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Top 5 Defence Companies in India by Growth

Jan 3, 2023

Top 5 Defence Companies in India by Growth

India's defence sector has been the savior of equity market in 2022. High growth companies from the sector made headlines.

This was not the case a couple of years ago. In fact, until 2018, the defence sector was suffering from low growth.

But the trend has reversed now. The sector has the government's full support as far as funding is concerned and there are certain policy tailwinds.

With the government spending more on defence, 2023 is expected to be a good year for these stocks.

Keeping that in mind, let's take a look at the top 5 defence stocks in India which score well on growth.

These five companies have registered the highest growth in profit and sales on a five year compounded annual growth (CAGR) basis.

#1 Data Patterns (India)

First on the list is Data Patterns.

Data Patterns is a vertically integrated defence and aerospace electronics solutions provider catering to the indigenous defence products industry.

The company has proven in-house design and development capabilities. It also has experience of more than three decades in defence and aerospace electronics.

What makes the company different from other defence majors?

Unlike large defence giants catering to specialised defence equipment, Data Patterns caters to the entire spectrum of defence and aerospace platforms like space, air, land, and sea.

Apart from defence, what makes it interesting is the company's focus towards space technology. Last month, the company informed that it has received orders to build two deep-space surveillance radars from the DRDO.

This order provides a strong revenue visibility for the company. The order is around Rs 3.6 billion (bn).

Data Patterns has a debt free balance sheet and boasts of good financial performance.

In the past five years, the company's revenue has grown at a compounded annual growth rate (CAGR) of 41% while profit has delivered a CAGR of 137% for the same period.

Financial Snapshot of Data Patterns (2018-2022)

Rs m, standalone FY18 FY19 FY20 FY21 FY22
Revenue 567.2 605.7 1,561.00 2,239.50 3,108.50
Growth (%) 15% 7% 158% 43% 39%
Operating Profit 90.5 89.4 472.5 945.9 1,450.00
OPM (%) 16% 15% 30% 42% 47%
Net Profit 12.5 13.8 210.5 555.6 939.7
NPM (%) 2% 2% 13% 25% 30%
Debt to Equity (x) 0.3 0.3 0.4 0.2 0.01
Dividend per share (Rs) 0.4 0.4 0.4 0.4 3.5
ROE (%) 1.2 1.3 16.2 30.7 24
ROCE (%) 4.4 4.7 23.8 39.1 33.7
Data Source: Ace Equity

The company is currently doubling its existing manufacturing facility.

It has strong revenue visibility with Rs 20 bn to 30 bn worth orders in the pipeline for the next three to four years.

As far as stock performed is concerned, Data Patterns has rallied 48% since listing in December 2021.


#2 MTAR Technologies

Next on the list is MTAR Technologies.

Founded in 1970, MTAR Technologies has a diversified portfolio of 14 kinds of products in the nuclear sector, six kinds of products in the space and defense sectors, and three kinds of products in the clean energy sector.

It constructs nuclear and pressurised water reactors, aerospace engines, and numerous other important parts, and assemblies.

Having niche products in its kitty gives MTAR the advantage of limited competition.

That apart, it has a healthy relationship with its clients, and they have stuck with MTAR over the years with repeat orders.

Bloom Energy of USA in particular has been responsible for a large chunk. Last year, MTAR received an order worth US$30 million (Rs 2.2 bn) from Bloom.

In the past five years, the company's revenue has grown at a CAGR of 16% while profit has delivered a CAGR of 57% for the same period.

Financial Snapshot of MTAR Tech (2018-2022)

Rs m, consolidated FY18 FY19 FY20 FY21 FY22
Revenue 1,566.20 1,836.70 2,137.70 2,464.30 3,220.10
Growth (%) 56% 17% 16% 15% 31%
Operating Profit 328.2 559.6 623.3 843.9 1,031.80
OPM (%) 21% 30% 29% 34% 32%
Net Profit 64.2 392 313.2 460.7 608.7
NPM (%) 4% 21% 15% 19% 19%
Debt to Equity (x) 0.1 0.1 0.1 0 0.18
Dividend per share (Rs) - - 3 6 3
ROE (%) 3.1 16.7 13.6 13.1 12.2
ROCE (%) 9.5 17.5 19.4 19.2 16
Data Source: Ace Equity

In 2022, what clicked for the company was a growing order book. This, at a time when there were supply chain disruptions.

