HAL, BEL, BDL, Data Patterns, Zen Tech, Solar Ind: Nuvama shares targets on defence stocks

Nuvama Institutional Equities in a fresh note said India’s defence sector is entering a high-growth phase, supported by a robust Rs 10 lakh crore worth defence PSU order pipeline, expectations of higher budget allocations—particularly for the Air Force and Navy and a strong push toward indigenisation. The Ministry of Defence’s (MoD) new 15-year roadmap reinforced this outlook with ambitious plans for nuclear-powered warships, hypersonic missiles, stealth UCAVs, directed-energy weapons, and enhanced AI and space-warfare capabilities, the brokerage said.

The brokerage remained structurally positive on the sector, identifying defence electronics as a key outperformer. This segment is expected to grow at 1.5–2 times the capital outlay (around 14–15 per cent CAGR), driven by large platform orders and ongoing modernisation. The brokerage named Bharat Electronics Ltd (BEL) as its top pick, projecting 16 per cent EPS CAGR over FY25–28E, with 26 per cent return on equity (RoE) and 43 times FY27E P/E.

On project-based and product-led companies, Nuvama said that while Hindustan Aeronautics Ltd (HAL) has a strong order backlog, execution and cost control remain key. It estimates 10 per cent YoY execution growth in Q2FY26, supported by base orders, though Tejas aircraft deliveries are yet to begin. Of the 12 LCA units targeted for FY26, only about seven may be delivered, contributing around 13 per cent of FY26 sales, it said. In contrast, BEL is seen as a stronger play with better execution and margin visibility. Nuvama expects BEL’s Q2FY26 execution to rise 15 per cent YoY, backed by a Rs 75,000 crore order backlog and robust margins of around 28 per cent, aided by high localisation and operational efficiency. The brokerage added that QRSAM orders could act as a key re-rating trigger for BEL.

Among structural compounders, Solar Industries (SOIL) and Data Patterns (DPIL) stand out as high-quality long-term stories over a three–five-year horizon, Nuvama said. It expects SOIL to post around 30 per cent YoY growth in Q2FY26, supported by a Rs 168 billion-plus backlog. While heavy monsoons slowed domestic mining and infrastructure activity, strong overseas execution is expected to offset the domestic impact. For Data Patterns, the brokerage expects order inflows of Rs 1,800 crore for Q2FY26, with execution growth of 28.5 per cent YoY.

On the tactical front, Bharat Dynamics Ltd (BDL) and Zen Technologies are on Nuvama’s watch list. BDL, it said, is poised for strong execution as supply chain pressures ease, supported by an order book exceeding Rs 22,800 crore, which could drive around 50 per cent revenue CAGR over FY25–28E. However, margins may remain under pressure amid rising competition in missile systems. For Zen Technologies, the brokerage flagged weak order inflows despite management’s Rs 650 crore guidance for the quarter. Nuvama expects a soft top line but healthy 34 per cent operating margins, mainly from simulation orders, with earnings likely to bottom out before recovering in H2FY27E as new orders materialise.

Overall, Nuvama expects selective execution resilience despite seasonal softness, underpinned by strong long-term visibility. It reiterated BEL as its top pick for its robust execution and steady margins, while Solar Industries and Data Patterns offer multi-year compounding potential in the defence space.