HAL, BEL top defence PSU picks by Choice; 'BUY' calls intact with strong order visibility

Choice Institutional Equities has reiterated Hindustan Aeronautics Ltd (HAL) and Bharat Electronics Ltd (BEL) as its high-conviction defence public sector undertakings (PSU) picks, citing robust order books, medium-term revenue visibility and structural industry tailwinds. The brokerage has maintained 'BUY' ratings on both counters.

For HAL, Choice has set a target price of Rs 5,570, valuing the stock at 35 times the average of FY27/28 estimated earnings. It said the company delivered a "reasonably solid" Q1 FY26 operationally, although profitability saw some contraction. The domestic brokerage expects the second half of FY26 to be materially stronger, with revenue acceleration led by the ramp-up of the Tejas Mk1A fighter jet programme.

HAL has completed assembly of 11 single-seat Tejas Mk1A fighters (10 at Bengaluru and one at Nashik) along with nine trainer variants, taking the tally to 19 fully built airframes. These are awaiting GE engines for delivery. Choice noted that the Tejas Mk1A delivery schedule will remain a key monitorable for investors in the coming quarters.

For BEL, the brokerage has maintained a target price of Rs 500, valuing the stock at 40 times FY27/28 average EPS. It said BEL remains "the nucleus" of India's defence indigenisation push, supported by a healthy order book of Rs 74,859 crore, equivalent to about 3.1 times its FY25 revenue. The company has guided for order inflows of over Rs 27,000 crore in FY26, excluding the QRSAM project. If QRSAM is awarded by Q4 FY26, it could add another Rs 30,000 crore, further strengthening growth visibility.

On the defence sector, Choice highlighted that Q1 FY26 earnings were mixed. Defence PSUs reported moderate year-on-year (YoY) growth but saw sharp sequential (quarter-on-quarter) declines, while private-sector peers delivered stronger growth, albeit on a smaller base. Overall, the sector posted 9.9 per cent YoY revenue growth to Rs 10,571.9 crore, with EBITDA up 32.2 per cent YoY and margin expansion of 423 basis points (bps) to 25.2 per cent.

The brokerage believes India's defence sector is at an inflection point, with production expected to nearly triple from Rs 94,845 crore in FY22 to around Rs 3 lakh crore by FY29, implying an 18 per cent CAGR. It also expects exports to surpass Rs 50,000 crore by FY29, aided by policy support, global partnerships and growing acceptance of indigenous platforms.