Aerospace & Defense Sector – A Multi-Decade Opportunity in the Making; HAL, BEL top buys

India’s Aerospace & Defense sector is gaining serious altitude—both in strategic importance and investment potential. A recent milestone came with the signing of a ₹63,000 crore agreement with France to acquire 26 Rafale-M fighter jets for the Indian Navy.

More than just a big-ticket purchase, this deal signals a deeper shift in India’s defense strategy—strengthening national security while building long-term capabilities at home.

The Rafale-M contract includes not just aircraft deliveries (starting from 2029), but also long-term support, training, and crucially, local manufacturing of components. This means Indian companies—big and small—will be involved in making parts for these advanced jets, driving the ‘Make in India‘ mission forward.

For retail investors, this matters. India is steadily raising its defense budget—currently around 1.9% of GDP—with a long-term goal to push it closer to 4%. As the government boosts spending on modernizing equipment and investing in new technologies, opportunities for Indian companies in defense manufacturing are set to grow exponentially.

Leading public sector players like HAL, BEL, and Mazagon Dock are already handling large orders and expected to get more. At the same time, private players like Tata, Mahindra, Bharat Forge, and smaller firms across the country are joining hands with global giants to build key parts for aircraft, missiles, and naval systems. This is not just good for national security—it’s a long-term investment story taking shape.

What’s more, India’s defense exports have surged to a record high of ₹23,622 crore in the FY 2024-25. Private companies are seeing export growth of nearly 100% over the last three years. The government aims to increase annual defense exports to ₹1.5 lakh crore by 2047, with a sharp focus on supplying to friendly nations in Asia, Africa, and Latin America.Yes, some challenges remain—like engine production and high-end technology development—but these are opportunities in disguise. India plans to ramp up defense R&D spending 10x by 2047, creating even more space for innovation and private participation.India’s Aerospace & Defense sector is no longer just about military might—it’s becoming a multi-decade industrial and export story. With rising orders, policy push, and deeper global partnerships, the sector offers a unique blend of growth, visibility, and strategic relevance. For long-term retail investors, it’s a sunrise opportunity worth keeping on the radar.

HAL: Target Rs 5100| LTP Rs 4486| Upside 13%

Hindustan Aeronautics (HAL) is a market leader in aerospace defense. It boasts a strong order book of ₹1.8t as of Mar’25, along with a promising prospect pipeline of ₹6t, which is likely to be awarded over next few years.

HAL is transitioning from traditional licensed model to indigenized model and is currently working on marque projects such as Tejas Mk1, Tejas Mk1a, Su-30 upgrade, Dornier-25, and LUH, et al. These projects are anticipated to fuel manufacturing revenue growth for HAL.

Near-term catalysts will emerge with aircraft deliveries as GE engine supplies resumes for Tejas Mk1A from FY26, while medium to long term triggers hinge on order finalizations for 97 Tejas Mk1A, Tejas Mk-II, LUH, AMCA and others. We estimate 29%/33%/29% revenue/EBITDA/PAT CAGR over FY25-27.

BEL: Target Rs 360| LTP Rs 313| Upside 15%

BHE is well-positioned to benefit from defense electronics opportunities, with key orders expected from QRSAM, MRSAM, next-generation corvettes, and P75/P75I. Bharat Electronics reported stronger-than-expected 3QFY25 results, driven by a robust order book of INR 771b and INR 110b in order inflows during 9MFY25. We forecast a 19% CAGR in revenue over FY24-27, driven by increased market share and indigenized offerings. BHE’s strong cash surplus supports future growth, and we reiterate BUY, based on 35x FY27E earnings.

(The author is Head – Research, Wealth Management, Motilal Oswal Financial Services Ltd)

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