Goldman Sachs initiates coverage on Data Patterns, PTC Industries and 6 other Indian defence stocks, sees up to 58% upside – News Air Insight

Global brokerage firm Goldman Sachs has initiated coverage on eight Indian defence companies, with an upside potential of up to 58%, citing a robust growth outlook driven by a substantial increase in domestic defence spending, rising indigenisation, and a sharp uptick in defence exports.

The brokerage has identified three core themes underpinning its positive stance:

1) An over sixfold increase in the domestic defence Total Addressable Market (TAM) by FY45 to Rs 10 trillion (US$122 billion).

2) Enhanced opportunities for indigenisation, especially in components and materials.

3) Targeted defence exports of Rs 500 billion (US$5.8 billion) by FY29, up from Rs 236 billion in FY25.

Despite India being the world’s fifth-largest defence spender and the second-largest importer of defence equipment, Goldman Sachs notes that investor focus has largely remained on public-sector undertakings.

However, the brokerage expresses a more favourable view on private-sector players due to evolving dynamics such as: 1. A shift in defence spending towards new-age technologies like AI, electronic warfare, and UAVs 2. Higher expected EPS growth for private-sector players (32% CAGR for FY25–FY28E) versus 13% for public-sector players. 3. A greater share of benefits from rising global defence expenditure.

Here’s what the brokerage firm said:

Solar Industries (SOIL) – Rating: Buy | Target price: Rs 18,215 | Upside potential: 36%

Goldman Sachs expects SOIL to see rapid growth in its defence business, driven by capacity build-up in ammunition and energetic materials, a robust export order book, and diversification into high-tech areas. The firm highlights SOIL’s industry-leading asset turns and cash conversion cycle, noting that its non-defence business insulates earnings from order risks in defence.

“We are not concerned that it will post negative free cash flow until FY28, given high near-term capex. SOIL’s high valuation multiples are fully supported by steady earnings growth of 25%+ and RoE exceeding 25% in FY25–28E.”

PTC Industries (PTCIL) | Rating: Buy | Target price: Rs 24,725 | Upside potential: 58%

PTCIL is expected to deliver the highest earnings growth among covered names, with a 123% CAGR through FY28E, led by ramp-up in aerospace-grade Ti and supercapacities. The firm expects commissioning of the world’s largest single-site recycled Ti capacity by FY26, backed by contracts from global majors.

“PTCIL is set to benefit from India’s upcoming aerospace engine ecosystem. High capex intensity implies free cash flow positivity only by FY29E. The target price implies FY28E P/E of 52.9x due to high earnings growth.”

Astra Microwave (ASTM) | Rating: Buy | Target price: Rs 1,455 | Upside potential: 45%

Goldman Sachs expects ASTM to benefit from upcoming programmes in Radar Electronics, Electronic Warfare, and Communications systems. The company has launched a six-pronged strategy for growth in defence and space, with an improving profitability outlook due to a greater share of domestic defence business.

“Despite a stretched cash conversion cycle, we expect the company to turn free cash flow positive by FY27.”

Data Patterns (DP) | Rating: Buy | Target price: Rs 3,640 | Upside potential: 38%

DP follows an IP-driven model, building systems from scratch tailored to user platforms. The brokerage notes its unique position as one of the few listed plays on the BrahMos missile system, highlighting its innovative and cost-efficient design.

“Due to its innovative, cost-efficient design approach, the company enjoys a higher EBITDA margin than both local and global defence electronics players.”

Azad Engineering | Rating: Buy | Target price: Rs 2,055 | Upside potential: 28%

Azad Engineering is the only producer of Ti Aerofoils in India and one of the few globally. The company plans to increase capacity tenfold over the next 6–8 years and has a strong order book, targeting earnings growth above 30% p.a. with EBITDA margins of 35–38% over the next decade.

“High working capital and near-term capex requirements constrain free cash generation. We expect free cash flow positivity only by FY35E.”

Bharat Electronics (BEL) | Rating: Buy | Target price: Rs 455 | Upside potential: 12%

BEL is described as the “first port of call for Defence Electronics,” able to receive orders across the armed forces. The company is expected to lead critical air defence projects, sustaining its order book and earnings growth.

“BEL enjoys higher RoE and profitability than its global peers and generates healthy free cash flow, unlike private-sector companies.”

Hindustan Aeronautics (HAL) | Rating: Neutral | Target price: Rs 5,255 | Upside potential: 9%

Goldman Sachs has a Neutral rating on HAL, citing near-term execution risks despite a strong order book and robust pipeline. The brokerage flags increasing competition from private-sector players, which could pressure HAL’s margins.

“We see balanced risk–reward with fair valuation relative to lower expected earnings growth.”

Bharat Dynamics (BDL) | Rating: Sell | Target price: Rs 1,375 | Downside potential: 11%

Goldman Sachs has a Sell rating on BDL, noting margin pressures due to a higher share of externally sourced components and elevated valuation levels.

“We expect margins to trend lower due to a higher proportion of externally sourced components. Valuation appears steep relative to expected earnings growth.”

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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)