Defence sector Q3 review: Healthy revenue growth to strong management commentary; here’s all you need to know

However, these gains came after a sharp correction from the highs in recent months. Stocks like GRSE, Zen Technologies, and Cochin Shipyard have corrected more than 50% from their respective record-high levels in the current fall of the market. The fall in these stocks was largely due to exuberantly high valuations and robust rally in stock defence stocks in the past few years.

Healthy top-line growth

The NIFTY India Defence index, which constitutes 16 key companies from the defence sector, reported a healthy top-line growth compared to the previous quarter at 25% YoY. The healthy top-line growth was largely aided by strong order book execution on all fronts. The Q3FY25 revenue growth remained highest in the three-quarters of FY25. The new order wins for the overall sector remained muted on account of lower capex announcements by the government in the first three-quarters of FY25.

Robust bottom line

On the bottom line, most companies reported robust quarterly numbers. According to Ace Equity data, the overall net profit growth for the quarter stood at 22.19% YoY at ₹4,332 crore, compared to ₹3,454 crore in the same period last year. This was largely driven by strong operational performance, which grew by 29% YoY at ₹5,500 crore. Some small-cap defence companies, like Mishra Dhatu Nigam Ltd (99%), Paras Defence (125%), Rossel India (229%) and Apollo Micro Systems (83%), reported the highest YoY profit growth numbers in the industry.

Optimistic management commentary

Management commentary suggests that new order wins are likely to increase by the fourth quarter of FY25. Hindustan Aeronautics Ltd, which currently holds the highest order book in the industry at ₹94,000 crore, expects the order book to touch ₹1,20,000 crore by the end of FY25. In addition, the management of GRSE maintained a positive CAGR target of around 25% from FY23 to FY27, with confidence in sustaining revenue growth and order inflow. Meanwhile, the management of Bharat Electronics Ltd said that order inflow is expected to cross ₹25,000 crore in Q4FY25. In addition, Solar Industries’ management also sounded optimistic about its total order book crossing ₹6,000 crore with the Pinaka rocket system orders from the Ministry of Defence.

Order wins softened in Q3 FY25 as government capex slowed down in the first three quarters of FY25. Increasing self-reliance on defence products remains a key tailwind for the sector. In addition, the increased allocation to the defence sector in the Union Budget 2025 boosted investor confidence in the sector.