Listed defence sector companies are expected to deliver a mixed set of numbers in Q4FY26, despite robust order visibility and sustained inflows and a healthy pipeline where backlogs are no longer a constraint, Nuvama Institutional Equities said in a note.
The brokerage firm has picked Bharat Electronics Limited (BEL), Data Patterns (India) and Solar Industries India as its top bets.
The pace of new large-ticket orders is likely to slow, with growth increasingly anchored in repeat and replenishment contracts. Consequently, while overall visibility remains robust, the momentum in order inflow growth is expected to moderate, the brokerage added.
After subdued traction for defence stocks in March despite the ongoing Iran-Israel war, April has started on a strong note with the Nifty India Defence index rising over 9% this week. Individually, stocks rallied over 20% with 10 scrips in the 18-stock index delivering double-digit returns.
One can expect more action as earnings are announced and based on developments around the Iran-Israel war. While a two-week ceasefire is ongoing, there has been an exchange of fire between Israel and Lebanon. Meanwhile, US Vice President JD Vance has been tasked with ending the war as he leads negotiations beginning today.
Q4FY26 expectations
BEL
BEL is expected to report modest execution in Q4FY26 with revenue growth of 3.6% YoY, while its order backlog strengthened to Rs 74,000 crore, providing "solid" medium-term visibility. Margins are expected to remain structurally strong at 28%, driven by improving operational efficiencies and higher localisation levels.
On the order pipeline front, the Rs 30,000 crore QRSAM programme, for which the Indian Army has already rolled out the tender, is likely to materialise in the near term and could act as a key re-rating trigger, alongside the sustenance of 27%+ OPM trajectory.
Solar Industries
Nuvama expects healthy execution momentum, with revenue growth of 28% YoY, though the defence topline is likely to come in at Rs 900 crore, significantly below the Rs 3,000 crore guidance, primarily due to delays in Pinaka execution and geopolitical disruptions impacting defence supply chains.
Margins are expected to remain robust at 27%, supported by a higher contribution from defence and overseas revenues. The defence backlog of ~INR180bn provides earnings visibility over the next two to three years, while anticipated Pinaka ER orders, estimated at Rs 4,000 crore – 6,000 crore, are likely to further strengthen the growth outlook beyond FY27–28E.
Data Patterns
For the quarter, Nuvama anticipates decent order inflows supported by the reported Rs 290 crore Doppler radars order, while management had earlier guided for the conversion of Rs 1,110 crore worth of negotiated orders under finalisation (as indicated in Q3FY26).
"We expect moderate topline growth of 6.6% YoY on a high base, with margins remaining strong at 43%, reflecting a favourable product mix and operating leverage," the brokerage note said.
HAL
Hindustan Aeronautics Limited is likely to report a decline in execution in Q4FY26 at 4.4% YoY, below Nuvama's expectations, which factored in only base order execution including engines and ROH, with no Tejas deliveries commencing during the quarter.
"So far, a total of six GE engines have been delivered, with no aircraft deliveries to the Indian Air Force. Given this, the delivery schedule for the committed LCA Tejas programme appears tight, posing a risk to near-term execution ramp-up," the note said.
While HAL has a decade-long opportunity pipeline of Rs 4.7 lakh crore, execution ramp-up of its large-scale programs sitting in its Rs 2.4 lakh crore backlog is critical, the brokerage said, listing ongoing supply chain challenges, particularly focusing on the timely procurement of critical components.
Bharat Dynamics
With a robust backlog of Rs 22,800 crore as of end-FY25, BDL is well positioned to deliver a revenue CAGR of 35% over FY25–28E. That said, execution remained volatile in Q4, impacted by both global and domestic supply chain constraints. Margins are expected to be around 22%, supported by an anticipated 35% execution growth in Q4FY26, which should aid operating leverage despite underlying variability, Nuvama noted.
Defence stocks returns snapshot
Select defence stocks have delivered multibagger returns over a one-year despite volatile domestic markets that have braved rich valuations, weak earnings, FII outflows, tariffs and now an ongoing war.
MTAR Technologies tops the charts with 224% one-year returns and is followed by Axiscades Technologies, Apollo Micro Systems and Data Patterns with returns of Rs 124%, 113% and 100%, respectively.
Bharat Forge, Dynamatic Technologies, Garden Reach Shipbuilders, Bharat Electronics, Paras Defence and Space Technologies, Solar Industries, and Mishra Dhatu Nigam delivered double-digit returns up to 86% in this period.
Meanwhile, PSU defence counters BEML, Cochin Shipyard, BDL, Mazagon Dock, and HAL have yielded single-digit returns up to 9%.
(Disclaimer: The recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times.)
