Nifty India Defence index slips 3%; Unimech, Axiscades, Dynamatic tank 7%

Shares of defence companies were under pressure, falling up to 7 per cent on the National Stock Exchange (NSE) in Wednesday’s intraday deals amid concerns that delays in programme finalisation and customer inspections could impact order conversion and revenue execution.

Unimech Aerospace and Manufacturing, Axiscades Technologies and Dynamatic Technologies were down 7 per cent each. Apollo Micro Systems, MTAR Technologies, Sigma Advanced Systems, Paras Defence and Space Technologies, Astra Microwave Products, Zen Technologies, BEML, Mishra Dhatu Nigam (MIDHANI), Solar Industries and Data Patterns (India) were down in the range of 4-6 per cent.

Meanwhile, the Nifty India Defence index slipped 3 per cent to 8,832.55 in intraday deals. At 12:47 PM, Nifty India Defence index was second-largest loser among thematic indices down 2.8 per cent, compared to a 0.67 per cent decline in the Nifty 50.

According to reports, Data Patterns (India), an electronic parts maker for the military, said the government’s push for localisation has opened up thousands of crore in revenue potential for the industry. However, the gap between receiving orders and converting them into revenue is widening, as a shortage of inspection personnel delays deliveries.

Data Patterns highlighted delays in customer inspections of finished defence products, which are holding up deliveries and revenue recognition despite strong opportunities from the government's localisation push.  

As of June 30, 2026, its order book, including negotiated orders, stood at ₹2,654 crore, comprising ₹920 crore of firm orders and ₹1,726 crore under negotiation. The company is targeting ₹2,000 crore in fresh orders during the year and is reportedly the lowest bidder for a potential ₹1,300 crore contract from Hindustan Aeronautics (HAL), although management declined to comment on the ongoing negotiations. 

Management also indicated that a major programme faced delays exceeding 18 months, followed by extensions, while other large programmes were taking longer than expected to convert into firm contracts.

According to ICICI Securities, Data Pattern's current order book stands at ₹2,300 crore, including ₹920 crore of firm orders and a sizeable pipeline of negotiated orders. Conversion of negotiated orders into firm contracts, along with timely customer inspections and execution, will be the key to revenue growth. The potential ₹1,300 crore HAL contract could provide a meaningful addition to the order book if awarded, while the government’s push for defence indigenisation and the expected increase in domestic procurement provide a favourable medium-term demand outlook. However, delays in programme finalisation and customer inspections remain key monitorables for order conversion and revenue execution, the brokerage firm said in a note.

The aerospace and defence sector is undergoing a significant structural shift driven by evolving geopolitical dynamics, rapid technological advancements and increasing emphasis on self-reliance, witnessing sustained momentum during FY25-26, supported by the government’s continued focus on “Atmanirbhar Bharat”, indigenisation, and modernisation of the Armed Forces. Geopolitical uncertainties and the need to enhance operational readiness drove higher demand for indigenous platforms, including fighter aircraft, helicopters, engines, and related systems.

Key structural shifts included greater private sector participation in the defence ecosystem, policy support through positive indigenisation lists, export promotion measures, and infrastructure development for aerospace manufacturing. The sector is transitioning towards higher self-reliance, with increased emphasis on design, development, and production of advanced platforms such as the Light Combat Aircraft (LCA) Tejas, Advanced Light Helicopter (ALH) Dhruv variants, Light Combat Helicopter (LCH) Prachand, and trainer aircraft, HAL said in its FY26 annual report.

However, direct competition from foreign companies entering in Indian market and pricing pressures in international markets. The defence industry is mainly dependent on the Ministry of Defence (MoD) for contracts. Any change in procurement policy/ preference can adversely affect the company’s ability to grow or maintain sales, earnings and cash flow. Supply chain disruptions due to geopolitical issues are the other key threats for the outlook.

Meanwhile, within defence coverage, JM Financial Institutional Securities expects HAL to report strong year-over-year revenue growth of 22 per cent YoY in the September 2026 quarter (Q2FY27) supported by the delivery of LCA FOC MK1, HTT trainer aircraft and Dhruv NG helicopters.

For others, the brokerage firm expects defence companies in our coverage to report execution consistent with typical quarterly seasonality. Analysts’ assessment suggests that Q2 accounts for 19–20 per cent of the annual execution. For HAL, the brokerage firm expects a rise in the share of manufacturing revenues during the quarter to lead to weakness in gross margin. For other companies, analysts expect QoQ improvement in earnings before interest, tax, depreciation and amortization (EBITDA) margin, led by operating leverage. 

Key variables to monitor are status of delivery of Tejas MK1A aircraft and potential orders in the near term for HAL; status of the QRSAM order for Bharat Electronics (BEL); and status of conversion of order pipeline into inflows for Data Patterns. Disclaimer: Views and outlook in this report belong to the brokerages and analysts cited. They do not reflect the views of Business Standard. Readers are advised to exercise discretion.