In the last five years, defence stocks led the bull run, delivering extraordinary returns. The rally, which gained momentum post-2020 and picked up steam during the 2023 bull market, was driven by rising defence budgets, Make-in-India initiatives and growing export market. As such, investors who would have invested ₹1 lakh in these two stocks in 2020 would be worth ₹14 lakh crore today. This is a massive 14x return in a little over 5 years.
However, after a steep run-up, they have seen a noticeable correction. With geopolitical tensions again rising, investors wonder if this is a good time to re-enter them.
Let’s take a look..
Hindustan Aeronautics (HAL) is India’s largest defence public sector undertaking (PSU), with Maharatna status. The company is strategically important to India and operates in a sector with high entry barriers.
The company has extensive expertise in designing, developing, manufacturing, maintaining, and upgrading fighter aircraft, helicopters, and aero engines. It focuses on indigenous research to manufacture its products and enters into technology transfer and license agreements when required.
So far, HAL has built over 4,200 aircraft and 5,200 engines, including 17 types of Indigenous designs. It has also repaired over 11,000 aircraft and 33,000 engines.
In addition to manufacturing, HAL provides repair and overhaul (ROH) services to the Indian Defence Services and others.
Profit Growth outpaced Revenue Growth
The company’s financials have significantly improved over the past 5-years. Revenue grew at a compounded annual growth rate (CAGR) of 9% in the last 5-years to reach ₹304 billion in FY24. However, profit increased at a faster 26% CAGR to ₹76 billion, driven by economies of scale and improving margins.
In 9MFY25, revenue increased 11% from last year to ₹173 billion, driven by higher execution and growth in repair and overhaul services. Margins remained stable at 25%.
Net profit grew strongly by 32% to ₹43.6 billion, driven by a 20% decline in depreciation expenses. The reported profit also includes an extraordinary gain of ₹45 billion.
Given the relatively long tenor of its contracts, HAL enters into variable-price agreements with its customers–the Indian Air Force, Indian Army, and Indian Navy. This pricing structure helps protect margins from foreign exchange volatility and increases in raw material prices.
HAL has given about 17x return in the last 5-years till date.
Strong Order book
Looking ahead, HAL’s order book remained healthy at ₹1.3 lakh crore (as of Q3FY25). This includes orders for helicopters, aircraft models, and engine manufacturing contracts worth ₹1.0 lakh crore. This order book is to be executed in the next 5-years.
The repair and spares segment contributed ₹253 billion to the order book. The balance of ₹37 billion came from design and development projects and export orders.
The order book, worth ₹1.30 lakh crore, implies a book-to-bill ratio of about 4 times (per trailing twelve-month revenue of ₹320 billion), providing revenue visibility for the next four years.
Supported by Strong Order Pipeline
In addition to the current order book, the visibility for future orders remains strong. Orders worth ₹1.33 lakh crore–including 156 Light Combat Helicopters and 97 Light Combat Aircraft-Mk1A–are expected to be received within 3-6 months.
Furthermore, orders for 60 Utility Helicopters-Maritime and 43 Advanced Light Helicopters, totalling ₹250-300 billion, will likely be received within 18-24 months. The strong order pipeline and the existing order book provide strong revenue visibility.
However, timely execution remains critical. Delays in implementation could lead to cost overruns, which may affect profitability.
Nonetheless, the government’s push for domestic manufacturing, strong entry barriers, business moat, and long-standing client relationships will continue to benefit HAL.
With Russia still accounting for over 50% of India’s total defence imports, HAL stands out as a key player in localizing defence production.
Valuation at Premium
From a valuation perspective, it trades at a price-to-equity (PE) of 35x, a 150% premium to its 10-year median of 14x.
Bharat Electronics (BEL) is a defence PSU in which the Indian Government holds a 51.14% equity stake as of December 31, 2024. Like HAL, BEL is strategically important for India’s defence ecosystem.
The company is a key domestic supplier of defence electronics equipment to the Indian defence sector. It supplies radars, communications & electronic warfare equipment to the Indian Armed Forces.
BEL’s strength lies in its consistent investment in research and development, typically 6-7% of its annual revenue. This focus has helped it develop next-generation products, and build a strong competitive moat.
The company continues to deliver strong financial performance. Revenue increased 15% from last year to ₹202.7 billion in FY24, driven by strong order execution.
Net profit rose 30% to ₹39.9 billion, driven by a 1.9 percentage point expansion in margin to 24.8%. The growing indigenisation of its product portfolio has contributed to the higher margin.
About 81% of BEL revenue currently comes from the Indian defence sector, indicating high revenue concentration. However, the company has been working to diversify. This can be seen from the rising revenue share from the civilian and export segments, which grew from 11% in FY23 to 17% in FY24.
BEL has given about 15x return in the last 5-years till date.
Robust Order Book
In 9MFY25, BEL revenue rose 25% from last year to ₹146.2 billion, again driven by order execution. Operating margin of 27.5%. With the fourth quarter contributing a major share of annual revenue, BEL is on track to post a 15% revenue growth in FY25.
BEL has seen a healthy order book. The company’s unexecuted order book stood at ₹711 billion as of Q3FY25. This implies a book-to-bill ratio of 3x (based on trailing twelve-month revenues of ₹232 billion), offering strong revenue visibility.
Supported by Strong Order Pipeline
Looking ahead, BEL expects orders worth ₹250 billion from the Indian Army and ₹150 billion from the Indian Navy in FY26. It also plans to introduce an Indigenous product related to “Kavach” and expects to get clearance from the Indian Railways by Q3FY26.
To further reduce revenue concentration, the company is actively exploring opportunities in network and cybersecurity, homeland security, data centers, and border protection solutions.
Government policies also continue to support BEL. The rising capital budget allocation for defence and the focus on building local manufacturing capabilities under the “Atmanirbhar Bharat” will likely continue driving order inflows.
Valuation at Premium
From a valuation perspective, it trades at a PE of 45x, about 88% premium to its 10-year median of 24x.
Conclusion
HAL and BEL have benefited from strong tailwinds—rising government spending, a focus on indigenisation, and robust order pipelines. While recent valuations reflect some of this optimism, the companies continue to offer revenue visibility backed by large order books and future contracts in the pipeline. Execution timelines and margin sustainability will remain key factors to watch.
Still, a slowdown in order flows could cause concern, but this seems unlikely given the growing border concerns with the neighbor.
Disclaimer:
Note: Throughout this article, we have relied on data from and the company’s investor presentation. Only in cases where the data was unavailable have we used an alternate but widely used and accepted source of information.
The purpose of this article is only to share interesting charts, data points, and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educational purposes only.
About the Author: Madhvendra has been deeply immersed in the equity markets for over seven years, combining his passion for investing with his expertise in financial writing. With a knack for simplifying complex concepts, he enjoys sharing his honest perspectives on startups, listed Indian companies, and macroeconomic trends.
A dedicated reader and storyteller, Madhvendra thrives on uncovering insights that inspire his audience to deepen their understanding of the financial world.
Disclosure: The writer and his dependents do not hold the stocks discussed in this article.
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