BEL, Mazagon, HAL, Cochin Shipyard, Solar: check Q2 previews, price targets for defence stocks

Kotak Institutional Equities said defence spending and procurement momentum in India remained strong, with defence capex spending rising 37 per cent year-on-year (YoY) in 5MFY27 and Acceptance of Necessity approvals crossing Rs 1.6 lakh crore year-to-date. It said cumulative approvals since FY2024 had crossed Rs 18 lakh crore, giving Indian defence companies strong long-term visibility.

Kotak said the order pipeline remained healthy, but timely approval from the Cabinet Committee on Security for large programmes such as QRSAM, P75I submarines and Next Generation Corvettes would be critical to convert approvals into orders and support FY2029 revenue growth. It added that the latest approvals were largely domestic in nature, creating opportunities across platforms, radars, electronic warfare systems, helicopters and naval programmes.

In its defence coverage, Kotak expects healthy 2QFY27 numbers, led by continued execution of programmes and platform deliveries. Solar Industries India Ltd is expected to lead growth on the back of a sharp ramp-up in defence revenues. BEL and HAL are also expected to post healthy double-digit growth, supported by ongoing execution, Tejas trainer deliveries, HTT-40 handovers and Dhruv NG deliveries.

Mazagon is likely to report flat revenues because of slower execution visibility, while Cochin Shipyard is expected to benefit from higher shipbuilding activity and steady ship repair execution. On margins, the brokerage expects BEL and HAL to see improved profitability and Solar Industries to maintain stable margins, while margins for Mazagon and Cochin Shipyard are seen depending largely on project mix.

For precision engineering companies under its coverage, Kotak expects a healthy Q2FY27, led by Aequs Ltd, where growth is expected from aerospace and consumer ramp-up. It said aerospace order inflows and consumer utilisation would remain key monitorables. INDO-MIM Ltd is expected to deliver steady sequential growth driven by MIM, casting and machining, with margins dependent on the contribution from higher-margin defence and medical segments.

Kotak Institutional Equities said investor focus for BEL would remain on QRSAM conversion, while HAL remained dependent on faster Tejas Mk1A execution and GE engine supplies. It said timely clearance of programmes including QRSAM, estimated at about Rs 30,000 crore, next generation corvettes, estimated at about Rs 25,000 crore, and Cochin Shipyard's survey vessel order, estimated at about Rs 50,000 crore, would be important for sustaining order inflows.

The brokerage added that Mazagon Dock and Cochin Shipyard Ltd would need large naval order wins to replenish order books, while Solar Industries, Aequs and INDO-MIM were expected to maintain growth momentum, with profitability in some cases linked to business mix.

From the defence space, Kotak has no 'buy' rating. It has an 'add' rating for Hindustan Aeronautics Ltd with a target price of Rs 5,305. It has a 'reduce' rating for Aequs (Target Price: Rs 240), Bharat Electronics Ltd (Target Price: Rs 420) and Indo-MIM (Target Price: Rs 1,110). It has a 'sell' rating on Cochin Shipyard Ltd (Target Price: Rs 860), Solar Industries (Target Price: Rs 11,200) and Mazagon Dock Shipbuilders Ltd (Target Price: Rs 1,950).