BEL, HAL, BDL, SOIL, Data Patterns shares: Why Nuvama sees selective winners in defence pack

Nuvama Institutional Equities said on Friday that India’s defence ecosystem continues to scale, with production in FY26 reaching an all-time high of Rs 1.78 lakh crore, up 15.6 per cent year-on-year (YoY) and 110 per cent over FY21, while exports touched a record Rs 38,400 crore. It said private sector contribution rose to 24 per cent, or about Rs 42,000 crore, and added that while structural tailwinds remain in place, stock-level differentiation is likely to be driven by execution and localisation.

The brokerage said it prefers players with faster execution cycles, higher localisation and a superior margin profile, favouring consumable-led plays such as SOIL and defence electronics and subsystem companies such as BEL and DPIL. It said integrators such as Hindustan Aeronautics Ltd (HAL) and Bharat Dynamics Ltd (BDL) offer strong visibility, but longer execution cycles and supply-chain dependencies could lead to near-term variability. Its top picks are Solar Industries India Ltd (SOIL) and Bharat Electronics Ltd (BEL).

Nuvama said the sector is moving from building domestic manufacturing capability to accelerating the deployment of advanced defence systems. It said the initial phase of indigenisation was centred on import substitution, the creation of domestic production lines and the expansion of DPSU and private manufacturing capabilities. According to the brokerage, the next phase is likely to be driven by capability enhancement across missiles, air defence systems, electronic warfare, radars, unmanned platforms and precision ammunition.

It said the recent Rs 52,000 crore AoN approvals reinforce this shift towards operational readiness and technology-intensive procurement, which in its view favours companies with indigenous capabilities, faster execution cycles and stronger control over critical technologies. While order visibility remains strong, with multi-year backlogs across companies, Nuvama said the next phase of value creation will depend on execution quality and earnings conversion. It said BEL, Data Patterns India Ltd (DPIL) and SOIL are better placed on account of higher localisation, shorter execution cycles and superior margin profiles, while HAL and BDL remain more exposed to complex programme execution and supply-chain dependencies.

On Q1FY27, Nuvama said the sector enters the quarter with strong structural visibility, supported by healthy order books, continued indigenisation momentum and a robust procurement pipeline, though execution trends are likely to remain divergent across its coverage universe. It said BEL is likely to post steady execution with sustained margins of more than 27 per cent, supported by operational efficiencies and localisation benefits. SOIL and DPIL, it said, should continue to benefit from a favourable defence mix, operating leverage and shorter-cycle opportunities. In contrast, HAL’s execution remains constrained by LCA Tejas and other platform deliveries, while BDL’s recovery depends on improved execution run-rate and margin normalisation.

Nuvama expects SOIL to deliver a 39 per cent EPS CAGR over FY26-28E with around 31 times RoE at 48 times PE FY28E, and BEL to post a 14 per cent EPS CAGR over FY26-28E with around 25 per cent RoE at 38 times PE FY28E.