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Defence stocks under pressure: Data Patterns, MDL down up to 8%; here's why
At 11:41 AM, Defence index was the top loser among indices, as compared to 0.70 per cent decline in the Nifty50. Nifty Defence index has corrected 17 per cent from its all-time high level of 9,195.15 touched on June 6, 2025.
Data Patterns (India), Mazagon Dock Shipbuilders, Paras Defence and Space Technologies, Bharat Dynamic (BDL), Garden Reach Shipbuilders & Engineers (GRSE), Hindustan Aeronautics (HAL), ZEN Technologies, Cochin Shipyard and Bharat Electronics (BEL) were down in the range 1 per cent to 8 per cent on the NSE.
Why are defence stocks under pressure today?
Defence companies like Data Pattern (India), Paras Defence and Zen Technologies have reported a disappointing earnings for the quarter ended June 2025r (Q1FY26).
Shares of Data Patterns slipped 8 per cent to ₹2,362.30 on the BSE in intra-day trade. The company's revenue decreased by 4.6 per cent year-on-year (Y-o-Y) (down 74.9 per cent quarter-on-quarter (Q-o-Q)) to ₹99.3 crore, primarily due to temporary delays in execution. Ebitda margin was at 32.3 per cent, down 343 bps Y-o-Y and 543 bps Q-o-Q, mainly on account of higher employee cost. Profit after tax decreased 22.2 per cent Y-o-Y to ₹25.5 crore.
While revenue for the quarter was modest, primarily due to temporary delays in customer approvals, these are expected to normalise in the coming quarters, the management saying they remain confident of delivering their year's targets.
According to ICICI Securities, overall performance during the quarter was impacted due to delays in execution. However, the management expects these to normalise in the coming quarters. Order inflows remain healthy during the quarter at ₹183.5 crore (led by Brahmos service contracts). Order backlog stands at ₹1079 crore including orders under negotiations (1.5x TTM revenue).
The management remains confident of healthy order inflows and achieving a revenue growth of 20-25 per cent with Ebitda margins at around 35-40 per cent in FY26E. The brokerage firm believes that pick-up in execution and order inflows would be the key things to watch-out for in the coming quarters.
Meanwhile, Zen Technologies management had said Q1FY26 results reflect moderation in topline growth. They believe this is a temporary adjustment phase with a much stronger long term growth trajectory.
Defence sector outlook, risks
The Indian Aerospace & Defence (A&D) industry is experiencing major growth, largely driven by various government initiatives aimed at promoting self-reliance and enhancing domestic capabilities. The 'Make in India' and 'Atmanirbhar Bharat' initiatives have been pivotal in encouraging local manufacturing and reducing dependency on imports.
These programmes have led to the development and induction of indigenous platforms such as the Tejas Mk1A fighter and advancements in the LCA Mk2 & Advanced Medium Combat Aircraft (AMCA) programme. The government's focus on public-private partnerships has also fostered innovation and expanded the industry's capabilities.
Moving forward, the Indian A&D sector is expected to continue its upward trajectory, with a strong emphasis on self-reliance, technological advancement, and strategic collaborations to bolster national security and economic growth, HAL said in its FY25 annual report.
The major risks and concerns for the company are dependence on foreign Original Equipment Manufacturers (OEMs) for supply of critical components and spares; dependence on limited customers for new contracts and competition from domestic and foreign players.
Key risks for the defence sector companies include a decline or reprioritisation of the Indian defense budget, termination of existing contracts or failure to succeed in tendering projects, changes in procurement rules and regulations of the Ministry of Defence (MoD) and the government, and supply-chain-related issues.
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