India's Earliest Private Sector Defence Stock Now Defenceless? 

The 15^th edition of the biennial air show and aviation exhibition, Aero India, concluded last week.

Scores of aircraft and helicopters produced by both Indian and global defence majors showcased their abilities.

Organised in a total area of over 42,000 sq m with over 900 exhibitors, including 150 foreign companies, the event was the biggest-ever Aero India till date

One of the earliest private sector companies to foray into defence sector, Bharat Forge, unveiled its first fully indigenous UAV engine at Aero India 2025.

The company is known for its expertise in forging and precision engineering. So earlier, Bharat Forge was primarily an auto ancillary company. But the company is now looking to leverage one of the most significant gaps in India's defence ecosystem: jet engine technology.

India has long grappled with reliance on imported gas turbines for drones and UAVs. Several startups entered the drone manufacturing space in recent years. But most depend on propulsion units imported from China or Europe.

To bridge the gap in jet engine technology, Bharat Forge is producing landing gears in Pune. In fact, the company is already catering to 100% of Airbus' commercial aircraft parts.

Apart from engines and landing gear, Bharat Forge is also investing in the latest technologies used in warfare. From AI-powered drones to hypersonics and directed energy weapons, the company is collaborating with foreign partners to produce new age defence aviation variants.

Now, the case of Bharat Forge is unique compared to its auto ancillary peers.

Most auto ancillary players are currently busy manoeuvring their product profile from the supply chain of ICE vehicles to EVs. Some are getting into hardware for electric vehicles while others into digital products.

With increasing road accidents in the last few years, the government added safety features like ABS, driver and passenger airbags, seat belt reminders etc. with a target to reduce accidents by 50% till 2030.

This has given an opportunity for auto ancillary companies to increase their digital content per vehicle.

Premiumization of passenger vehicles has allowed most auto ancillary companies to offer add-on features and technologies in the car.

Makers of car sensors, sunroofs, alloy wheels, advanced driver assistance systems instrument clusters and other such parts and systems are experiencing surging demand due to the premiumisation wave sweeping India's growing automobile industry.

More than the vehicle manufacturers, the trend has benefitted auto ancillary companies catering to the premiumisation trend.

So, companies like Motherson Sumi Wiring and Tata Elxsi that are competitors of Bharat Forge have managed to cater to the changing trends in the automobile market while keeping their margins intact.

Motherson Sumi Wiring has designed and developed high voltage wiring harnesses, connectors, and components for EV powertrains and Battery Management Systems (BMS) to prepare for the deeper penetration of features based on regulatory changes.

Similarly, Tata Elxsi has been at the forefront of developing software-defined vehicles (SDVs) promise to transform the mobility landscape.

Therefore, while Motherson Sumi Wiring is leveraging the demand for premium hardware for vehicles, Tata Elxsi is leveraging the demand for connected and tech enabled vehicles.

Neither have compromised on margins while doing so.

Also, both Motherson Sumi Wiring and Tata Elxsi have negligible debt and healthy return ratios.

Bharat Forge was one of the earliest private sector non-defence companies to venture into the PSU dominated space.

For almost a decade until 2022, Bharat Forge focused on platform development, metallurgy and material science as well as embedded electronics for defence equipments.

With these efforts, the company had positioned itself as a product supplier and not just a component supplier in the defence vertical.

Bharat Forge's offerings included artillery business (towered and mounted guns), vehicle business (protected vehicles), and armoured vehicles for defence segment.

The company eventually won orders for making propellants for the Akash missile (a medium-range surface-to-air missile), the Pinaka (multiple rocket launcher), as well as for pyrotechnics, which helps initiate the explosion and igniters (which provide the spark for the ammunition).

The fact that Bharat Forge is already focussing on making parts of the jet engine and catering to MRO (Maintenance, Repair, and Operations) demands of the commercial aircrafts of Airbus, shows the management's foresight about getting into new lines of business.

However, what has ailed Bharat Forge, all through, is the lack of focus on margins and return ratios. Also, the tendency to keep the debt to equity ratio uncomfortably high.

Such issues in fundamental quality have remained an overhang on the stock price of Bharat Forge.

Even though the likes of Bharat Electronics, Hindustan Aeronautics, Bharat Dynamics gained from 3 to 5 times between April 2024 and February 2025, the recent market correction erased some of the gains. In the case of Bharat Forge the erosion of valuation multiple was much sharper.

So, despite having a reasonable exposure to the defence sector, the stock of Bharat Forge has been one of the laggards amongst defence sector stocks in India. And although the prospects in aviation defence and aviation MRO are extremely promising, Bharat Forge may not be able to sustain its valuations without focus on margins.