Apollo Micro, BEL, HAL, Solar Industries: Defence stocks rally amid fresh tensions in Europe; key developments

Shares of defence companies were in focus on Monday, September 21, amid heightened geopolitical tensions in Europe and growing concerns over Russian hybrid threats.

Speaking at a news conference at the Élysée Palace on Friday, Macron said he had asked his government to draw up a plan to protect critical infrastructure and defence industry sites from drone and cyberattacks. He also said France had been targeted by Russian hybrid attacks in recent weeks and that they would not go without a response.

A growing number of European leaders have raised concerns over possible Russian attempts to test Europe's commitment to supporting Ukraine.

Polish Prime Minister Donald Tusk has warned of a risk of drone and missile strikes against countries supporting Ukraine, while Germany and France have also raised concerns over recent incidents involving drones and other forms of hybrid activity.

How stocks were faring in early trade

At 09:58 AM, the Nifty India Defence index traded 0.47% higher at 9,395.35 levels. Seven constituents were in the green, and the remaining 12 in the red.

Apollo Micro Systems was up around 6.7% at ₹395.45 on the BSE; Hindustan Aeronautics (HAL) shares were up 1.39% at ₹4,867; Solar Industries India was up 2.4% at ₹19,000 on the NSE.

What are hybrid attacks?

Hybrid attacks is a broad term used to describe a combination of non-conventional tactics such as cyberattacks, sabotage, disinformation and drone operations aimed at disrupting or putting pressure on an adversary. Such activities can be difficult to attribute, and Russia has rejected allegations that it is behind hybrid attacks in Europe.

Macron cited an attempted drone attack at Leipzig airport in Germany in August, which German authorities attributed to Moscow, as an example of the changing nature of the threat. He also referred to warnings from Tusk about possible drone and missile attacks against Poland and other countries on NATO's eastern flank.

Separately, a Russian drone struck a passenger train near the Ukraine-Poland border on September 13. The incident occurred shortly after a diplomatic train carrying former UK Prime Minister Boris Johnson and other European diplomats had travelled through the area. The attack caused no reported casualties, and French and German officials described the incident as part of a broader escalation in the security situation.

Poland has since moved to strengthen security around border crossings with Ukraine. Its defence ministry said protective infrastructure, including blast barriers and observation posts, was being installed at several crossings following recent drone incidents near the border.

The developments have put greater focus on Europe's air-defence, surveillance, electronic-warfare and counter-drone capabilities. For Indian defence stocks, the developments could provide a broader thematic read-through for companies exposed to radars, electronic warfare, missiles and other defence systems.

Defence stocks in focus

Shares of Bharat Electronics (BEL), Astra Microwave Products, Bharat Dynamics and Solar Industries could be in focus amid heightened security concerns in Europe.

The developments are drawing attention to air-defence, radar, electronic warfare, missile and counter-drone capabilities.

BEL has recently secured ₹648 crore of additional orders, including a laser-based IR jammer, while Astra Microwave is exposed to radar and electronic-warfare programmes.

BDL has an order book of around ₹22,600 crore, while Solar Industries has exposure to newer defence systems and munitions.

What analysts said on HAL

Goldman Sachs

Goldman Sachs notes that HAL is set to hand over Light Combat Aircraft (LCA) Tejas Final Operational Clearance (FOC) twin-seater trainers and HTT-40 basic trainer aircraft to the Indian Air Force, alongside Dhruv NG helicopters to Pawan Hans Limited (PHL).

The handovers span fighter/trainer aircraft and helicopters, providing another tangible data point that execution across HAL’s manufacturing portfolio is beginning to pick up.

Deliveries are picking up across platforms, with the latest handovers spanning fighter/trainer aircraft and helicopters. This comes alongside improving engine availability for the LCA Mk1A programme, with GE recently delivering another three F404 engines.

With supply constraints gradually easing and aircraft moving through production and testing into deliveries, GS expects the focus to increasingly shift towards execution and conversion of HAL’s large order backlog into revenues.

The development is also consistent with the government’s continued emphasis on indigenous design, development and manufacturing in aerospace and defence.

CITI

Citi said that HAL handed over the final two LCA FOC trainers, three HTT-40s and four Dhruv NG helicopters to end users, demonstrating broadening execution across fighter trainers, basic trainers and civil helicopters.

Encouragingly, execution on Dhruv NG appears to be progressing well and remains on schedule. On Tejas LCA Mk1A, management now expects deliveries of 10 aircraft by March 2027 as final software modifications and testing continue.

Engine availability has improved, with 10 F404 engines received and further expected, supporting management’s targeted delivery ramp. Overall, progress across multiple platforms provides incremental comfort on the broader medium-term delivery ramp, while progress on engines and testing should narrow the remaining Mk1A execution overhang.

CLSA

The investment bank believes the best is yet to come in the second half of the year and notes that HAL remains the cheapest pure-play defence stock despite its sector-leading position. It expects the stock to trade at a deserved premium to global aerospace peers.

HAL has received 10 GE F404-IN20 engines and expects to deliver 10 Tejas Mk1A aircraft by March 2027. GE has also committed to supplying another 12 engines by December.