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YTD DAC approvals nearly 2x the capital outlay

India’s Defense Acquisition Council (DAC) has approved capital acquisition proposals worth INR790b in its winter session, taking FY26 YTD approvals to ~INR3.3t, nearly double the capital outlay on defense of INR1.8t. The approvals span across a wide spectrum of capabilities, including munitions, missiles, air defense systems, surveillance and communication equipment, training systems, and naval support platforms, reflecting a balanced modernization push across all three services. While the Acceptance of Necessity (AoN) approvals do not immediately translate into order inflows, the breadth and scale of the approvals materially de-risk order inflows for key defense PSUs and select private players over the next 2-4 years. We maintain our positive stance on BHE (CMP: INR393, TP: INR500), HAL (CMP: INR4,377 | TP: INR5,800), BDL (CMP: INR1,473 | TP: INR2,000), and AMPL (CMP: INR979 | TP:1,100). We remain Neutral on Zen Technologies (CMP: INR1,386 | TP: INR1,400).

DAC approvals totaling INR790b

The DAC’s approval of projects worth INR790b is likely to benefit both leading defense PSUs and select private players. Bharat Electronics (BHE) is well-positioned to capture orders for radar systems, drone detection, HF SDR communications equipment, GBMES, and electronics portion of other systems. Hindustan Aeronautics (HAL) could see orders tied to HALE RPAS, Astra Mk-II missile integration, and full mission simulator production/support for platforms like Tejas. Bharat Dynamics (BDL) is positioned to gain from guided rocket ammunition, missile system production, and other munitions and missiles that fall under its manufacturing scope, while procurement of BP tugs and allied marine support vessels opens opportunities for shipyards such as MDL, CSL, and GRSE. Private players, including LT, Tata Advanced Systems, Zen Technologies, and Astra Microwave, could see increased participation for components and, in some cases, fully integrated products such as full mission simulators and SPICE-1,000.

Emergency procurement window extended

The emergency process, which was first introduced in 2020, allows the Vice Chiefs to approve contracts up to INR3b per contract, significantly shortening procedural time compared with standard procurement. The DAC has extended the current emergency procurement window for the Army, Navy, and Air Force until 15 Jan’26, allowing them to continue fast-track purchases of critical weapons, platforms, and equipment to meet urgent operational needs. Previously, the deadline for signing contracts under this expedited route had expired in Nov’25, creating risks of delay for several pending acquisitions. By pushing the timeline to mid-Jan’26, the Ministry of Defense aims to ensure continuity in urgent procurements while regular defense acquisition processes progress, helping the services maintain readiness in a fluid security environment.

Other key developments in defense sector for our coverage universe

*  User trials of the Akash-NG system completed by DRDO, clearing it for induction. We expect BDL and BHE to receive production and supply contracts in CY26 followed by ramp-ups based on induction timelines. Akash-NG is also attracting export interest from Armenia, Vietnam and Brazil.

*  India is deploying an indigenous integrated air defense system to protect the Delhi NCR, built around home-grown missiles such as QRSAM and VSHORADS along with associated systems.

*  BHE received an order for indigenous SAKSHAM counter-unmanned aerial system (C-UAS). SAKSHAM is designed to detect, track, identify, and neutralize hostile unmanned aerial systems in real time.

*  HAL has issued an Expression of Interest to engage Indian consultants to help develop and implement a tailored export strategy aimed at expanding sales and support for its indigenous aircraft and helicopter platforms in target regions such as Africa, Latin America, and Southeast Asia.

*  HAL received the 5th F-404 engine from GE for its Tejas Mk-1A fighter jets.

*  AMPL has signed an MoU with BHE to jointly develop and manufacture advanced electronic modules and systems for defense electronics and aerospace, focusing on EW, radar, and satellite technologies.

Key monitorables

Going forward, we would watch out for 1) emergency procurement announcements over the next 2-3 weeks until the new deadline expires, 2) conversion of AoN approvals into firm orders, especially large-ticket missile, air-defense and electronics programs, 3) an increase in the overall defense budgetary allocations in the upcoming years, 4) timelines for marquee programs such as Akash-NG, QRSAM, Project Kusha, etc., and 5) export order wins and government-to-government deals, supporting incremental growth beyond domestic demand.

Valuation and recommendation

*  BHE is currently trading at 39.9x/34.3x FY27E/FY28E EPS. We maintain our estimates and reiterate our BUY rating on the stock with an unchanged TP of INR500, based on the 45x two-year forward earnings.

*  HAL is currently trading at 27.2x/22.1x FY27E/FY28E EPS. We maintain our estimates and reiterate our BUY rating on the stock with an unchanged TP of INR5,800, based on the average DCF and 32x two-year forward earnings.

*  BDL is currently trading at 38.9x/28.3x FY27E/FY28E EPS. We maintain our estimates and reiterate our BUY rating on the stock with an unchanged TP of INR2,000, based on the 42x two-year forward earnings.

*  AMPL is currently trading at 41.3x/32.4x FY27E/FY28E EPS. We maintain our estimates and reiterate our BUY rating on the stock with an unchanged TP of INR1,100, based on the 38x two-year forward earnings.

*  ZEN is currently trading at 34.3x/26.0x FY27E/FY28E EPS. We maintain our estimates and reiterate our Neutral rating on the stock with an unchanged TP of INR1,400, based on the 30x two-year forward earnings.

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