In its latest investor presentation, the company revealed that it has an order book of around Rs 12.9 bn, which should provide revenue visibility for the near term.


Many things could click for MTAR in the coming 1-2 years. At present, it is exploring opportunities in the space tech segment and also working exploring designing of valves, which has an immense market potential in the defence segment.

For 2023, MTAR has guided for a revenue growth of around 60%. If it manages to achieve this feat, the company might be up for a re-rating as the stock has witnessed a downtrend in 2022.


#3 Hindustan Aeronautics

Third on the list is the most obvious name - Hindustan Aeronautics (HAL).

The company is a dominant supplier of aircrafts, helicopters, engines, avionics, and accessories as well as the main provider of maintenance, repair, and overhaul services to the Indian defence forces.

Over the years, the company has invested heavily in research & development (R&D) to trigger growth.

HAL faces limited competition from the private sector due to the high capital intensity and long gestation period for developing manufacturing capabilities in the sector.

In the past five years, the company's revenue has grown at a CAGR of 6% while profit has delivered a CAGR of 21% for the same period.

Financial Snapshot of HAL (2008-2022)

Rs m, consolidated FY18 FY19 FY20 FY21 FY22
Revenue 1,85,197.40 2,00,082.30 2,14,451.60 2,28,823.20 2,46,200.20
Growth (%) 3% 8% 7% 7% 8%
Operating Profit 42,105.20 49,267.70 52,108.10 57,014.30 64,005.30
OPM (%) 23% 25% 24% 25% 26%
Net Profit 19,904.80 23,286.30 28,828.20 32,459.50 50,800.40
NPM (%) 11% 12% 13% 14% 21%
Debt to Equity (x) 0.1 0.3 0.5 - -
Dividend per share (Rs) 32.2 19.8 33 30 50
ROE (%) 17.9 21.6 22.7 22.6 29.3
ROCE (%) 27.2 29.3 24.5 26.2 30.4
Data Source: Ace Equity

HAL turned out to be one of the best performing stocks of 2022. It delivered multibagger gains on the back of strong order book and execution picking up post supply chain constraints.

In its latest investor presentation, the defence PSU revealed that it has an order book of around Rs 838.6 billion (bn). This is more than three times its annual revenue of 2022.

What makes HAL interesting to track is its exposure in drone market. The company is currently developing an artificial intelligence (AI)-driven advanced drone for strategic missions in high-altitude areas including along the frontiers with China.

Since listing in March 2018, HAL has rallied 125% till date.


#4 Bharat Electronics

Fourth on the list of top defence growth stocks is Bharat Electronics.

A Navratna defence PSU, Bharat Electronics is the dominant supplier of radar, communication, and electronic warfare equipment to the Indian armed forces.

It has a diversified product line, including non-defence products, software, and electronic manufacturing services.

The company exports its products to several countries, including Botswana, Indonesia, Sri Lanka, Russia, the US, and South Africa.

In the past five years, the company's revenue has grown at a CAGR of 8% while profit has delivered a CAGR of 11% for the same period.

Financial Snapshot of Bharat Electronics (2018-2022)

Rs m, consolidated FY18 FY19 FY20 FY21 FY22
Revenue 1,04,008.00 1,21,641.70 1,29,676.70 1,41,086.90 1,53,681.80
Growth (%) 20% 17% 7% 9% 9%
Operating Profit 22,351.10 29,824.00 28,579.20 33,387.10 35,759.20
OPM (%) 21% 25% 22% 24% 23%
Net Profit 14,317.20 18,864.00 18,238.50 20,989.40 23,988.70
NPM (%) 14% 16% 14% 15% 16%
Debt to Equity (x) - - - - -
Dividend per share (Rs) 2 3.4 2.8 4 4.5
ROE (%) 17.9 21.5 18.6 19.6 20.2
ROCE (%) 24.7 30.5 25.7 27.9 27.2
Data Source: Ace Equity

Bharat Electronics is one of the biggest beneficiaries of government's decision to put defence items under import embargo.

