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Defence Sector: Q2FY26 a mixed quarter; Longer-term outlook remains strong

ICICIdirect Research 14 Nov 2025 DISCLAIMER

Hindustan Aeronautics (HAL)

  • H1FY26 revenue up ~11% YoY; EBITDA margin ~25% (down 70 bps). Growth led by better execution in helicopters, engines and MRO.
  • Revenue expected to rise sharply from FY27E as LCA Tejas Mk1A execution picks up with GE engine deliveries.
  • With the new 97 LCA order, order book is ~₹2.7 lakh crore (8.6x TTM revenue), giving strong long-term visibility.
  • Rating: BUY | Target: ₹5,830

Bharat Dynamics (BDL)

  • H1FY26 revenue up 89.5% YoY; EBITDA margin 10.2% vs 6.3% last year. Execution improved sharply.
  • INVAR missile order lifts order book to ~₹24,300 crore (6x TTM revenue).
  • Strong pipeline across various missile types, torpedoes and Counter measure dispensing systems.
  • Key thing to watch- steady execution.

Data Patterns

  • H1FY26 revenue up 109% YoY due to completion of a key strategic order (~₹180 crore).
  • EBITDA margin fell to 24.7% as the strategic order was priced very competitively.
  • Management guides 20–25% revenue growth and 35–40% EBITDA margin for FY26E.
  • Order book including negotiated orders stands at ₹1,287 crore (1.8x TTM revenue).
  • Expect ~₹1,500 crore orders in FY26E with strong pipeline for next 1.5–2 years.
  • Rating: BUY | Target: ₹3,560

Solar Industries

  • H1FY26 revenue up ~25% YoY; EBITDA margin at 25.7%.
  • Defence (+79% YoY) and exports (+30% YoY) drove growth; bulk explosives stayed flat.
  • Defence order book ~₹15,500 crore (8.8x TTM revenue). Company targets ₹8,000 crore defence revenue in 4–5 years (40%+ CAGR)
  • Orders pipeline is robust (including Pinaka missile system, loitering munitions, anti-drone systems etc)
  • Bulk explosives execution expected to pick up in H2FY26.
  • Rating: BUY | Target: ₹16,700

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