Defence, Engineering Stock Picks: Jefferies Identifies HAL, Siemens, L&T, KEC International
The brokerage noted a 28% yearly increase in fiscal 2025 order inflows for its coverage, led by HAL and Siemens.
A sharp uptick in defence orders is helping drive margin expansion, Jefferies said in its latest report. Alongside defence, the power sector continues to have high visibility and the outlook on railways has improved too, as per the note.
Jefferies has identified Hindustan Aeronautics Ltd., Siemens Ltd., Larsen & Toubro Ltd., and KEC International Ltd. as top picks. Siemens is expected to see revenue and margin upside from rail order execution. HAL has five-year earnings growth visibility with a projected 19% EPS CAGR, backed by indigenisation efforts. L&T offers strong visibility with conservative guidance, and KEC is seen as a holistic play on power, capex, housing and exports.
The brokerage noted a 28% yearly increase in fiscal 2025 order inflows for its coverage, led by HAL and Siemens, which posted 214% and 28% annual growth respectively. Defence alone saw an 89% yearly rise in orders.
Operating leverage played out strongly across the board, most notably in defence names. HAL and Bharat Electronics Ltd. beat margin expectations with expansions of 831 basis points and 385 basis points on an annual basis, respectively. Both companies guided for sustaining or improving margins in fiscal 2026, buoyed by scale and cost efficiency.
Top Picks In Power And Industrial Segment
In the power and industrial segments, ABB, Siemens, and Thermax saw a combined 21% yearly growth in order inflows for the March quarter. Siemens, which recorded 43% growth, benefited from a large export order in the rail segment.
The company also highlighted a healthy domestic rail pipeline. ABB noted strong traction in data centres, electronics, and renewables, although management flagged some delay in large order decisions. Thermax's orders declined 8%, but the company indicated that its enquiry pipeline was picking up and larger projects were expected in the first half of fiscal 2026.
L&T reported a 24% yearly rise in March quarter order inflows, helped by its largest-ever order from QatarNG. Its prospect pipeline surged 57% to Rs 19 lakh crore. HAL's massive 214% jump in fiscal 2025 orders was led by a Rs 62,800 crore contract for 156 advanced light helicopters booked in the fourth quarter.
In contrast, BEL saw a 47% decline in order inflows in the last fiscal on a high base and missed its guidance of Rs 25,000 crore.
Capex visibility remains strong in both the defence and power sectors. Jefferies said the recent India-Pakistan conflict is likely to boost focus on domestic defence manufacturing, projecting a 14% CAGR in capital spending between fiscals 2025 to 2030.
