Defence sector delivered strong performance in the second quarter of FY26, with a healthy revenue growth across companies, supported by accelerated execution in missile, avionics and radar programmes, and broad-based profitability improvement.
Overall revenue across defence companies under Choice Broking’s coverage rose 21.8% year-on-year (YoY) and a robust 40.9% quarter-on-quarter (QoQ), while EBITDA grew 10.5% YoY and 37.5% QoQ, although margin contracted due to product mix. Net profit increased 16.6% YoY and 33.5% QoQ, signalling improvement across both, state-run and private defence players.
PSU defence companies delivered a significant recovery in the September quarter, supported by Hindustan Aeronautics (HAL), Bharat Electronics (BEL) and Bharat Dynamics (BDL), outperforming on both, execution and profitability fronts. While EBITDA rose, margin dip reflected higher production intensity and inventory drawdown ahead of H2 order inflow season.
“The performance highlights defence PSUs’ structural edge in large defence programmes, with rapid scale-up once approvals and supply chains align. Q2 data also reinforces sector seasonality: H2 is stronger for order inflows,” Choice Broking said.
Private defence companies continued to outperform defence PSUs on growth rate, backed by export traction, new platform integrations and ongoing localisation of high-value components. However, their margin profile remains sensitive to product mix and execution timelines, which is visible in Q2’s uneven EBITDA trends across individual companies, according to the brokerage firm’s analysis.
Defence sector Q2 results affirms that the sector remains in a multi-year structural upcycle, supported by expanding indigenous programmes, export momentum and a bolstering domestic supply chain.
Choice Broking has four preferred long-term picks in the defence sector. The defence stocks to buy include HAL, Bharat Dynamics, Bharat Electronics and Data Patterns (India).
Defence Stocks To Buy
HAL | Buy | Target Price: ₹5,570
Choice Broking remains confident that HAL is well-positioned for a stronger second half in FY26, with topline acceleration expected from multiple ongoing and new programs. Tejas Mk1A delivery schedule remains a key investor monitorable in the next few quarters. The brokerage firm maintains a ‘Buy’ rating on HAL shares with a target price of ₹5,570 apiece, valuing the company at 35x of FY27/28E EPS.
Bharat Electronics | Buy | Target Price: ₹500
BEL’s focus on system integration and complex defence electronics is expected to drive sustained value creation. The upcoming Defence System Integration Complex (DSIC) in Andhra Pradesh ( ₹1,400 crore capex) positions it to capture high-end programs, such as QRSAM, Project Kusha and NGC.
The brokerage firm maintains its positive stance on BEL shares, underpinned by its robust long-term growth visibility, supported by a healthy orderbook and a strong pipeline. It reiterated a ‘Buy’ call with BEL share price target of ₹500 apiece, valuing the stock at 40x FY27–28E average EPS.
Bharat Dynamics | Buy | Target Price: ₹1,965
Bharat Dynamics’ robust orderbook of ~7x FY25 revenue, coupled with an incremental pipeline of ₹50,000 – 60,000 crore, provides multi-year earnings visibility and operating leverage tailwinds. As execution scales up, the brokerage firm expects strong cash generation and profitability improvement through FY28E.
Given the company’s strategic positioning and healthy financials, it maintained a ‘Buy’ rating on BDL shares with a target price of ₹1,965 apiece, valuing the stock at 35x average of FY27–28E EPS.
Data Patterns (India) | Buy | Target Price: ₹3,300
Data Patterns (India) is expected to report over 25% revenue growth in FY26, supported by a strong execution momentum, expanding system-level capabilities and operating leverage benefits. Margin is likely to recover towards the guided 35–40% range as deliveries scale up in the second half. The recent margin compression is likely a transient phase in an otherwise accelerating growth story, Choice Broking said.
It maintained a ‘Buy’ rating on Data Patterns shares with an upwardly revised target price of ₹3,300, valuing the company at 45x avg. of FY27/28E EPS.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
