Havells India 12%, Polycab 28%, Crompton Greaves Consumer 5%, and Eureka Forbes 12%. Preferred picks: AMBER, KAYNES, DIXON, and EUREKAFO."

From a regulatory perspective, the sector remains influenced by public and private capex cycles, procurement policies, and changes in energy efficiency standards, such as the upcoming BEE norms for air conditioners.

Elara Capital’s outlook continues to favour firms with robust order books and execution capability, especially those in infrastructure, defence, and electronics manufacturing services, including BEML, Zen Technologies, Amber, Kaynes Technology, RITES, Bharat Electronics, Eureka Forbes, and KEI Industries.

Elara’s preferred picks in capital goods remain BEML, Zen Technologies, KEI Industries, RITES, and Bharat Electronics. It has picked Amber Enterprises, Dixon Technologies, Kaynes Technologies and Eureka Forbes from the  its capital goods coverage universe.