Defence Sector: Q4FY25 Quarterly Results Review by Choice Broking Ltd
Operation Sindoor: A strategic win fueling India’s defense investment story
Operation Sindoor has been a decisive strategic success, serving as a strong structural tailwind for India’s domestic defense mfg. sector. This operation validated India’s indigenous defense tech, boosting armed forces’ confidence and global credibility. Strategic focus is expanding into high-value areas like space surveillance, missiles, and electronic warfare, supported by INR 225 Bn+ in CCS-approved projects and INR 400–500 Bn in emergency procurement.
Defense exports hit a record INR 236 Bn in FY25, with strong traction in Europe amid rising budgets. Indian firms are scaling in next-gen domains like AI, drones, & cyber defense, enhancing long-term growth visibility. Despite near-term execution risks, structural tailwinds-indigenization, policy push, & global demand remain intact.
We believe this act as a potential catalyst for increased defense spending, particularly in surveillance, drones, and tactical systems segments where listed Indian players are well-positioned. This aligns with the “Atmanirbhar Bharat” vision, strengthening the case for domestic defense manufacturing.
Key growth drivers of the Indian defense sector
* Rising geopolitical tensions and persistent border challenges with China and Pakistan are driving advanced platforms.
* Consistently increasing Indian defense budget with annual allocations reaching INR 6.2 trillion in FY25.
* Strong push for indigenous manufacturing under the Make in India and Atmanirbhar Bharat initiatives.
* Defense corridors at Uttar Pradesh and Tamil Nadu.
* Favorable govt. policies to encourage local production.
* Ambitious export target of INR 236 Bn in FY25, with targets set to reach INR 500 Bn by FY29.
* Strategic partnerships and joint ventures with global OEMs.
* And robust order book ensuring future growth visibility
Geopolitical headwinds weigh on DPSU, private sector resilient
The Q4FY25 earnings season for India’s defense sector under our coverage companies reflected a mixed performance, with a notable divergence between Defense PSUs and private sector players.
Despite a strong order backlog, HAL reported muted growth during the quarter, while BEL & BDL delivered strong top-line performance. Overall, defense PSUs under our coverage posted subdued operational performance, with aggregate revenue growth limited to 1.8% YoY. On the margin front, HAL and BEL managed to maintain their margins, whereas BDL witnessed a significant contraction. Consequently, overall EBITDA margins for PSUs declined by 101 bps to 34.2%, primarily due to ongoing supply chain disruptions arising from geopolitical conflicts in Israel–Palestine and Russia–Ukraine. These external challenges continue to affect component availability, given India’s reliance on key imports from these regions. Net profit declined marginally by 0.2% YoY, with a 52 bps contraction in PAT margins.
In contrast, private sector players, particularly Apollo Micro Systems, delivered significantly stronger results. Cumulative revenue across our covered private companies rose by 11.3% YoY and 78.7% QoQ, while EBITDA surged 38.9% YoY. EBITDA margins expanded by 398 bps YoY, reflecting improved cost controls. However, margin performance varied across companies - DCX reported weak margins, and Centum Electronics posted a net loss during the quarter. Nevertheless, the overall performance highlights the advantage of localized sourcing and a more resilient domestic supply chain among private players.
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