Defence Sector Updat : Reaching new heights by Elara Capita
We visited the 15th Aero India 2025 Defence Exhibition recently. The event hosted 900 exhibitors, including global companies, and featured the iconic showdown between the fifth-generation fighter aircraft, the Russian Su-57 and the US F-35. The number of participants was the highest-ever, showcasing a growing focus on indigenization and rising private sector contribution to domestic defence production. With higher budgetary allocation and focus on self-reliance, we remain positive on India’s defence industry in the long term. In the listed space, we prefer Hindustan Aeronautics (HNAL IN), Bharat Electronics (BHE IN) and Bharat Dynamics (BDL IN) on the PSU side, and Zen Technologies (ZEN IN), Data Patterns (DATAPATT IN), Azad Engineering (AZAD IN, CMP: INR 1,317, Not Rated), Astra Microwave Products (ASTM IN, CMP: INR 604, Not Rated) and Maini Precision Products ([part of Raymond]; RW IN, CMP: INR 1,393, Not Rated) on the private side. Among not listed companies, we like Sagar Defence Engineering, Vem Technologies and SMPP.
Domestic defence production target of INR 1.6tn; exports at INR 300bn by FY26:
Defence Minister Rajnath Singh reiterated achieving domestic defence production (DDP) target of INR 1.6tn and exports of INR 300bn by FY26. In FY24, India’s DDP stood at ~INR 1.3tn, up 174% from FY15, when the country is dependent on foreign imports. Current exports at ~INR 210bn are set to increase, led by growing interest from France, Armenia, the Philippines, Indonesia, Vietnam, the African Union, and the Middle East.
Supply chain concerns may end in March for HNAL:
Supply chain issues related to GE404 engines for its light combat aircraft (LCA) Tejas Mk 1A fighter aircraft are likely to abate, with delivery by GE Aerospace likely in March, as per management of GE Aerospace and HNAL. HNAL expects to deliver 12 aircraft in FY26, which may be a daunting task. Additionally, the company expects inflows of ~INR 1.7tn with a closing orderbook of INR 2.6tn for FY26, led by two large orders of 97 LCA Tejas Mk 1A and 156 LCH Prachand together worth INR 1.3tn.
Not Listed firms Sagar Defence, Vem Technologies and SMPP showing promise:<p>
Sagar Defence Engineering is rising to prominence with its new unmanned marine surface vessel and is looking to expand further into autonomous warship manufacturing. The company makes payload drones, which are capable of long transit times, search & rescue, and surveillance. Vem Technologies is a multiproduct firm, which supplies central fuselage for the LCA Tejas Mk 1, and may be involved in the Advanced Medium Combat Aircraft (AMCA) fifth-generation fighter aircraft program. It has made a 100% Indigenous anti-tank guided missile. SMPP is one of the leading private ammunitions suppliers in India. The company also supplies ballistic body armor and helmets to the Armed Forces.
We remain positive on India's defence story:
Sector growth is set to unfold in the next decade, led by indigenization and exports, with a rising share of private defence companies. We prefer HNAL, BHE and BDL. In the private defence space, we prefer ZEN, DATAPATT, AZAD, ASTM, and Maini Precision Products. Increased private participation may be the theme for the upcoming years, supported by new acquisitions, huge R&D progress and global collaborations.
Defence industry booming with increased participation The 15th Aero India Defence Exhibition saw huge response from 930 exhibiters, up from 809 last year. These also included foreign companies from 90 countries. The event showcased growing private sector contribution to the domestic defence industry, supported by programs, such as the Innovation for Defence Excellence (iDEX) program, which challenges start-ups to develop solutions with government funding provided, if successful.
Fifth generation fighter aircraft showdown steals the show
The highlight of the Aero India event was the showdown between two fifth-generation fighter aircraft, the Sukhoi-57 made by United Aircraft Corporation and the F-35 made by Lockheed Martin. India is looking to procure a fleet of fifth-generation fighter aircraft and these two have emerged as top contenders. India too is developing its own fifth-generation fighter aircraft as part of the AMCA program undertaken by HNAL and the Aeronautical Development Agency (ADA); however, mass production is likely by CY33-34. As a result, the government is looking as an interim stop-gap procurement arrangement while its own project is under development. The Su-57 has a twin engine and is capable of supersonic speeds with low detectability, and it is primarily designed for air superiority and strike missions, with a combat range of 1,900km. It is significantly cheaper than the F-35 with a cost of USD 35-40mn. The F-35, on the other hand, is a single engine aircraft but with the most powerful engine in the world. It has a combat range of 1,500km. The cost of F-35 is in the range of USD 80-110mn.
The Government of India had issued a request for information (RFI) to procure 114 multi role fighter aircraft in CY18 of which eight have responded, which include the Boeing F/A-18E/F Super Hornet, the Boeing F-15EX Eagle II, the Lockheed Martin F-21 (a variant of F-16V with 14 India-specific customization), the Dassault Rafale, the Eurofighter Typhoon, the Saab JAS-39 Gripen E/F, the Mikoyan MiG-35, and the Sukhoi-35. The Acceptance of Necessity (AoN) and RFP for the tender is likely to be issued in CY25.
Growing private sector contribution to domestic defence production
The private sector is looking to increase its contribution to domestic defence production. Various companies are already involved in projects along with defence public sector units (DPSU) to supply components and sub-systems. However, these companies are looking at becoming full-scale system integrators to increase their Total Addressable Market (TAM) to target large projects. Companies, such as Vem Technologies, have developed fully indigenous anti-tank guided missile in addition to supplying central fuselage to HNAL for LCA Tejas Mk 1. Additionally, prominent private sector companies, such as L&T Defence (Not Listed), Adani Defence (Not Listed) and Tata Advanced Systems (Not Listed), are actively involved in foreign collaborations to compete with DPSU in various projects.
Domestic defence production target of INR 1.6tn; exports at INR 300bn for FY26
Defence Minister Singh has expressed confidence of achieving the domestic defence production (DDP) target of INR 1.6tn and exports at INR 300bn by FY26. In FY24, India’s DDP stood at ~INR 1.3tn, up 174% from FY15, when India was dependent on foreign imports. While the country continues to import latest technology projects, it currently meets ~70% of demand domestically, supported by higher budgetary allocation, growing private sector contribution, and technological transfer agreements with foreign companies. The Union Budget 2025-26 allocated INR 6.8tn to the Ministry of Defence, which includes INR 1.8tn for capital acquisition. Around 75% of the modernization budget has been reserved for domestic procurement. Additionally, various collaborations like Tata Advanced Systems and Airbus for production of the C-295 transport aircraft have helped increase domestic production of equipment, which were imported.
India exports currently stand at ~INR 210bn, which is set to increase to ~INR 300bn by FY26, led by growing interest from France, Armenia, the Philippines, Indonesia, Vietnam, the African Union, the Middle East and the US. India’s exports include the Pinaka multi-barrel rocket system, the Akash & the BrahMos missiles, the Dornier-228 aircraft, radars, armored vehicles, 155mm artillery guns, line replaceable units and parts, thermal imagers, body armors, simulators, fuses, and avionic & electronic components.
Global companies look to India OEM for manufacturing
During the event, global companies were in discussions with India OEMs. Some companies signed MoU on partnership to outsource a part of their production, thereby helping to make India a manufacturing hub for defence. This augurs well for the domestic defence industry due to benefits of potential modern technology transfer and growth in private participation in defence production.
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