Jefferies remains bullish on India's defence sector, with Solar Industries, Astra Microwave, HAL, BEL and Data Patterns among its preferred stocks as rising defence spending and a push for domestic manufacturing drive growth. The brokerage has initiated coverage on Solar Industries and Astra Microwave with Buy ratings, while maintaining Buy on HAL, BEL and Data Patterns. Coverage on Bharat Dynamics has been initiated with Hold.
Jefferies initiated Buy on Solar Industries with a price target of Rs 28,160, implying a significant re-rating opportunity based on its September 2028 valuation framework.
The brokerage expects Solar's growing defence business and order pipeline to provide earnings visibility. It sees the company's defence revenue contribution rising from 27% to 40%, which could drive a 31% earnings CAGR over FY26-30. Solar is among the leading manufacturers of explosives and ammunition and has expanded into defence and aerospace products including rockets and drones.
Jefferies expects India's defence spending to grow at a double-digit CAGR over the medium term, supported by heightened geopolitical tensions and the government's focus on indigenisation. Private-sector defence companies, in particular, could see growth of more than 20% as the government works to build a larger domestic supply chain.
The brokerage said private players' share of defence revenues has already risen from 9% in FY23 to 16% in FY26, signalling a gradual shift towards greater private-sector participation.
Jefferies also initiated Buy on Astra Microwave with a target price of Rs 2,055. The brokerage expects Astra to deliver more than 25% EPS CAGR and over 20% ROE, with defence and meteorology expected to drive revenue growth through FY26-30. It sees operating leverage supporting margins as the company scales.
Jefferies maintained Buy on HAL with a target of Rs 6,800, BEL at Rs 490 and Data Patterns at Rs 5,545.
HAL remains a key beneficiary of India's aerospace and defence spending cycle, while BEL and Data Patterns offer exposure to the growing defence-electronics opportunity. Jefferies' September report also retains these companies among its preferred defence plays.
For Bharat Dynamics, Jefferies initiated coverage with a Hold rating and Rs 1,280 target price. While the brokerage sees a robust order book providing earnings visibility, it believes the stock's valuation already reflects a significant portion of the growth opportunity.
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