PL Capital Coverage: Defence Sector Q2FY26 – HAL Powers Ahead; BUY Maintained

Mumbai | November 17

India’s defence sector continued to demonstrate resilient momentum in Q2FY26, supported by a steady rise in execution across key public-sector manufacturers and a deepening order pipeline driven by multi-year modernisation plans. Despite supply-chain frictions and uneven quarterly prints among individual companies, the broader ecosystem is benefiting from a structural shift in procurement, higher indigenous content and sustained visibility in defence capex.

Analysts at PL capital note that the second half of the financial year remains seasonally stronger for the sector, with back-ended deliveries, emergency procurement orders and platform-specific commitments expected to lift execution in Q3 and Q4. Within this backdrop, The latest coverage highlights a clear divergence in performance: HAL extended its leadership with a strong operational quarter and major order conversions, while BEML recorded a softer print, with delivery schedules and working-capital pressures weighing on near-term performance.

HAL: Order Book Converts to Strength; Execution Momentum Intact

HAL delivered a 10.9% YoY revenue increase in Q2, closing the quarter at ₹66.3bn. While gross margins softened and provisioning expenses weighed on operating profitability, the underlying growth trajectory strengthened meaningfully.

“HAL’s strategic visibility has improved significantly with the long-awaited order for 97 Tejas Mk1A aircraft worth ~₹620bn and a $1bn engine contract with GE Aerospace,” says Amit Anwani,  Vice President, Institutional Research at PL Capital.

The Nashik facility’s maiden flight of the first Tejas Mk1A aircraft, the AMCA programme bid and a new partnership to localise manufacturing for the Sukhoi SJ-100 reflect an expanding footprint that now spans combat aircraft, next‑gen platforms and adjacent civil‑aviation opportunities.

“The real monitorable now is delivery execution on the Mk1A platform, but HAL’s multi‑decade order book and scale advantage place it at the centre of India’s modernisation cycle,” adds Anwani.

PL Capital maintains its BUY rating with a target price of ₹5,507, valuing the company at 38x Sep’27E earnings. The brokerage expects operating leverage, indigenous platform ramp‑up and a structurally larger procurement pipeline to support earnings consistency through FY26-28.

Read the full coverage on Q2 result of HAL here

BEML: Healthy Orders, Muted Execution; H2 Will Be Decisive

BEML’s Q2 performance contrasted sharply with HAL’s trajectory. Revenues fell 2.4% YoY to ₹8.4bn, though gross margins improved marginally. EBITDA margins remained flat at 8.7%, but higher employee and operating costs limited gains.

The silver lining: a sharp rise in order inflows to ₹27bn compared to ₹4.4bn a year earlier. A robust ₹163bn order book (4.1x TTM revenue) continues to offer multi‑year visibility across defence mobility systems, rail & metro rolling stock and mining equipment.

“BEML’s order pipeline is extremely healthy, but execution pace remains the most important near‑term challenge,” says Anwani, noting that cash‑flow pressures persisted, with CFO for H1 slipping to -₹2.4bn.

PL Capital cut FY27/FY28 earnings estimates by 7.6%/4.7%, reflecting slower project ramp‑ups and a more cautious view on near‑term profitability. Even so, the medium‑term outlook remains supported by accelerating defence‑vehicle modernisation and rising indigenous content.

“The next two quarters will be critical order conversion and project momentum need to visibly improve for BEML to re‑rate,” adds Anwani, retaining a HOLD rating, with a fair value of ₹1,982 at 27x Sep’27E EPS.

Read the full coverage on Q2 result of BEML here

Sector Outlook: Stronger H2 Ahead as Modernisation Cycle Deepens

Across the listed universe, Q2 earnings reaffirmed a familiar pattern: shipyards, defence electronics and aviation platforms continue benefiting from structural spending, while execution‑heavy businesses face periodic volatility.

PL Capital highlights four sector drivers for H2FY26:

1. Back‑ended delivery schedules across aircraft, engines, naval systems and electronics
2. Emergency procurement orders accelerating timelines for key platforms
3. Stabilising supply chains, especially in subsystems and imported components
4. Rising indigenous content, improving medium‑term margin profile

The institutional view remains positive. India’s defence capital‑expenditure pipeline remains large, capacity expansion is underway across multiple DPSUs, and private players continue gaining traction in electronics, optics and space systems.

“Execution, order‑book conversion and supply‑chain normalisation will determine which names outperform in the upcoming defence cycle,” concludes Anwani.

With HAL consolidating its lead and BEML preparing for a decisive second half, the defence sector appears positioned for a more synchronised growth phase through FY26–28.