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Further DAC approvals enhance addressable market

In continuation with Atmanirbhar Bharat in the defense sector, India’s Defence Acquisition Council (DAC) has approved Acceptance of Necessity (AoNs) for various acquisition proposals worth INR1.1t for the Army, Navy, and Air Force. The approvals focus on battlefield mobility, mine warfare, CBRN protection, electronic warfare, surveillance and naval propulsion, with 98% of total AoNs earmarked for the Indian industry. So far in FY27, DAC has given approvals worth INR1.62t. Over FY25-YTDFY27, approvals worth INR13t have been accorded for the Indian defense sector, which enhances the TAM of domestic players. Moreover, the government has been taking steps to open missile production to Indian private players. These initiatives improve order inflow visibility for the defense sector. In the near to medium term, finalization of large tenders for defense PSUs should be keenly watched out for. We reiterate our positive stance on the sector and maintain Bharat Electronics(BEL) as our preferred pick

DAC approvals worth INR1.1t with 98% sourcing from Indian players

On 7th Sep’26, the DAC granted AoNs for capital procurement proposals worth around INR1.1t, taking the YTDFY27 total approvals to INR1.62t. Army approvals include procurement of

1) chemical, biological, radiological and nuclear (CBRN) recce vehicles capable of detecting, identifying, monitoring and marking CBRN-agent contaminated areas;

2) high mobility vehicles (HMVs) to enhance operational capabilities, logistic support and mobility;

3) self-propelled mechanical mine layers (MML) for fast and responsive minelaying;

4) advanced light helicopters (ALHs) to execute complex missions across all terrains; and

5) trawl tanks and Sarvatra Bridge System. For the Navy, clearances cover Arudhra radars to replace the existing air route surveillance radars at various Naval Air Stations; design, development and subsequent procurement of marine gas turbines (MGT); and a warship propulsion system, which will reduce dependency on foreign vendors. For Air Force, AoNs were granted to various proposals to enhance the war-fighting capability of fighters, transports and helicopters. Approval was also accorded for procuring ground-based multi-purpose jammers (GBMPJ) to provide effective jamming against radars of adversaries, and installing the Defence Forces Secure Access Card (DEFSAC) system, which will replace existing paper-based identity card/passes/permits (Refer Exhibit 1 for key beneficiaries)

Recent developments in Indian defense sector

* The government has approved the transfer of DRDO-developed technologies of all conventional missile systems to the Indian defense industry for production within the country.

* India has simplified defense export rules by reducing approvals, extending the open general export license (OGEL) validity from two years to three years, and expanding OGEL coverage from 41 countries to most global markets, making exports faster and easier for Indian defense companies.

* The government is pushing defense PSUs toward exports and global competitiveness: At the 1st Sep’26 annual review, the government said PSUs contributed INR1.3t of India's ~INR1.8t defense production in FY26, while their exports jumped 151% YoY. HAL also received a dedicated modernization and indigenization roadmap.

* GE Aerospace delivered three additional F404 in Aug’26 engines to HAL in Aug’26, taking total Mk1A deliveries to 10 and easing a key supply constraint for Tejas production.

* HAL signed partnerships with Adani Defence and other Indian industry players to strengthen the production ecosystem for LCH Prachand, supporting a faster scale-up of helicopter manufacturing.

* BEL signed an MoU with Ananth Technologies to jointly develop and manufacture advanced systems for missiles, radars, satellites and navigation, strengthening its private-industry R&D ecosystem.

* MoD has signed a contract worth INR19.4b for a 30-month lease for two MQ-9B Sea Guardian HALE RPAS from General Atomics.

* Cochin Shipyard delivered 'Mangrol', the third of eight anti-submarine warfare shallow water craft with around 80% indigenous content

Valuation and recommendation

* BHE is currently trading at 42.2x/36.2x/32.2x on FY27E/FY28E/FY29E EPS. We maintain our estimates and reiterate our BUY rating on the stock with an unchanged TP of INR530, based on the 45x two-year forward earnings.

* HAL is currently trading at 32.4x/27.0x/22.3x on FY27E/FY28E/FY29E EPS. We maintain our estimates and reiterate our BUY rating on the stock with an unchanged TP of INR5,800, based on the average of DCF and 30x two-year forward earnings.

* BDL is currently trading at 68.4x/46.7x/37.0x on FY27E/FY28E/FY29E EPS. We maintain our estimates and reiterate our Neutral rating on the stock with an unchanged TP of INR1,270, based on the 42x two-year forward earnings.

* AMPL is currently trading at 66.3x/48.5x/34.4x on FY27E/FY28E/FY29E EPS. We maintain our estimates and reiterate our BUY rating on the stock with an unchanged TP of INR1,900, based on the 42x two-year forward earnings.

* ZEN is currently trading at 53.5x/38.2x/30.5x on FY27E/FY28E/FY29E EPS. We maintain our estimates and reiterate our Neutral rating on the stock with an unchanged TP of INR1,600, based on the 30x two-year forward earnings

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