Defence Spending Quadruples after Latest DAC Approval, Execution to Take Centre Stage

Defence Acquisition Council Approves Rs 2.38 Lakh Crore Worth of Procurement Proposals

The Defence Acquisition Council (DAC) has approved procurement proposals worth Rs 2.38 lakh crore on March 27, taking total approvals for YTD FY26 to Rs 9.3 lakh crore. This represents a nearly four-fold increase from last year's Rs 2.5 lakh crore, according to Kotak estimates.

The sharp rise in approvals indicates a strong policy push towards defence expansion. The Indian Air Force led the latest approvals, with large programmes such as the S-400 air defence system and 60 medium transport aircraft accounting for a substantial share of the outlay. While a significant portion is expected to involve global suppliers, domestic companies are likely to benefit from select opportunities.

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Analysts see the sharp rise in approvals as a structural shift in defence spending, with a build-up of Acceptance of Necessity (AoN) clearances now translating into a stronger order pipeline. The DAC approvals have consistently been strong since FY22, reinforcing the long-term defence story.

Despite the strong pipeline, execution remains the key, with long gestation periods continuing to weigh on the sector. Approvals are just the starting point, and converting them into firm orders can take close to a year. Large programmes such as the P-75I submarine project, next-generation corvettes, and the QRSAM system could see finalisation pushed to FY27.

Kotak noted that Bharat Electronics has secured around Rs 22,000 crore in orders so far against a target of Rs 27,000 crore, implying a potential miss if timelines slip further. Execution challenges are also linked to supply chain constraints and localisation efforts.

At a company level, divergence in execution is evident. Bharat Electronics has made significant progress in system-level localisation, reducing dependence on imports, while companies such as Hindustan Aeronautics continue to face supply-side challenges, leading to delays in programmes such as LCA and ALH Dhruv.

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The divergence is also reflected in financial performance. Kotak highlighted that Bharat Electronics reported around 16% revenue growth, broadly in line with expectations, while Garden Reach Shipbuilders delivered strong performance. In contrast, Hindustan Aeronautics reported about 4% revenue growth in its provisional numbers, below guidance due to supply disruptions.

Going ahead, analysts see BEL as relatively better placed within the sector, supported by strong margins and steady order visibility. On HAL, they said, "You may not see a meaningful pickup this year or next. Deliveries are likely to remain back-ended."

Despite near-term headwinds, the broader outlook remains constructive. Valuations are elevated, but supported by long-term visibility. You're looking at 5-8 years of revenue visibility, which justifies premium multiples to some extent.

Within the sector, performance is expected to diverge. BEL is seen as relatively better placed, supported by strong margins and steady order visibility. On the other hand, HAL continues to face execution challenges.