Jefferies has named Hindustan Aeronautics (HAL) as one of its top picks in the industrials space, while retaining a 'buy' rating on Bharat Electronics (BEL) and Data Patterns, citing strong execution visibility on existing order books across the defence electronics space.
In a note dated 17 August, the brokerage said Bharat Electronics' June-quarter order inflow fell 49% YoY, largely due to a high base in the year-ago quarter, which had included a spillover of around Rs 5,000 crore of orders from FY25. The company's margins fell 297 basis points YoY to 25.1%, dragged by a decline in gross margins due to product mix, though this was partly offset by operating leverage from strong execution. FY27 margin guidance of 27%-plus was retained.
Here's a look at Jefferies' key defence picks:
Hindustan Aeronautics: Buy rating with a price target of Rs6,800, raised from Rs6,300, implying an upside of 34%. Jefferies rolled forward its valuation to 35 times price-to-earnings on a September 2028 basis, citing visibility of a 16% EPS CAGR over FY26-30 on order-book execution.
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Bharat Electronics: Buy rating with a price target of Rs490, cut from Rs550, an upside of 19%. Jefferies lowered its target multiple to 40 times price-to-earnings, citing some delays on the QRSAM (Quick Reaction Surface-to-Air Missile) order, even as it retained FY27 margin guidance at 27%-plus.
Data Patterns: Buy rating with a price target of Rs5,545, an upside of 25%. Jefferies said the company's visible order book and pipeline, along with rising indigenisation and the country's export focus, give it enough visibility on medium-term revenue growth.
Jefferies is bullish on India's defence journey and has picked HAL, BEL and Data Patterns for significant upside.
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Jefferies said it remains positive on defence as a theme within its broader industrials coverage, with earnings delivery on existing order books likely to be a key catalyst for these stocks going forward.
Jefferies On Power T&D Stocks
Beyond defence, Jefferies also flagged power transmission and distribution equipment makers as a key beneficiary of India's capex cycle, with June-quarter order inflows for its broader industrials universe rising 13% YoY, led by L&T, BHEL, ABB and Siemens. Hitachi Energy and Siemens Energy saw the sharpest margin gains in the quarter, expanding 410-450 basis points YoY on the back of operating leverage, while BHEL's margins turned positive YoY for the first time in several quarters.
The brokerage named Siemens Energy, Hitachi Energy, L&T and KEI Industries among its top picks in the power T&D space, citing a robust capex pipeline and rising operating leverage as revenue scales up. Jefferies expects Siemens Energy to deliver a 43% EPS CAGR over FY25-28 and Hitachi Energy to clock a 54% EPS CAGR over FY26-29, even as it flagged commodity cost inflation as a near-term drag on margins for players such as ABB, Thermax and Cummins.
FOR MORE, READ: Jefferies Bullish On Defence & Power T&D; Hikes Targets For HAL But Trims BEL — Top Five Bets
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