The Indian government ramped up its defence spending to ₹6.2 trillion in the 2024 budget, with expectations of an even larger allocation for the year. The Defence Ministry’s announcement of 2025 as the ‘Year of Reforms’ signals a sector on the brink of significant transformation.
Geopolitical tensions and the government’s Aatmanirbhar Bharat initiative have created fertile ground for domestic defence companies. Indian manufacturers are making strides in advanced aircraft, drones, missiles, and naval systems, attracting keen investor attention.
Defence stocks often rally pre-budget, buoyed by spending hikes and policy support.
Here are five top defence stocks, filtered using Equitymaster’s screener and assessed for strong order books and strategic wins.
Cochin Shipyard
Cochin Shipyard has cemented its position as a leader in constructing and maintaining maritime vessels, including tankers, bulk carriers, passenger ships, and defence vessels.
It’s India’s sole shipyard capable of constructing vessels up to 110,000 DWT and repairing ships up to 125,000 DWT.
Cochin Shipyard has strategically diversified into inland and coastal shipping, fishing, and the cruise and ferry markets. Its portfolio includes advanced vessels such as platform supply and anchor-handling tug supply ships, underscoring its engineering prowess.
A standout achievement is its recent ₹98 billion contract to construct six next-generation missile vessels for the Indian Navy, reinforcing its expanding defence capabilities. The company is also pioneering green technologies with projects like hydrogen-fuel-based vessels and electric ferries, aligning with global sustainability trends.
FY24 was a milestone year, marked by record turnover and a 156% rise in profit before tax. Its current order book stands at ₹220 billion, with ₹150 billion dedicated to defence. Management forecasts a 20-25% revenue growth in FY25—nearly 10 times its FY23 revenue of ₹23 billion.
Also read: 10 defence stocks poised for explosive growth in India’s year of reforms
With a robust order pipeline, innovative projects, and a pivotal role in defence modernisation, Cochin Shipyard emerges as a leading pre-budget defence stock to watch.
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Between 2020-2024, the company’s sales and net profit grew at 5.3% and 10.4%, respectively.
In the financial year 2023, the company experienced a decline in revenue due to a weakened order book. This decline was primarily attributed to concerns stemming from the pandemic.
The 5-year average RoCE and RoE stood at 19.7% and 14.1%, respectively.
Bharat Dynamics
Bharat Dynamics plays a pivotal role in India’s defence sector, specialising in the production of guided missiles and allied systems for the armed forces.
Beyond manufacturing, the company excels in providing life-cycle support and refurbishment services, enhancing the operational longevity of aging missile systems.
Its order book has expanded dramatically, rising to ₹188 billion in H1FY254 from ₹101.7 billion in FY22. Export orders account for 12% of this portfolio, driven by sought-after products like lightweight torpedoes and the Akash missile system.
The pipeline looks promising, with an estimated ₹200 billion in new orders over the next two to three years. Surface-to-air missiles and anti-tank guided missiles (ATGMs) are leading the charge.
Bharat Dynamics is also diversifying, aiming to expand into warhead manufacturing and even products for space applications, opening up entirely new revenue streams.
With a planned capex of ₹1 billion for FY25, the company aims to expand its manufacturing capacities significantly. Its commitment to indigenisation is yielding results, driving cost savings, reducing import reliance, and enhancing competitiveness in India’s evolving defence landscape.
Government support for domestic defence manufacturing adds another layer of tailwind. Policies encouraging indigenisation align perfectly with Bharat Dynamics’ strengths, positioning it as a key beneficiary of India’s military modernisation push.
As the Union Budget 2025 approaches, this stock stands out as one to watch.
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Between 2020-24, the company’s sales and net profit have dwindled. However, margins have improved leading to strong return ratios.
Looking ahead, Bharat Dynamics aims to expand its product portfolio to attract more orders and strengthen its position in the defence market.
Bharat Forge
Bharat Forge, a global leader in high-performance components, serves industries like automotive, railways and defence.
The company has built a strong presence in defence by investing in advanced facilities that enable in-house design and complete ownership of intellectual property.
This approach has driven its export growth, contributing over 80% of revenue and positioned it as a key manufacturer of aircraft parts. Bharat Forge is also pursuing global artillery exports, including artillery guns, armoured vehicles and components to countries like the US.
In the first half of FY25, the company won new orders worth ₹22 billion, with defence accounting for ₹14 billion, reflecting its focus on the sector.
Bharat Forge thrives in the automotive sector, supplying critical components for traditional and EV markets, with expertise in lightweight designs enhancing efficiency.
Beyond automotive, it manufactures wind energy components, supports infrastructure through its industrial arm, and advances its aerospace division with precision-engineered products for global clients.
