India’s defence sector is undergoing a profound transformation, driven by the “Make in India” initiative, which has spurred domestic innovation and reduced reliance on foreign suppliers. The country is now producing its own radars, drones, avionics, and AI-driven combat systems, marking a significant shift in its defence capabilities. Beyond the headlines about advanced fighter jets and missiles, a quieter revolution is unfolding in the stock market, where defence manufacturers are experiencing rapid growth, reflecting both their technological advancements and financial health.
One key metric that stands out is the EV/EBITDA ratio, which compares a company’s market value to its earnings before interest, taxes, depreciation, and amortisation. Companies with low or moderately elevated EV/EBITDA ratios may be undervalued relative to their growth potential, particularly those investing in cutting-edge technologies like artificial intelligence (AI). This presents an opportunity for long-term investors who are often overlooked, especially those focused on AI-driven defence innovations.
To identify promising aerospace and defence (A&D) businesses, we focused on listed companies with steady growth over the past three years, low or moderate EV/EBITDA ratios compared to their industry median, and a commitment to AI-driven technologies. Three private-sector firms emerged as strong contenders: MTAR Technologies, Paras Defence & Space Technologies, and Avantel Ltd.
**MTAR Technologies: Precision Engineering with AI Integration**
Based in Hyderabad, MTAR Technologies is a leader in precision engineering, producing components for nuclear, space, defence, and clean energy sectors. The company supplies critical parts for ISRO rockets and DRDO systems, positioning itself as a key player in India’s advanced engineering landscape. MTAR’s AI-driven quality control and smart manufacturing processes are enhancing its role beyond contract manufacturing, transforming it into a solutions provider.
Financially, MTAR has shown consistent growth. In Q1 FY26, its revenues increased by 22.11% year-over-year (YoY) to ₹157 crore, while net profits rose to ₹11 crore from ₹5 crore in the same period, excluding exceptional items. Operating margins remain strong at 18-19%, which is impressive for a capital-intensive manufacturer. The stock price has grown at a compound annual growth rate (CAGR) of 4%, with an average return on equity (ROE) of about 11% over the last three years.
From a valuation perspective, MTAR trades at an EV/EBITDA multiple of 42.25, slightly above the industry median of 36.65. This suggests potential for re-rating as order books expand and the business grows. While a relatively cheaper valuation does not guarantee a re-rating, MTAR remains a strong contender for investors seeking stability and upside potential in defence manufacturing.
**Paras Defence & Space Technologies: Optics, Electronics, and AI-Driven Systems**
Paras Defence is a leading player in the aerospace and defence sectors, specialising in optics, electronics, and new-age defence systems. The company designs, develops, and tests engineering products for DRDO, ISRO, and private space players. Its PARAS.AI platform offers advanced analytics for drone data and surveillance, while its investment in Logic Fruit Technologies strengthens its position in AI-driven embedded systems. Paras is also developing AI-powered radar and electronic warfare systems to solidify its leadership in the tech space.
Financially, Paras Defence has shown stable growth over the last three years. In Q1 FY26, sales increased to ₹93 crore from ₹84 crore in Q1 FY25, while net profit improved slightly to ₹14.27 crore. Operating margins were 23% in Q1 FY26, down from 29% the previous year, reflecting high R&D expenditure. The stock price has grown at a CAGR of 25% over three years, with an average ROE of 10%, indicating the company is still in its growth and investment phase.
Paras trades at an EV/EBITDA multiple of 53.50, higher than the industry median but lower than some of its peers, suggesting the market may undervalue its potential. For investors seeking exposure to drones, optics, and AI-driven systems, Paras offers both growth potential and relative undervaluation.
**Avantel Ltd: The Communication Pillar**
Avantel Ltd, based in Hyderabad, is a key player in India’s defence communication ecosystem. The company designs, develops, and maintains wireless and satellite communications, digital radios, and defence electronic systems. Its products are crucial for secure communications in network-centric operations, and it has integrated AI enhancements into its radio and satellite communication solutions.
Financially, Avantel’s revenue remained steady at ₹51.91 crore in Q1 FY