₹3.3-trillion defence approvals lift visibility; Motilal Oswal backs PSUs

India’s defence modernisation drive gathered fresh momentum this year as capital acquisition approvals surged to levels that far exceed the annual budgetary outlay, materially improving medium-term visibility for key public sector undertakings and select private players, Motilal Oswal Financial Services said in its latest sector note.

 

In its winter session, the Defence Acquisition Council (DAC) approved capital acquisition proposals worth ₹79,000 crore, taking total approvals in FY26 year-to-date (Y-T-D) to around ₹3.3 trillion, nearly twice the capital outlay for defence of ₹1.8 trillion. While these Acceptance of Necessity (AoN) approvals do not immediately translate into firm order inflows, Motilal Oswal said the sheer scale and diversity of approvals considerably de-risk order pipelines for defence companies over the next two to four years.

 

Balanced modernisation across services

 

The approvals span a wide spectrum of capabilities, including munitions, missiles, air defence systems, surveillance and communication equipment, training systems and naval support platforms. According to the brokerage, this reflects a balanced modernisation push across the Army, Navy and Air Force, rather than a concentration in any single segment.

 

Motilal Oswal continues to maintain a Buy rating on Bharat Electronics (BEL), Hindustan Aeronautics (HAL), Bharat Dynamics (BDL) and Astra Microwave Products (AMPL), while retaining a Neutral view on Zen Technologies.

 

Company-wise beneficiaries from winter session clears

 

Of the ₹79,000 crore worth of projects cleared in the winter session, BEL is seen as well placed to capture orders for radar systems, drone detection solutions, HF software-defined radio communications equipment, the GBMES programme, and the electronics portion of various defence systems. HAL, meanwhile, could benefit from potential orders linked to high-altitude long-endurance remotely piloted aircraft systems, Astra Mk-II missile integration, and full mission simulator production and support for platforms such as the Tejas.

 

BDL is positioned to gain from guided rocket ammunition, missile system production and other munitions falling within its manufacturing scope. In addition, the procurement of BP tugs and allied marine support vessels opens up opportunities for shipyards such as Mazagon Dock Shipbuilders, Cochin Shipyard and Garden Reach Shipbuilders & Engineers. Among private sector players, Larsen & Toubro, Tata Advanced Systems, Zen Technologies and Astra Microwave could see higher participation in component supplies and, in certain cases, fully integrated products such as full mission simulators and SPICE-1,000.

 

Emergency procurement window extended

 

The brokerage also highlighted the extension of the emergency procurement window as a key near-term positive. The emergency procurement process, first introduced in 2020, allows Vice Chiefs of the armed forces to approve contracts of up to ₹300 crore per contract, majorly compressing procurement timelines. The DAC has now extended this window for the Army, Navy and Air Force until January 15, 2026. The earlier deadline for signing contracts under this route had expired in November 2025, raising the risk of delays for several pending acquisitions. The extension is expected to ensure continuity in urgent purchases of critical weapons, platforms and equipment while regular acquisition processes continue.

 

Key programme and order developments

 

Motilal Oswal also flagged several other developments relevant to its defence coverage universe. User trials of the Akash-NG air defence system have been completed by DRDO, clearing the system for induction. The brokerage expects BDL and BEL to receive production and supply contracts in calendar year 2026, followed by ramp-ups aligned with induction timelines. Akash-NG is also drawing export interest from countries such as Armenia, Vietnam and Brazil.

 

Separately, India is deploying an indigenous integrated air defence system to protect the Delhi-NCR region, built around domestically developed missiles including QRSAM and VSHORADS, along with associated systems. BEL has also received an order for the indigenous SAKSHAM counter-unmanned aerial system, designed to detect, track, identify and neutralise hostile drones in real time.

 

HAL has issued an expression of interest to onboard Indian consultants for developing and implementing a tailored export strategy aimed at expanding sales and support for its aircraft and helicopter platforms in regions such as Africa, Latin America and Southeast Asia. The company has also received the fifth F-404 engine from GE for its Tejas Mk-1A fighter jets. Meanwhile, AMPL has signed a memorandum of understanding with BEL to jointly develop and manufacture advanced electronic modules and systems for defence electronics and aerospace, with a focus on electronic warfare, radar and satellite technologies.

 

What the brokerage is watching next

 

Moving forward, Motilal Oswal said key monitorables include emergency procurement announcements over the next two to three weeks, the conversion of AoN approvals into firm orders, especially in large missile, air defence and electronics programmes, potential increases in defence budget allocations, timelines for marquee programmes such as Akash-NG, QRSAM and Project Kusha, and export order wins through government-to-government deals.

 

Valuations

 

On valuations, BEL is trading at 39.9x and 34.3x FY27E and FY28E earnings, respectively, with a reiterated ‘Buy’ rating and target price of ₹500. HAL trades at 27.2x and 22.1x FY27E and FY28E earnings, with a ‘Buy’ rating and target of ₹5,800. BDL trades at 38.9x and 28.3x, with a ‘Buy’ rating and target of ₹2,000. AMPL trades at 41.3x and 32.4x, with a ‘Buy’ rating and target of ₹1,100. Zen Technologies trades at 34.3x and 26.0x, with a ‘Neutral’ rating and target price of ₹1,400.

 

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