Defence export story is solid but upside may be capped: PL Capital analyst

Indian defence stocks have surged in recent months, supported by rising export potential and geopolitical developments. However, valuations are becoming a concern, according to Amit Anwani, Research Analyst at PL Capital Group.

“Almost a 40–50% rally has happened since February,” Anwani said. “Shipbuilding is expensive, trading at 45–50x. Even Bharat Electronics is expensive.” He noted that Hindustan Aeronautics Ltd (HAL) may still offer some upside. “HAL is trading at about 36x, with more than ₹1.2 lakh crore in order pipeline. We have a target price of ₹5,500,” he added.

The broader interest in India’s defence sector is being driven by a steady rise in exports. “In the fiscal year 2024-25 (FY25), exports were around ₹24,000 crore, up from ₹21,000 crore last year,” Anwani said. “The government is targeting ₹50,000 crore by the fiscal year 2028-29 (FY29).”

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He highlighted that private companies are playing a significant role in this growth, particularly in defence electronics, vehicles, and missile-related systems. “About 60–65% of exports come from the private sector,” he said. “Many of these exports are to friendly countries, including Israel.”

Public sector units like Bharat Electronics, HAL, and Bharat Dynamics Ltd

(BDL) are also aiming to expand their international reach. Bharat Electronics is targeting export revenue of at least 10%, up from the current 7–8%. HAL, with current export levels at 4–5%, is in discussions with new markets. BDL has also stated export growth as a priority.

Among private players, Tata Advanced Systems, Astra Microwave, and Data Patterns are active in exports. Anwani noted, “Defence electronics are likely to benefit first. Platforms take longer due to approval cycles, but electronics - radar systems, optics - are already being exported.”

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He added that India’s trade ties with countries like Israel and France are creating more near-term opportunities. “Wherever we have long-term procurement or offset arrangements, such as with French firms, there’s clear export potential.”

Despite the strong outlook, Anwani cautioned that investors should watch valuations carefully. “While the pipeline is strong for the next 4–5 years, many defence electronics stocks are priced high,” he said.

For the full interview, watch the accompanying video

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