The Defence Acquisition Council (DAC) has cleared capital proposals worth about Rs 790 billion in its winter session, taking FY26 year-to-date approvals to nearly Rs 3.3 trillion—almost twice the annual defence capital outlay of Rs 1.8 trillion.
While these approvals represent Acceptance of Necessity rather than immediate orders, the scale and diversity materially de-risk order inflows for the sector over the next two to four years.
The latest approvals span munitions, missiles, air defence systems, surveillance and communication equipment, training systems, unmanned platforms and naval support assets. This reflects a balanced modernisation push across the Army, Navy and Air Force, rather than isolated platform-led spending.
Importantly, the pipeline covers both high-value marquee programs and recurring electronics- and systems-led procurement, supporting steadier execution and revenue visibility for defence manufacturers.
The extension of the emergency procurement window until mid-January 2026 further underpins near-term activity, enabling fast-track purchases of critical equipment and mitigating delays that could have emerged as earlier deadlines lapsed.
The primary growth driver remains sustained policy focus on operational readiness amid a fluid security environment, coupled with increasing reliance on indigenous platforms and systems. Large-ticket missile and air defence programs, integrated electronic warfare systems, and unmanned and counter-unmanned solutions form a substantial portion of the approval pipeline.
However, execution timelines remain a key challenge, as AoN approvals must still navigate contracting, production ramp-ups and delivery schedules. Budgetary allocations in the coming years and the pace of conversion from approvals to firm orders will be critical determinants of realised growth.
A notable structural trend is the growing emphasis on integrated systems—combining sensors, communications, command-and-control and kinetic elements—rather than standalone equipment.
Indigenous air defence architectures, advanced simulators, and network-centric surveillance solutions highlight this shift. Parallelly, export orientation is gaining traction, with indigenous missile systems, air defence solutions and platforms attracting interest from multiple geographies, offering incremental growth beyond domestic demand over time.
With FY26 approvals already far exceeding annual capital outlays, the sector enters the next few years with one of its strongest procurement pipelines in recent memory.
As emergency purchases, large missile and air defence programs, and electronics-heavy systems translate into contracts, defence manufacturing stands positioned for sustained order inflows, improved capacity utilisation and enhanced strategic relevance within India’s broader industrial landscape.
Bharat Dynamics- TP: 2,000
BDL posted a strong 2QFY26 with 111% YoY revenue and 90% YoY EBITDA growth as supply-chain conditions improved, enabling faster execution. PAT rose 76% YoY, beating estimates and highlighting operating leverage recovery.
A robust Rs 235 billion order book across Akash, Astra Mk-1 and ATGMs, combined with a Rs 500 billion+ pipeline & rising export contribution targeted at 25%, provides strong multi-year execution visibility & diversified growth drivers.
We expect the company to deliver 35%/64%/51% revenue/EBITDA/PAT CAGR over FY25-28, driven by execution ramp-up, higher indigenisation and operating leverage, with RoE/RoCE remaining strong and rising to 25.2%/25.6% by FY28.
Astra Microwave Products – TP: 1,100
Astra Microwave Products (AMPL) designs and manufactures RF and microwave systems in India, transitioning from a subsystem supplier to a full-system solutions provider. The company targets opportunities in AESA and Uttam radars, meteorological projects, Navy repeat orders, and counter-drone systems.
AMPL had an INR 22b order book as of September 2025 and delivered a 13% revenue CAGR in FY21–25, with EBITDA margins rising to 25.6% from 12.3%. We expect 18% revenue CAGR in FY25–28, margins nearing 26%, and PAT CAGR of 23%.
We view AMPL as a compelling long-term opportunity in defence electronics, with revenue growth expected to accelerate during FY27–30 as larger orders are awarded by the MoD and defence PSUs.
(The author is Head of Research – Wealth Management, Motilal Oswal Financial Services Ltd)
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)