By IndiaHub 
Strong government support through the Make in India initiative, which encouraged indigenous design, and the development and manufacture of defence equipment, have boosted the performance of the sector. Besides the recent price surge, the performance of the sector has been excellent in the past few years. The defence benchmark gained 97% return in CAGR terms between June 2021 and July 2024.
India’s defence self-reliance can be gauged by looking at the proportion of equipment manufactured domestically. Currently, India manufactures 65% of defence equipment domestically, a significant shift from the earlier 65-70% import dependency.
Other key government initiatives supporting the sector include the Defence Acquisition Procedure, liberalised FDI policy, development of defence corridors in Uttar Pradesh and Tamil Nadu, and simplification of the industrial licensing process.
The surge in the defence budget, from Rs.2.53 trillion in 2013-14 to Rs.6.81 trillion in 2025-26, coupled with policy support, private participation and technological innovation, have strengthened the country’s military infrastructure. While the defence production reached Rs.1.27 trillion in 2023-24 and grew by 174% since 2014-15, the defence exports expanded 34 times between 2013-14 and 2024-25, according to a March 2025 PIB release. India targets `3 trillion in defence production and Rs.50,000 crore in defence exports by 2029, adds the release.
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Long-term drivers
Given the dynamic geopolitical and regional scenarios, analysts expect India’s defence spending to grow. “While the nation’s defence spending of around 2.3% of GDP is lower than the global defence majors (around 3-5% of GDP), we expect defence capital outlay to grow 7-8% annually over the next five years, potentially translating to $130 billion plus of procurement,” says a Nuvama report released in April 2025.Moreover, there are robust growth opportunities in the shipyards segment. A recent Antique Stock Broking report says that the key big-ticket orders worth Rs.2,120 billion (that includes submarines and naval warships) are likely to be placed during 2025-26 and 2026-27. Such orders will lead to a threefold jump in the order books of the listed defence shipyards over the next two years.
Valuations
The concerns about overvaluations led to a 38% correction in the defence benchmark between July 2024 and February 2025. The substantial fall in the share prices led to a reduction in premium valuations. The trailing twelve months PE multiple of the Nifty India Defence index fell from 73.4 times in July 2024 to 38 times in February 2025. The current trailing twelve months PE of the benchmark index is at 60 times.
Analysts believe that the strong growth opportunities and the government’s ambitious targets will lead to a rerating in defence stocks. “The defence stocks are fairly valued because the capability and competence of the Indian defence products are clearly established and, therefore, defence stocks are set to move higher,” says Dr Manoranjan Sharma, Chief Economist, Infomerics Valuation and Ratings. Moreover, despite the recent surge in the defence companies share prices (after India’s counter-terrorism operation), most of the companies share prices are still at a significant discount to their 52-week highs. As of 20 May 2025, 14 out of 18 stocks in the Nifty India Defence Index were trading over 10% below their 52-week highs.
March 2025 quarter earnings
The sector has reported healthy earnings so far, with 8 out of 18 Nifty India Defence Index companies posting a combined 4.3% year-onyear growth in consolidated net profit, based on data from Reuters-Refinitiv, as of 19 May 2025. Of these, earnings estimates were available for 6 companies, and 5 of them surpassed consensus expectations. Here is how 3 defence companies, out of 8, with decent analyst coverage fared in the March 2025 quarter.
Hindustan Aeronautics
- The government-owned aerospace and defence company reported decent performance in the March 2025 quarter. Both EBITDA and PAT surpassed Reuters Refinitiv estimates by 7% and 10.6% respectively.
- Its healthy order book of Rs.1.8 trillion provides long term growth visibility. Further, strong future pipeline valued at Rs.1 trillion (for combat aircraft and helicopters) is expected to materialise over the next 1-2 years.
- While the management has given conservative guidance of 8-10% revenue growth in 2025-26 due to impending changes in certain contracts, analysts expect the company to surpass the guidance.
- The management aims to invest Rs.14,000-15,000 crore in the next 5 years for expanding its capacities and building operational facilities.
- A recent Motilal Oswal report reiterates its buy rating but says that it is better to wait for better entry points, as the recent rally was sharp.
Data Patterns
- The vertically integrated defence and aerospace electronics solutions provider reported strong performance in the March 2025 quarter with revenue and EBITDA surpassing Reuters-Refinitiv estimates by 31.9% and 28.5% respectively.
- The order book at the end of March 2025 stood at Rs.730 crore, which fell 33% year-on-year.
- The management has retained its revenue guidance of 20-25% for 2025-25 and expects new order wins of more than Rs.1,000 crore in 2025-26.
- Strong R&D investments, expectations of additional contracts for Brahmos and the focus on expanding the addressable market are the key strongholds.
- A recent PhillipCapital report says that the new order wins are crucial. Also, a likely increase in order booking in the first half of 2025-26 can improve its valuation.
Bharat Electronics
- The company’s revenue and net profit surpassed Reuters-Refinitiv estimates by 2.1% and 20.3% respectively in the March 2025 quarter.
- The order book of the company stood at Rs.71,650 crore at the end of the March quarter and the management anticipates Rs.26,000 crore of orders in 2025-26.
- The company’s robust infrastructure, focus on R&D, diversification into non-defence businesses, focus on exports, strong margin profile and robust order inflow pipeline are its key strongholds.