Defence stocks are 'soaring': Why analysts say these 16 picks are now your best bet for growth.

Defence & capital goods stocks: L&T, Cummins, Bharat Electronics among 16 Buys for Motilal Oswal, Thermax a Sell

1/13

Defence & capital goods: 16 Buys, 5 Neutrals, 1 Sell

Markets · 2QFY27 earnings preview

Motilal Oswal's 2QFY27 preview rates 22 stocks as the West Asia crisis lifts input costs. Here is where the brokerage sees upside, where it stays on the fence and where it says sell.

16 BUY · 5 NEUTRAL · 1 SELL

2/13

West Asia crisis squeezes margins

The big picture

Rising costs are the story of the July-September quarter (2QFY27) as the West Asia crisis drags on. Strong order books keep execution moving. For its coverage companies, Motilal Oswal expects:

~9.5%: revenue growth, year on year

~10.0%: EBITDA growth, year on year

~9.8%: profit after tax growth, year on year

13.0%: EBITDA margin, broadly flat

The long-term story is intact: Motilal Oswal says some stocks have already fallen to attractive valuations.

3/13

Three forces powering Q2 earnings

What to expect in Q2?

1. Execution stays strong. Robust order books should keep factories and project sites busy, so revenue momentum is expected to hold through the quarter.

2. Orders keep building. Fresh inflows are expected from power transmission, data centres and private-sector capex projects.

3. Price hikes kick in. Companies are raising prices to pass on raw material costs. With commodities still climbing, another round of calibrated hikes is likely.

The risk: companies with more fixed-price contracts could see full-year margin estimates come under pressure.

4/13

Motilal Oswal's 6 Top Picks

The brokerage's favourites

Large-cap: Larsen & Toubro · Cummins India · GE Vernova T&D India

Mid & small-cap: Kirloskar Oil Engines · Kalpataru Projects International

Defence: Bharat Electronics: top pick, target INR530 (+38%)

All six carry a Buy rating. The brokerage prefers companies that gain from improved ordering in growing themes and have pricing power or variable-price contracts while raw material prices rise.

5/13

Scoreboard: 16 Buy, 5 Neutral, 1 Sell

All 22 stocks at a glance

16 BUY: Atlanta Electricals · Astra Microwave Products · Bharat Electronics · CG Power · Cummins India · GE Vernova T&D India · Hindustan Aeronautics · Kalpataru Projects · KEC International · Kirloskar Oil Engines · Larsen & Toubro · MTAR Technologies · Siemens Energy · Solar Industries · Triveni Turbine · Unimech Aerospace

5 NEUTRAL: ABB India · Bharat Dynamics · Hitachi Energy India · Siemens · Zen Technologies

1 SELL: Thermax

6/13

Defence buys: Backlogs do the talking

Buy · Defence (big number = upside to target price over CMP)

Bharat Electronics (CMP INR384 · Target INR530), +38%. Revenue seen up 16% on a ~INR720b order book. Margin may slip 170bp to ~27.7%. Top defence pick.

Hindustan Aeronautics (CMP INR4,615 · Target INR5,800), +26%. Revenue seen up 14% on LCA Mk-1, Dhruv NG and HTT-40 deliveries. EBITDA margin may rise 100bp to 24.5%.

Solar Industries (CMP INR19,355 · Target INR23,000), +19%. Revenue seen up 48% as defence execution ramps up and ammonium nitrate prices rise. Margin may gain 100bp to 27.5%.

Astra Microwave Products (CMP INR1,624 · Target INR1,900), +17%. Revenue seen up 14% on a ~INR22b order book. EBITDA margin steady near 22%. Eyes QRSAM and radar orders.

7/13

Power & grid buys: Orders build up

Buy · Power & grid

Triveni Turbine (CMP INR530 · Target INR680), +28%. Revenue seen up 12% on the NTPC order and exports. EBITDA margin may fall ~330bp on a lower-margin order mix.

Siemens Energy (CMP INR3,330 · Target INR4,000), +20%. Revenue seen up 4%, with power transmission up ~28%. EBITDA margin may expand 390bp on mix and operating leverage.

GE Vernova T&D India (CMP INR4,270 · Target INR5,100), +19%. Revenue seen up 29% on an INR209b opening order book. EBITDA margin may dip 80bp to 25% on fixed-price contracts.

CG Power and Industrial (CMP INR877 · Target INR1,020), +16%. Revenue seen up 24% on strong power systems execution and price hikes. EBITDA margin flat near 13%.

