Defence stocks to buy: Bharat Electronics, HAL, Solar Industries, BDL among top stock picks by Phillip Capital

Defence stocks have delivered stellar returns, driven by the government’s focus on boosting domestic manufacturing, a robust order book, and improved financial performance. The defence sector has emerged as a compelling investment theme, supported by multiple growth drivers and strong visibility for long-term execution.

The sector’s growth is underpinned by several factors, including strong order inflows and a healthy pipeline, which provide sustained visibility for future performance. The localization of production and subcontracting initiatives have enabled timely execution of projects, while government preference and domain expertise have created strategic advantages for key players.

Furthermore, according to brokerage firm Phillip Capital, defence companies benefit from solid financial health, characterized by cash-rich balance sheets and minimal working capital challenges due to stage payments. In-house research and development, bolstered by collaborations with DRDO, have further enhanced the technological capabilities of domestic manufacturers.

This progress is supported by a favorable policy environment, with the government prioritizing local manufacturing, fostering strategic partnerships, and imposing import restrictions to strengthen the domestic defence ecosystem.

The brokerage firm anticipates margin expansion in core defence products, driven by operational efficiencies and the government’s indigenization mandate. The firm maintains a positive outlook on the defence sector and highlights Bharat Electronics (BEL), Hindustan Aeronautics (HAL), and Data Patterns (India) as stocks with attractive risk-reward profiles.

Phillip Capital has initiated coverage on defence stocks with a ‘Buy’ rating on BEL, HAL and Data Patterns, and a ‘Neutral’ rating on Solar Industries India and Bharat Dynamics.

Here are key defence stocks to buy:

Bharat Electronics | Buy | Target Price: ₹390

Bharat Electronics leads the niche defence-electronics space, with around 60% market share. Over FY14-24, BEL grew consistently with revenue and PAT CAGRs of 12.4% and 15.7%. Its robust order backlog of ₹75,900 crore and a pipeline of ₹80,000 crore provide strong revenue visibility for the next three years. Over FY24-27, we estimate revenue/EBITDA/PAT CAGR at 18%/ 20%/ 20%, supported by consistent execution and a virtuous growth cycle, Phillip Capital said.

It assigns a P/E of 42x based on December 2026 EPS and initiates coverage with a ‘Buy’ rating on BEL shares and a target price of ₹390 apiece.

Hindustan Aeronautics | Buy | Target Price: ₹5,500

Over FY24-27, Phillip Capital forecasts revenue, EBITDA and PAT CAGRs of 18%, 12% and 12%. With an estimated ₹5 lakh crore growth opportunity over the next eight years, HAL’s capabilities in advanced manufacturing and MRO provide a strong foundation for sustained premium valuations. Assigning a P/E of 40x on December 2026 EPS, it initiates coverage with a ‘Buy’ rating on Hindustan Aeronautics shares and a target price of ₹5,500 apiece.

Data Patterns | Buy | Target Price: ₹3,140

With a strong franchise in niche areas like radars and a comprehensive product portfolio, Data Patterns is well-poised to capture opportunities in indigenously developed defence sub-systems. While earnings CAGR is expected to moderate to 26% over FY24-27 (vs. 48% in FY21-24), we believe Data Patterns stock could continue to trade at premium valuations due to its end-to-end systems capabilities and focus on scalability provide long-term growth visibility, Phillip Capital said.

It has a ‘Buy’ rating on Data Patterns shares with a target price of ₹3,400 apiece.

Solar Industries | Buy | Target Price: ₹12,000

Over FY24-27, the brokerage forecasts revenue, EBITDA and PAT CAGRs of 26%, 31% and 30% for Solar Industries India driven by robust domestic and international demand for explosives and defence products. Solar Industries’ unique positioning in a highly regulated industry and growth prospects justify premium valuations, it said.

Assigning a P/E of 60x December 2026 EPS, the brokerage firm initiates coverage with a ‘Neutral’ rating and a target price of ₹12,000 per share.

Bharat Dynamics | Buy | Target Price: ₹1,400

Over FY24-27, the brokerage projects revenue, EBITDA and PAT CAGRs of 24%, 23% and 18% for Bharat Dynamics. While BDL benefits from indigenization and increased ordering, Phillip Capital believes its current valuation reflects these positives. Assigning a P/E of 55x December 2026 EPS, it initiates with a ‘Neutral’ rating and a target price of ₹1,400.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.