As a pre-budget defence stock, Bharat Forge stands out with its expanding order book, export focus and emphasis on indigenous production.
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The business has performed admirably between 2020-2024. The sales have grown at a CAGR of 8.9%. The return ratios have been rangebound, with the RoCE and RoE averaging 8.7% and 8.6%, respectively.
The company’s defence business (1.7% of sales in the financial year 2024) recorded revenues of ₹15 billion, nearly 4 times higher than the financial year 2023.
MTAR Technologies
MTAR Technologies is a leader in precision engineering and is known for its work in critical industries such as nuclear, aerospace and defence. The company manufactures complex components, including fuel machining heads, drive mechanisms, water-lubricated bearings, and rocket engines.
It has established itself as a trusted supplier to major clients like ISRO, Rafael, Elbit, DRDO, BHEL, Bharat Dynamics, and the Indira Gandhi Centre for Atomic Research.
MTAR’s contributions to India’s space missions are significant, with its parts used in Chandrayaan-3, Aditya L1, and Gaganyaan projects.
Also read: Nitin Pai: India’s Air Force can’t afford to fall short of combat aircraft
The company is expanding its global presence and planning to set up manufacturing units in Europe and the US. It also aims to diversify its portfolio, winning export orders worth ₹1.4 billion in the clean energy sector for power units and related components.
In Q2 FY25, the defence major secured ₹2.5 billion in orders across sectors such as clean energy, space, defence and others, boosting its diversified order book to ₹9.4 billion as of 30 September 2024.
Looking ahead, MTAR anticipates strong revenue growth in FY25, driven by robust execution in the second half of the year.
Expanding its customer base and exploring new opportunities in aerospace, defence and clean energy, the company is well-positioned for future growth. As a pre-budget defence stock, MTAR can offer strong potential for investors in the coming years.
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In the last five years, the company’s revenue has grown at a CAGR of 25.8%, driven by strong growth across all segments.
The net profit grew at a CAGR of 7.6%. The 5-year average RoCE and RoE stood at 17.5% and 13%, respectively.
Paras Defence & Space Technologies
Paras Defence is a leader in India’s defence and space engineering sector. The company has over four decades of expertise. It has made significant strides in the drone industry, serving sectors such as agriculture, mining and surveillance.
The company, known for its cutting-edge R&D capabilities, specialises in AI-powered drone solutions and advanced data analytics. It is also the sole Indian supplier of critical imaging components for space applications, showcasing its unique strengths in the sector.
Recently, Paras secured key contracts, including the delivery of optronic submarine periscopes for DRDO and avionics for India’s first multi-purpose civilian aircraft, Saras MK-2. Additionally, the company developed a remote-controlled border defence system, completing firing trials in 2022.
The drone business segment, driven by its subsidiary Paras Aerospace, is experiencing rapid growth. As of March 2024, the company’s order book stood at ₹6.3 billion. It is focusing heavily on anti-drone technology, a sector with strong global growth prospects.
The counter-UAS market, valued at over US$ 1.2 billion in 2023, is projected to grow at a 7% CAGR through 2034.
In addition, Paras has entered into a joint venture agreement with CONTROP Precision Technologies to manufacture electro-optic (EO) and infra-red (IR) systems in India, further strengthening its position in advanced defence technologies.
Going forward, Paras Defence aims to grow its revenue by 25-30% while maintaining its profitability over FY25 and FY26.
As a pre-budget defence stock, the company is well-placed to capitalize on India’s growing focus on indigenous defence solutions and the rapidly expanding drone technology market.
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Between 2020-2024, the company reported a sales and net profit CAGR of 10.5% and 9.5%, respectively. The RoE and RoCE have also been strong, at 11.4% and 13.8%, respectively.
Snapshot of defence stocks
Here’s a table showing India’s top defence companies along with some important parameters –
Conclusion
India’s defence sector is set for robust growth, driven by government reforms and increased private participation. With a focus on indigenisation and cutting-edge technologies, the sector offers significant opportunities for investors.
Also read: Execution hiccups curb order flow excitement for defence stocks
The companies highlighted above, with strong order books and strategic wins, are positioned to benefit from this growth.
However, success depends on more than just securing contracts—it hinges on the ability to execute efficiently in a capital-intensive, technologically complex sector.
While the sector’s potential is high, it comes with risks, including technological challenges, competition and delays in procurement. Investors should proceed with caution and conduct thorough research into a company’s financials, capabilities, and corporate governance.
In the upcoming Union Budget, defence spending is expected to rise, and that could make these stocks key beneficiaries. But a well-researched, strategy-driven approach is vital for managing risks and achieving long-term gains.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com