Mumbai | September 24, 2025 — India’s defence theme has delivered outsized returns, but the price tags on leaders like Solar Industries India and Bharat Dynamics (BDL) are now hard to ignore. Fresh screeners and brokerage round-ups show both stocks trading at lofty trailing P/E multiples, well above long-term sector norms and the broader defence index benchmark—raising the question: has price sprinted ahead of fundamentals?
Why valuations stretched
Two pillars have kept the premium intact. First, order-book visibility is unusually strong. Solar’s own investor materials indicate an order book of ₹17,000+ crore, with defence contributing a large share. BDL’s investor presentation shows a ₹19,434 crore book as of March 31, 2024, anchored by missile systems and torpedoes. These backlogs underwrite revenues over multiple years and reduce the “project slippage” risk that usually dogs capital-goods names.
Second, the policy push remains supportive. A new CRISIL Ratings update this week pegs private defence companies’ FY26 revenue growth at 16–18% on the back of Make-in-India, localisation mandates and export opportunities; CRISIL also highlights expanding private-sector order books (toward ₹55,000 crore) and steady operating margins—drivers that justify some valuation premium.
What the numbers say (quick reference)
Context: Economic Times’ defence index check flags Solar and BDL among the most expensive constituents relative to the benchmark multiple, underscoring how widespread the re-rating has been across the basket.
Market reaction & positioning
Fund managers acknowledge the visibility premium, but several now argue for selective exposure and better entry points. With multiples already baking in robust growth, incremental upside hinges on flawless execution—timely deliveries, export scale-up, and working-capital discipline. Any wobble on these fronts can trigger quick P/E de-rating, especially if the macro turns risk-off or FX volatility lifts input and financing costs.
What could re-rate (up or down)
- Bull case: Order conversion stays brisk; exports accelerate; policy support persists. Earnings compound fast enough for the stocks to “grow into” the high P/Es—allowing the premium to cool via E growth, not P cuts. CRISIL’s 16–18% sector growth call supports this path.
- Bear case: Slippage in large programmes, slower export approvals, or stretched receivables hit cash flows. With rich starting multiples, disappointments can translate into sharp multiple compression. A crowded defence calendar could also test liquidity for follow-on raises.
Are Solar Industries and BDL overpriced? On simple P/E, they are clearly rich versus history and index peers. But the order-book depth and policy runway make the premium more understandable than in past up-cycles. For new money, a staggered approach (buy on corrections, track execution/receivables closely) looks prudent. Long-term holders can stay the course but should monitor delivery milestones, export traction, and cash conversion. If growth lands as guided, valuations can normalise the easy way—through earnings—rather than painful price give-backs. If not, today’s multiples leave little room for error.