Atlanta Electricals (CMP INR1,715 · Target INR1,950), +14%. Revenue seen up 30% despite monsoon-hit dispatches. Margin may fall ~230bp from a year ago; estimates cut.

8/13

Engineering buys: Costs vs orders

Buy · Engineering & infra

KEC International (CMP INR372 · Target INR500), +34%. Revenue seen down 3% as Middle East supply chain issues slow execution. FY27 EPS estimate cut 13%.

Cummins India (CMP INR4,860 · Target INR6,200), +28%. Revenue seen up 10% on a high base. EBITDA margin may slip to 19.0% on raw material costs; price hikes help.

Kirloskar Oil Engines (CMP INR2,242 · Target INR2,800), +25%. Revenue seen up 14% with growth in every segment. EBITDA margin may drop 100bp to 13% before price hikes help.

Larsen & Toubro (Target INR4,400), +19%. Revenue seen up 6%, core E&C up 7%. Three ultra-mega Middle East hydrocarbon orders won. A preferred large-cap.

Kalpataru Projects (CMP INR1,357 · Target INR1,600), +18%. Revenue seen up 10%. EBITDA margin may gain 50bp to 8.8% on variable pricing clauses. Big Middle East wins.

9/13

Small-Cap buys with sizzling growth

Buy · Precision & aerospace

MTAR Technologies (CMP INR7,769 · Target INR9,300), +20%. Revenue seen more than doubling in Q2. EBITDA margin may hit 23% versus ~12.5% a year ago. Order book already beats FY27 guidance of ~INR50b.

Unimech Aerospace (CMP INR1,772 · Target INR2,080), +17%. Revenue, EBITDA and profit seen up 86%, 130% and 59%. EBITDA margin may rise to 37%. New unit Hobel Bellows adds over INR300m in revenue.

Why they stand out: these two post some of the fastest growth in the preview. MTAR is riding strong order inflows and new capacity. Unimech's aero tooling arm, 63% of revenue, is seen up 30%, while its precision component business is expected to grow 25%.

10/13

Biggest Upside: Top 8 Buys

Buy · The leaderboard

11/13

Neutral zone: 5 stocks to watch

Neutral · Wait and watch (big number = upside or downside to target price over CMP)

Hitachi Energy India (CMP INR31,200 · Target INR36,000), +15%. Revenue seen up 46% on an INR322b order book. EBITDA margin may gain 80bp on exports and operating leverage.

Bharat Dynamics (CMP INR1,088 · Target INR1,210), +11%. Revenue seen down 19% on a high base. Margin may fall 130bp to ~15%. Akash and Astra Mk-1 execution picks up from here.

Zen Technologies (CMP INR1,573 · Target INR1,600), +2%. Execution seen up 99% on anti-drone orders. EBITDA margin healthy near 32%. Watch how orders convert from the pipeline.

ABB India (CMP INR6,854 · Target INR6,700), -2%. Revenue seen up 16% (22% excluding the robotics sale). Margin may fall from a year ago but gain 110bp on last quarter.

Siemens (CMP INR3,790 · Target INR3,500), -8%. Revenue seen up 7% on a high base. EBITDA margin may drop 300bp on raw material inflation and a weaker rupee. FY27 EPS cut 9%.

12/13

Sell call: Thermax

Sell · The lone red flag

SELL: Thermax. CMP INR3,364 · Target INR3,700. EPS estimates cut: FY27 -4%, FY28 -3%, FY29 -5%.

Note: the report's target sits about 9% above CMP even with a Sell rating.

What looks good: revenue is seen up 17% as the order book is executed and shipments delayed in Q1 get booked. Margin should improve on both quarter and year as cost overruns in industrial infra ease.

Why the caution: a large share of the order book is fixed price, so higher raw material costs bite. The brokerage cut its estimates to reflect this.

What to watch: order inflows, margin recovery, deferred Industrial Products shipments and US data-centre ordering momentum.

13/13

Buy the Order Books, Mind the Costs

The bottom line

16 BUY: back companies with pricing power or variable-price contracts, led by Bharat Electronics, L&T, Cummins and GE Vernova T&D.

5 NEUTRAL: wait-and-watch calls. ABB India and Siemens carry targets below their market prices.

1 SELL: Thermax. A fixed-price order book and higher raw material costs weigh on estimates.

Key risk: raw material costs and the West Asia crisis could still hit margins, especially for fixed-price contracts.

Ratings, prices and targets are from Motilal Oswal's 2QFY27 preview and can change. This is not investment advice. Check live prices and speak to a registered adviser before you invest.