Defence Firms Post Strong Q4; Analysts Flag Valuation, Order Concerns

India’s key defence and aerospace companies posted solid results for the fourth quarter of FY25, outperforming expectations on both revenue and profitability. However, analysts remain cautious due to elevated stock valuations, uneven execution across firms, and concerns about near-term order visibility, even as the sector continues to benefit from Make-in-India momentum, robust export interest, and rising capital expenditure from both the government and private industry.

Highlights:

• HAL, BEL, GRSE, and Cochin Shipyard beat Q4 revenue and profit estimates.

• Private players like Zen Technologies and Paras Defence post sharp growth.

• Analysts flag risks around execution delays, valuation stretch, and contracting order books.

• HAL holds the largest defence order book at ₹1.84 lakh crore.

Public Sector Majors Exceed Estimates, but Valuation Concerns Remain

Hindustan Aeronautics Ltd (HAL), India’s largest defence public sector undertaking, reported a 7.2% year-on-year decline in Q4 revenue to ₹13,700 crore, while net profit dropped 7.8% to ₹3,958 crore. Despite the decline, both figures beat Bloomberg consensus due to improved execution and supply chain efficiencies. Nomura highlighted HAL’s strong margin profile and projected a 59% CAGR in manufacturing revenue through FY28, raising its target price to ₹6,100 on the back of a robust ₹1.9 lakh crore order backlog.

Bharat Electronics Ltd (BEL) posted revenue of ₹9,120 crore, up 6.9% YoY, with net profit rising 18% to ₹2,105 crore. EBITDA margins expanded sharply by 385 bps to 30.6%, helped by lower other expenses. Kotak Securities raised its FY27 earnings estimate by 8% but retained a ‘Sell’ rating due to stretched valuations, even as margin concerns eased and the firm maintained its 15% revenue growth guidance.

Garden Reach Shipbuilders & Engineers Ltd (GRSE) reported a standout performance with Q4 revenue up 61.7% to ₹1,642 crore and net profit more than doubling to ₹244.25 crore. Antique Stock Broking attributed the result to faster project execution and a ₹1,000 crore gain from cost estimate revisions. The firm remains optimistic on GRSE’s execution of P17A stealth frigates and upcoming anti-submarine warfare vessels.

Highlights:

• HAL: ₹13,700 crore revenue (-7.2% YoY), ₹3,958 crore profit (-7.8% YoY), ₹1.9 lakh crore order book.

• BEL: ₹9,120 crore revenue (+6.9% YoY), ₹2,105 crore profit (+18% YoY), 30.6% EBITDA margin.

• GRSE: ₹1,642 crore revenue (+61.7% YoY), ₹244.25 crore profit (2x), ₹25,231 crore order book.

Cochin Shipyard Lags on Large-Project Visibility

Cochin Shipyard reported Q4 revenue of ₹1,651 crore, up 34.7% YoY, while net profit increased 7.6% to ₹285 crore, missing Bloomberg estimates of ₹311 crore. Analysts pointed to continued delays in executing large defence orders, such as the Indigenous Aircraft Carrier, and noted limited visibility on upcoming large-ticket contracts.

Highlights:

• Cochin Shipyard: ₹1,651 crore revenue (+34.7% YoY), ₹285 crore net profit (+7.6% YoY).

• Execution delays persist in large-scale contracts.

Private Sector Players See Sharp Growth, But Order Book Risks Emerge

Cyient DLM posted strong growth with Q4 net profit rising 36.5% YoY to ₹31 crore, and consolidated revenue up 18.3% to ₹428 crore. EBITDA margin rose to 13.4% from 10.5%. However, standalone revenue declined 5.9%, and the order book shrank for the seventh consecutive quarter. JM Financial downgraded the stock to ‘Hold’, citing temporary margin gains.

Data Patterns (India) doubled its Q4 revenue to ₹396 crore, with net profit climbing 60.4% to ₹114 crore. Though revenue targets were met, margin pressures weighed on profitability. Analysts highlighted that the company is still scaling up in strategic defence programs but warned of challenges in sustaining profit levels.

Paras Defence and Space Technologies reported a 38.4% rise in revenue to ₹90.16 crore and a 64.9% surge in net profit to ₹17.02 crore. The growth was driven by a 374% YoY jump in the optics segment. The company has signed key strategic partnerships with Israeli firms to strengthen its drone and surveillance offerings.

Solar Industries saw Q4 revenue increase 29.8% YoY to ₹1,299.28 crore, with net profit up 26.5% to ₹227.03 crore. However, both figures fell short of consensus expectations due to margin pressures linked to input costs.

Zen Technologies posted a dramatic 116.2% YoY jump in Q4 revenue to ₹293.5 crore, with net profit soaring 157.2% to ₹84.92 crore. Elara Securities attributed the performance to the delivery of high-margin simulation systems. However, order inflows for FY25 dropped 86%, raising concerns about future growth momentum.

Highlights:

• Cyient DLM: ₹31 crore profit (+36.5% YoY), order book declining for 7th straight quarter.

• Data Patterns: ₹396 crore revenue (+100%+), ₹114 crore profit (+60.4%), margin pressure persists.

• Paras Defence: ₹90.16 crore revenue (+38.4%), ₹17.02 crore profit (+64.9%), optics segment key.

• Zen Tech: ₹293.5 crore revenue (+116.2%), ₹84.92 crore profit (+157.2%), FY25 order inflow down 86%.

DEFENCE EARNINGS BEAT ESTIMATES

Most defence stocks beat analyst estimates for the quarter

*Note: Bloomberg estimates unavailable for Zen Technologies, data from Elara Capital.

DEFENCE VALUATIONS STILL HIGH

Sector Faces Valuation Headwinds Amid Strategic Tailwinds

HAL led the pack with a ₹1.84 lakh crore order book, followed by BEL at ₹71,650 crore and GRSE at ₹25,231 crore. While long-term growth prospects remain strong, analysts have expressed concerns over steep valuations across several defence counters, especially private firms with limited execution history and aggressive growth projections.

Kotak Securities warned that current prices may not factor in downside risks. “Any earnings disappointment could derail momentum. These stocks are priced for perfection,” said Pankaj Kumar. Similarly, SAMCO’s Divyam Mour noted that price-to-earnings multiples have become frothy, particularly for smaller firms where high expectations could backfire.

Still, Mour suggested that long-term fundamentals remain intact and that market corrections could offer strategic entry points for investors focused on the sector’s structural growth story.

Highlights:

• HAL: Largest defence order book at ₹1.84 lakh crore.

• Analysts urge caution due to high P/E multiples.

• Order inflow concerns in private firms temper near-term optimism.