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Defence Sector – Strong industry tailwinds creating sizable opportunities for domestic players

ICICIdirect Research 04 Sep 2026 DISCLAIMER

Industry tailwinds remain robust in defence as govt continues to focus on additional reform measures. Govt is considering further FDI liberalisation (74% along with simplification of Open General Export Licence (OGEL) framework.
Opening foreign investment would help bring in advanced technologies and global capital while the updated rules in OGEL is focused on merging three separate licenses into one unified system along with increasing license validity from two to three years
In the recent annual performance review of defence PSUs also, Govt has asked these PSUs to further reduce import and accelerate R&D and exports. Moreover, the newly released RAKSHA framework also prioritizes capacity building, joint exercises, and active promotion of indigenous Make-in-India defence platforms abroad
Overall, these additional measures directly align with the government's objective of positioning India as a global supplier of defence platforms and would benefit Indian defence manufactures.
Share of private players (including Solar Industries, Data Patterns, Astra Microwave etc) in total defence production is expected to increase further in the coming years, driven by encouraging policy support and allowing them to participate in building advanced systems, including strategic missiles, drones, electronics etc. Moreover, auto precision component manufacturers are also likely to participate and benefit in the overall value chain. Bharat Forge is one for example.


Bharat Forge – Signs strategic agreements for expanding defence capabilities
Bharat Forge has announced that its defence subsidiary Kalyani Strategic Systems (KSSL) has entered into two strategic partnerships with Belgium, to expand its defence manufacturing portfolio and localisation capabilities
The company has further expanded its technology and product portfolio through a strategic alliance with Thales for 70-mm rocket systems and signed an MoU with FN Herstal for small arms, integrated weapon systems and counter-UAS solutions, with the partnerships aimed at technology transfer, local manufacturing and potential exports
The recent tie-ups strengthen KSSL’s positioning across rockets, artillery, small arms and counter-drone systems, although the new MoUs are at an early stage and their financial contribution is yet to be quantified.
As of Q1FY27, the company has an ~₹11,200 executable defence order book, providing visibility across products & systems
Supported by a strong defence order book, improving exports, a multi-year growth opportunity across aerospace, semiconductors, and CV upcycle, we maintain BUY rating on BFL & now value it at ₹ 2,460 i.e. 55x P/E on FY28E

Hindustan Aeronautics – Tejas Mk1A jets execution set to pick-up as engines delivery accelerates 
As per the media reports, Hindustan Aeronautics (HAL) has received three more F404-IN20 engines from GE Aerospace for the Tejas Mk1A aircrafts. This takes total delivery of 10 such engines so far (out of 99 engines contract given in 2021)
We understand that there has been a noticeable pick-up in supply of engines from GE in the last few months, mainly led by ramp-up in their capacity. As per some media reports, GE is targeting delivery of 15-20 more engines in FY27E and 30 thereafter annually from FY28E
We believe that this will significantly improve execution and delivery of Tejas Mk1A jets to Indian Air Force, as engines has been the major constraint for execution. Recently, HAL management stated that the company has already built about 30 airframes of Tejas Mk1A, with 20 airframes having completed manufacturing & initial flight testing and ready for delivery after integration of engines
We remain positive on HAL with a target price of Rs 5820, considering the significant pick-up in execution in the coming years. Order backlog remains strong at Rs 2.5 lakh crore (7.6x TTM revenue). We estimate revenue CAGR of ~16% over FY26-28E (vs ~8% over FY23-26) as company also targets to deliver 24+ Tejas annually in coming years

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