In its latest investor presentation, the company revealed that it has an order book of Rs 600 bn. This is almost 4x its FY22 revenues.

The company's performance is not solely based on defence segments. In fact, in October 2022, Bharat Electronics announced a big deal of Rs 80.6 bn with electric vehicle (EV) maker Triton Electric Vehicle. The company will manufacture battery packs at its Pune facility.

As far as stock performance is concerned, Bharat Electronics has gained 66% in the past five years with most of the gains coming in 2022 when most of the defence stocks rallied.


#5 Bharat Forge

Last on the list is Bharat Forge.

The flagship company of the Kalyani group, it manufactures forged and machine components for the automotive, aerospace, mining, oil and gas, marine, and power industries.

The company is also engaged in the manufacturing of high-end construction and mining components, and railway engine manufacturing.

Some of its products include steel forgings, finished machine crankshafts, front axles assembly, and components used in several sectors.

In the past five years, the company's revenue has grown at a CAGR of 3% while profit has delivered a CAGR of 9% for the same period.

Financial Snapshot of Bharat Forge (2018-2022)

Rs m, consolidated FY18 FY19 FY20 FY21 FY22
Revenue 83,576.90 1,01,457.30 80,558.40 63,362.60 1,04,610.80
Growth (%) 31% 21% -21% -21% 65%
Operating Profit 18,588.10 22,507.30 12,982.00 10,306.40 22,118.40
OPM (%) 22% 22% 16% 16% 21%
Net Profit 7,624.40 10,321.70 3,498.30 -1,263.80 10,817.60
NPM (%) 9% 10% 4% -2% 10%
Debt to Equity (x) 0.7 0.8 0.8 0.9 0.9
Dividend per share (Rs) 4.5 5 3.5 2 7
ROE (%) 17.2 20.8 7.4 -1.8 18.5
ROCE (%) 17.2 20.1 7.1 1.1 13.9
Data Source: Ace Equity

The growth in 2022 was on the back of improving demand across its segments and international markets also showing decent growth. Exports form a major chunk of the company's business.

In its latest concall, the company informed that its subsidiary, Kalyani Strategic Systems, has won an export order worth US$155.5 million (around Rs 13 bn) for the export of artillery gun systems.

The company will enjoy superior margins on this order as it doesn't need to invest a large sum. It already has a facility underway with an investment of Rs 400 m.

With Bharat Forge seeing significant additions to its order book and having a health execution rate, there's nothing but blue skies ahead for Bharat Forge.


In conclusion

Defence exports are on the rise. They have hit the highest level of Rs 140 bn.

The government's spending has increased to boost defence manufacturing. Thus, defence companies have strong order books. They might continue to see their order book grow even more.

All the data indicates a golden decade ahead for defence stocks in India.

Co-head of Research at Equitymaster Tanushree Banerjee tracks stocks from the defence sector closely. Here's what she wrote in a recent editorial:

  • The revenues from defence exports will not only make India's defence plans viable. But they also place the best defence stocks in India among the most sought-after manufacturing businesses.

    The Indian government's target of achieving exports of Rs 400 bn by 2030 was laid out in the Defence Production Policy of 2018. Back then, it meant 10x growth in a little more than a decade.

    India's defence exports have already quadrupled from about Rs 30 bn to over Rs 130 bn in 2022. The next target of 3x growth in eight years is not impossible.

    This is part of the overall plan of taking India into the league of the world's top five defence producers, with an annual turnover of US$ 26 bn (Rs 1.8 trillion). This is a two-fold increase over the current annual defence production of Rs 900 bn.

    So, the big sector tailwinds are certainly at play.

You can check out the entire editorial here: End Your Search for the Best Indian Defence Stocks to Buy.

With so many positive steps, there's little doubt as to why defence stocks will likely be on an upward journey for the time being.

Before you invest in defence stocks, we highly recommend you check out the below video where Tanushree talks about little known defence tech stocks.

Happy Investing.

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Yash Vora

Yash Vora is a financial writer with the Microcap Millionaires team at Equitymaster. He has followed the stock markets right from his early college days. So, Yash has a keen eye for the big market movers. His clear and crisp writeups offer sharp insights on market moving stocks, fund flows, economic data and IPOs. When not looking at stocks, Yash loves a game of table tennis or chess.

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