HAL, BEL, BDL, Solar Industries, Data Patterns: Target prices for 5 defence stocks

Philips Capital has released its latest note on the Indian defence sector, maintaining a 'Buy' rating on four major stocks: Hindustan Aeronautics (HAL), Bharat Electronics (BEL), Bharat Dynamics Ltd (BDL) and Data Patterns. In contrast, a Neutral rating was kept for Solar Industries. The target price set for HAL is Rs 6,100, BEL Rs 460, Solar Industries Rs 15,900, BDL Rs 1,930, and Data Patterns Rs 3,570.

The performance and future prospects of these defence stocks are supported by robust order inflows and resilient margins. The sector has continued its strong momentum into FY26, aided by significant contracts from the Ministry of Defence (MoD), worth over Rs 2.1 trillion in FY25, doubling from the previous year. Notably, 92% of these contracts have been awarded to the domestic industry, reinforcing India’s self-reliance in defence production.

The defence production sector marked a significant achievement by surpassing Rs 1.5 trillion in FY25, reflecting a 19% year-on-year increase. Export figures also reached a record Rs 236 billion. Defence Public Sector Undertakings (DPSUs) and the private sector both contributed strongly, with DPSUs alone showing a 43% yearly increase. The outlook for FY26 remains positive, driven by new order announcements, including significant contracts like 97 additional LCA Mk1A for HAL.

Despite some challenges, companies like HAL and BEL have demonstrated strong profitability, with EBITDA margins of 27% and 28% respectively. Solar Industries maintained a 25% EBITDA margin, driven by robust defence-related growth. While BDL faced execution slippages, a recovery is anticipated from the second quarter. Data Patterns reported muted revenue, but the strong year-to-date order wins of Rs 3.2 billion provide a promising execution visibility.

The defence sector's transition from policy-driven to execution-led earnings delivery is evident, as companies with proven execution capabilities, like HAL, BEL, Data Patterns, BDL, and Solar, are well-positioned to capture future opportunities. The strong order books and resilient margins are expected to benefit these companies amidst accelerating reforms.

As part of the broader strategic outlook, the Ministry of Defence is set to streamline procurement processes and encourage private sector participation. This move is expected to boost the sector further, aligning with the government's indigenisation drive and creating a favourable environment for companies to thrive.

The strategic focus for FY26 includes large project awards worth Rs 1.5 to 2 trillion over the next 18 to 24 months, such as the P-75 and P-75I submarine projects and the QRSAM and NGC platforms. These projects highlight the ongoing modernisation efforts in the defence sector, aiming to strengthen India's defence capabilities.

Philips Capital’s 'Buy' rating on Hindustan Aeronautics (HAL), Bharat Electronics (BEL), Bharat Dynamics Ltd (BDL) and Data Patterns reflects a continued confidence in the sector's growth potential. The neutral stance on Solar Industries indicates a balanced outlook amidst the varied performance within the sector.