Defence players post steady Q3 earnings amid strong execution; valuations remain elevated in select names

Valuation froth is more evident in select private names. MTAR Technologies trades at 220.7 times earnings, well above its earlier peak of 118.9 times, while Dynamatic Technologies is at 159.1 times versus 131.4 times earlier.

• Defense firms see steady Q3FY26 growth from strong execution
• Order books and DAC approvals support sector's positive outlook
• Valuations remain high; stock selection is key for investors

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India’s defence companies reported a steady set of numbers for Q3FY26, with healthy execution across aerospace, electronics and shipbuilding segments. However, a few missile and component makers saw softer delivery schedules. Analysts said structural growth drivers remain intact, supported by strong order books and rising Defence Acquisition Council (DAC) approvals.

Execution holds firm across large players

Analysts noted that overall, the quarter was healthy for most defence players, barring select names such as Bharat Dynamics Limited.

“Structurally, the sectoroutlook remains in a strong phase, " says Amit Anwani of PL Capital. This is supported by record DAC approvals, significant aircraft replacement requirements, increasing localisation in major programmes and multi-year order book visibility.

Large PSU majors such as Hindustan Aeronautics Limited reported revenue growth of around 10.5–11 percent for the quarter, with nine-month growth exceeding 10 percent.

“For the nine-month period as well, growth has been above 10 percent. The company has guided for 8–9 percent growth for the full year, which appears achievable despite LCA deliveries not having commenced yet,” Anwani said.

Bharat Electronics reported 18–19 percent topline growth over the nine-month period, with margins in the 27–28 percent range. Shipbuilders such as Mazagon Dock Shipbuilders Limited and Garden Reach Shipbuilders & Engineers continued to execute strongly on existing defence programmes.

Management commentary across shipyards, according to experts suggests strong order pipelines and sustained growth visibility over the next two to three years.

On the other hand, Bharat Dynamics reported weaker numbers, with softer execution weighing on quarterly performance.

( All Revenue, Net profit figures in Rs crore)

Private players maintain momentum

Execution momentum was also visible in companies such as Data Patterns (India) Limited and Astra Microwave Products Limited, where past order book accumulation is now translating into revenue growth.

“Order book accumulation over the past one to two years is now translating into stronger execution, and this trend is expected to continue over the next two years,” Anwani said.

Santosh Yellapu of Anand Rathi Institutional Equities said order inflows remain a key monitorable for the sector.

“HAL has seen strong traction, particularly with the large 90-aircraft order that has taken its order book close to Rs 2.5 trillion. Solar Industries has also performed well, with its order book reaching nearly Rs 21,000 crore, of which more than Rs 18,000 crore comes from defence,” he said.

Solar Industries India Limited has reported robust growth in its defence segment, while mid-sized players such as Zen Technologies Limited and Cyient DLM Limited continue to benefit from rising indigenisation.

Margins stable; structural outlook positive

Analysts said margins have largely held up across the sector as operating leverage improves with higher execution.

“As execution ramps up, margins generally remain healthy because most costs are fixed and get better absorbed with higher volumes. Unless there are provisions such as liquidated damages, margins tend to hold up well,” Yellapu said.

At the industry level, rising DAC approvals and supportive budget allocations are reinforcing medium-term growth visibility.

“DAC clearances this financial year have touched near lifetime highs. With strong macro indicators and supportive budget allocation, the long-term structural outlook for the sector remains positive,” he added.

Valuations remain elevated

Despite recent corrections, many defence stocks continue to trade at elevated valuations.

The Nifty Defence Index trades at 50.96 times earnings, down from its peak of 57.19 times, but still at a premium to broader markets. Among large PSUs, Hindustan Aeronautics trades at 31.7 times earnings versus a peak of 43.7 times, while Mazagon Dock Shipbuilders stands at 40.1 times compared with 53.8 times at its peak.

Valuation froth is more evident in select private names. MTAR Technologies trades at 220.7 times earnings, well above its earlier peak of 118.9 times, while Dynamatic Technologies is at 159.1 times versus 131.4 times earlier. Meanwhile, Data Patterns (68.9 vs 81.1), Astra Microwave (56.5 vs 65.1) and Zen Technologies (41.4 vs 62) are below historical highs but continue to trade at demanding multiples.

Anwani noted that while corrections have taken place, selectivity remains essential. “Valuations remain elevated in parts of the sector due to strong structural visibility. Given this backdrop, stock selection within the broader defence theme remains critical,” he said.

Yellapu concurred. “I do not see a structural reason for a sharp correction at this stage. Stock performance in defence is largely driven by order inflows, execution strength and margin profile, and all three factors remain positively aligned. I would not be surprised if private-sector defence companies outperform PSUs going forward. Their base is smaller, growth visibility is stronger, and many of the programmes they have pursued over the last few years are now moving into mass production,” he said.