Defence Sector outlay set to go up

Indian defence sector remains in limelight considering the huge opportunity for companies in future from both domestic and exports perspective

Acceptance of Necessity (AoNs) and awarding process have picked-up significantly over the last 2-3 years. To put this in numbers, AoNs worth ~Rs 8 lakh crore have been given in the last 3 years (FY23-YTDFY25) as against Rs 5.4 lakh crore of AoNs given over the period FY13-22.
In terms of contracts awarding, orders worth Rs 2.5 lakh crore have already been placed to domestic companies in the last 3 years (FY23-YTDFY25). The same amount of orders (Rs 3 lakh crore) were placed during the FY13-22 period

During the recent Aero Show and PM’s visit to France & US, some key developments also happened which would be beneficial for Indian defence sector structurally over the longer term
Hindustan Aeronautics & DRDO displayed full scale model of 5^th generation fighter jet - AMCA (Advanced Medium Combat Aircraft) for the first time along with CATS (Combat Air Teaming System) Warrior UAVs (Unmanned Aerial Vehicles)

French companies, Thales and MBDA have also announced collaboration with Bharat Dynamics (BDL) for short range missiles. Safran also signed a long term contract with HAL for forged parts of LEAP engines. France also signed a JV with Bharat Electronics (BEL) for Hammer weapons to be used on Rafale aircrafts

US company GE Aerospace also showed keen interest to work with DRDO for development of 110 kn engine for AMCA MK2. US & Russia have also offered its 5^th generation aircrafts (F-35 and Su-57) to India. Though the decision on procurement of these aircrafts will be taken by govt after analyzing timelines of indigenous fighters like Tejas MK1A, Tejas MK2 and AMCA
Recent comment from Indian defence secretary was also very encouraging as he said defence capital outlay of atleast $30 bn annually (~Rs 2.5 lakh crore) is required considering the need of more modernized platforms. In the recent budget for FY26E, capital outlay was budgeted at Rs 1.8 lakh crore

This implies significant potential for order inflows for defence companies in the coming years. We expect that large scale orders like 3 additional kalvari submarines (order value expected at ~Rs 30000 crore), 6 next generation submarine under P-75I project (expected value at ~Rs 70000 crore), 6 next generation corvettes (value ~Rs 36000 crore), 97 additional Tejas Mk1A aircrafts (value expected at ~Rs 75000 crore), 156 Light combat helicopters (valued at Rs 55000 crore) etc

Recently HAL management also said that orders worth Rs 1.65 lakh crore will be placed with the company in the next 6 months (including 97 Tejas MK1A and 156 LCH). Current order backlog currently stands at Rs 1.33 lakh crore

We remain positive on HAL (target price: 4800), Bharat Electronics (target price: 355), Data Patterns (target price: 1820), Astra Microwave (target price: 890)