During the past several years, the defence industry in India has held center stage by various factors such as increased geopolitical tensions, heightened focus on national security and a major change in the country’s approach towards self-reliance.
Though the front pages show mostly large defence PSUs receiving the funds, the little-known story of the silent beneficiaries is MSME-level defence suppliers, small and niche companies that build critical components used in drones, aircraft systems, communication hardware, and tactical equipment.
Such companies frequently operate in sectors with high entry barriers, collaborate extensively with government agencies, and therefore can experience a substantial growth-in-flux effect even from relatively small orders.
India’s defence budget for FY26 stands at around Rs 6.81 lakh crore, up nearly 9.5 percent from the previous year, and with more orders moving away from imports, smaller suppliers are increasingly being preferred for their agility and specialised capabilities. This makes the MSME defence space an emerging thematic opportunity for investors hunting for early-stage multibagger ideas.
In this article, we will dive into three such companies that are likely to benefit from this.
C2C Advanced Systems
C2C Advanced Systems is a pure defence-electronics player and supplies directly to DRDO, BEL, and the Indian armed forces. The company manufactures ruggedised computers, command-control systems, communication shelters, electronic warfare units, and mission-critical hardware for the battlefield.
What makes the company so strong is the company’s engineering depth and niche capabilities, areas that global OEMs have been dominating for a long time. As India moves to localise electronic warfare and battlefield systems, C2C-type companies will be the ones to benefit the most. With increasing demand for secure communication and tactical electronic systems, C2C’s order book can significantly expand over the next few years.
The company’s ability to bag contracts can be understood from the instance that in 2018, the company bagged a major order of a combat management system from the Royal Malaysian Navy for two frigates. It also received many orders for such technologies, for instance, it bagged an order worth Rs 41.7 crore from a Canadian defence company for the supply of its Decision Support System (DSS) Platform.
Taneja Aerospace & Aviation (TAAL)
By far, TAAL is the only private-sector aerospace manufacturer in India that can boast having its own airfield—a fact that any of its competitors can match. The company is into the manufacture of aircraft structures, UAV components, and aerospace assemblies, while also offering testing and engineering services to the defence and aviation sectors.
The move towards making India self-reliant in the production of UAVs, trainer aircraft, and aerospace components is a fortunate turn of events for TAAL, as it places the company in a very advantageous position. The company’s niche and specially developed manufacturing ecosystem make it a possible long-term winner in the supply chain of aerospace and defence that is set to expand.
Its capabilities can also be understood by the fact that Defence PSUs like Bharat Electronics have given the company an order worth Rs 1.25 crore for the Installation of the Vihang ESM system on KV-28, which is used to enhance their intelligence, surveillance, and reconnaissance (ISR) capabilities and provide situational awareness and threat warnings during operations.
DroneAcharya Aerial Innovations
DroneAcharya is expanding rapidly in the Indian drone ecosystem and is a major contributor to the supply of drones and drone-based services for defence and security forces. Furthermore, the company has been given the green light for drone supply contracts by the Indian Army, essentially a confirmation of its technical prowess.
As drones are turning out to be necessary for surveillance, border patrolling, mapping, and tactical operations, the demand for drones is likely to continue to be high. The company’s future looks even brighter because of the growth of the domestic drone industry, which is driven by government incentives and import restrictions.
In conclusion, the MSME defence supplier theme is still in its early stages, but its building blocks are robust – expanding defence spending, localisation mandates, and increasing dependence on smaller, more specialised manufacturers. Although these enterprises carry greater risks in terms of performance and dependency on orders, they also bring several times the return potential if the sector keeps going up. The company has received multiple orders from the Indian Army, for example, Rs 7.12 crore bagged by the company for the supply of FPC drones.
Written by Satyajeet Mukherjee
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