Goldman Sachs on 8 defence stocks: Sell BDL; Buy BEL, Astra, Data; Solar, PTC top picks

Goldman Sachs has initiated coverage on eight defence stocks, recommending Buys on Bharat Electronics, Astra Microwave, Data Patterns, Azad Engineering, Solar Industries, and PTC Industries, a 'Neutral' on Hindustan Aeronautics, and a 'Sell' on Bharat Dynamics. Solar and PTC Industries were highlighted as the top picks, with potential upsides of 36 per cent and 58 per cent, respectively.

The brokerage said its picks were backed by three long-term themes: India’s defence market expanding more than sixfold to nearly Rs 10 lakh crore ($122 billion) over the next 20 years, opportunities for indigenisation in components and processed materials where domestic players are under-represented, and rising exports, with government targets of Rs 50,000 crore ($5.8 billion) by FY29 against Rs 23,600 crore ($2.8 billion) in FY25.

Goldman argued that despite India being the world’s fifth-largest defence spender at $80 billion in FY25 and the second-largest importer, the market’s attention has largely remained on PSUs. It sees private-sector players better positioned due to exposure to new technologies like AI-enabled systems, electronic warfare, and UAVs, alongside stronger expected EPS growth of 32 per cent CAGR in FY25–28 versus 13 per cent for PSUs.

It also flagged key investor debates: growth versus cash accretion, order book versus execution, and valuations through the cycle. Risks include shifts in government allocation away from defence, delays in product development, and global OEMs redirecting sourcing priorities.

On Solar Industries, the brokerage said the company was poised for rapid growth in its defence business, led by a capacity build-up in ammunition and energetic materials, a robust export order book, and diversification into high-tech areas. Strong asset turns, a healthy cash conversion cycle, and insulation from order risks via its non-defence business supported earnings visibility. Despite negative free cash flow until FY28 due to heavy capex, Goldman said steady earnings growth of over 25 per cent and return on equity above 25 per cent justified high valuations.

PTC Industries was projected to deliver the steepest earnings trajectory among covered names, with a 123 per cent CAGR through FY28, driven by its ramp-up in aerospace-grade titanium and superalloys. By FY26, PTC is expected to commission the world’s largest single-site recycled titanium capacity, already backed by contracts from global majors. Free cash flow is expected only by FY29, but Goldman said high earnings growth supported its target multiple.

On Astra Microwave, Goldman cited upcoming radar, electronic warfare, and communications programmes as key growth drivers, supported by a six-pronged strategy spanning defence and space. Profitability is expected to improve with a higher share of domestic orders, and free cash flow should turn positive by FY27.

Data Patterns, it noted, works on an IP-led business model with direct integration into user platforms and is among the few listed plays on the BrahMos missile system. Its design-driven, cost-efficient model has enabled higher margins than peers.

Goldman Sachs reiterated a Buy rating on Bharat Electronics (BEL), calling it the first port of call for India’s defence electronics sector. The brokerage said BEL’s diversified order book across all three armed forces insulated it from shifting government spending priorities. Upcoming air defence projects were expected to sustain growth, while higher return on equity and profitability compared to global peers added strength. Unlike many private-sector peers, BEL also generated healthy free cash flow.

On Hindustan Aeronautics (HAL), Goldman remained Neutral, noting that while the order book and pipeline were strong, execution risks persisted in the near term. The growing role of private players in HAL’s supply chain was also seen as a margin headwind. With fair valuations against slower earnings growth, the brokerage saw balanced risk and reward in the stock.

In contrast, Bharat Dynamics (BDL) was rated a Sell, with Goldman highlighting pressure on margins due to higher reliance on externally sourced components. While execution was expected to improve, Street earnings estimates appeared too lofty, leaving downside risk. Valuations, in its view, were steep relative to modest earnings growth expectations.

Azad Engineering, the sole producer of titanium aerofoils in India, was seen benefiting from significant entry barriers in the global market. The company plans a tenfold capacity expansion over the next 6–8 years, with an already strong order pipeline from international players.