Amit Anwani, Research Analyst at Prabhudas Lilladher, recommends buying Bharat Electronics (BEL) with a target price of ₹340 and suggests accumulating Hindustan Aeronautics (HAL) with a target of ₹4,110.

They believes that the defence sector should be viewed with a long-term perspective due to its execution cycles and ongoing changes.

The government’s focus over the past 7-8 years and a 10-15 year replacement plan for aircraft and other defence segments further support this outlook.

Anwani said, “Bharat Electronics stocks is very strong with respect to the order pipeline. We saw nine months performance by HAL, Bharat Electronics was quite decent. The only issue was the very steep valuation and the supply chain issue at some places which leads to this correction.”

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Hindustan Aeronautics (HAL) has faced some delays in deliveries, but the management remains confident that the required engines will arrive. Prabhudas Lilladher estimates a 12-13% compound annual growth rate (CAGR) if deliveries stay on track.

Currently, HAL has the capacity to deliver 16 aircraft per year and plans to expand this to 24 aircraft in the next two to three years, which will speed up execution.

Additionally, HAL is exploring outsourcing pre-integrated suppliers and modules to the private sector, aiming to improve assembly efficiency. This strategy is expected to drive growth over the next decade.

Prabhudas Lilladher believes that the high valuations of defence stocks have eased to some extent, making certain stocks more attractive.

Original Equipment Manufacturers (OEMs) are working to resolve supply chain issues, which is expected to speed up execution in the coming years.

The sector performed well in Q3, with strong operations and stable profit margins.

Prabhudas Lilladher remains optimistic about the growth potential in the defence electronics segment.