Defence stock to buy: Top plays for upto 73% upside potential; check fresh targets

India's defence production rose 3.4 times from Rs 53,000 crore in FY16 to Rs 1.78 lakh crore in FY26. The period after FY21 marked an acceleration as indigenisation policies gained traction. Annual growth of 12-20 per cent over six years resulted in a 16 per cent compound annual growth rate.

It identified Defence Acquisition Procedure 2020, the Positive Indigenisation Lists and the 75 per cent domestic procurement mandate as key drivers. Private sector defence production increased at a 12 per cent compound annual rate from about Rs 14,100 crore in FY17 to about Rs 42,000 crore in FY26, outpacing production.

Its share rose from 19-20 per cent during FY17-FY23 to 24 per cent in FY26, increasing by 100 basis points annually in FY24, FY25 and FY26. It linked this shift to higher domestic procurement allocations, stricter minimum indigenisation requirements, the positive list and foreign direct investment of about 74 per cent through the automatic route.

Astra Microwave has evolved over three decades from a sub-tier radio frequency component supplier into a Tier-1 systems company and Development-cum-Production Partner, present across Indian aerospace, defence and space platforms. Its order book tripled over the past three years as margins improved.

The proposed demerger of Astra Microwave's space business could unlock value as it scales towards full satellite manufacturing. Systematix expects about Rs 9,000 crore of orders over FY27E-FY30E, led by Super Sukhoi and Tejas Mk-1A airborne radars, QRSAM, Akash and Kusha missiles, and ARC software-defined radios. Limited competition could support gross margins, while operating leverage lifts EBITDA margins.

The report from Systematix rates both stocks as a 'Buy'. It has a given a target price of Rs 2,600 on Astra Microwave, while Data Patterns has ascribed with a target price of Rs 5,100. It see up to 39 per cent upside in Data Patterns, while 74 per cent upside in Astra Micro.