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2QFY27 Preview: Strong execution; timely award remains key

Defense spending and procurement momentum remain strong, with 37% yoy growth in defense capex spending during 5MFY27 and AoN approvals exceeding Rs1.6 tn YTD, providing robust long-term visibility. While the order pipeline remains healthy, timely CCS approval for marquee programs such as QRSAM, P75I and Next Generation Corvettes remains critical for FY2029 revenue growth. Within our coverage, BEL, HAL and Solar Industries are expected to deliver healthy growth, while MDL and CSL remain dependent on large order awards to replenish order books. Among our precision engineer coverage, Aequs should deliver strong growth, led by aerospace and consumer ramp-up, while INDO-MIM is likely to report steady growth, with margins remaining dependent on defense and medical mix.

Defense spending and pipeline strong; timely order award remains key

Defense spending and procurement momentum remain robust, with defense capex spending up 37% yoy in 5MFY27 and AoN approvals exceeding Rs1.6 tn YTD, taking cumulative approvals since FY2024 to over Rs18 tn. The latest approvals remain largely domestic in nature, creating a broad opportunity set across platforms, radars, electronic warfare systems, helicopters and naval programs. While the order pipeline provides strong medium-term visibility, timely CCS approval for marquee programs such as QRSAM, P75I submarines and Next Generation Corvettes remains critical for converting approvals into orders and supporting FY2029 revenue growth across the defense ecosystem.

Execution remains strong, led by BEL, HAL and Solar Industries

We expect healthy 2QFY27 numbers across our defense coverage, supported by continued execution of defense programs and platform deliveries. Solar Industries should lead growth with a sharp ramp-up in defense revenues, while BEL and HAL are expected to deliver healthy double-digit growth, driven by ongoing execution, Tejas trainer deliveries, HTT-40 handovers and Dhruv NG deliveries. MDL is likely to report flat revenues amid slower execution visibility, whereas CSL should benefit from higher shipbuilding activity and steady ship repair execution. On margins, BEL and HAL are expected to see improved profitability, Solar Industries should maintain stable margins, while margins of MDL and CSL will continue to depend largely on project mix.

Precision engineering: Healthy growth, margins dependent on mix

We expect a healthy Q2FY27 for our precision engineering coverage, led by strong aerospace and consumer growth at Aequs, while aerospace order inflows and consumer utilization remain key monitorable. INDO-MIM should deliver steady sequential growth driven by MIM, casting and machining, with margins largely dependent on the contribution from the higher-margin defense and medical segments.

Retain estimates, FVs and ratings

We keep the estimates, FVs and ratings for the companies under our coverage unchanged.

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