Accmulate Bharat Electronics Ltd For Target Rs. 453 by Prabhudas Liladhar Capital Ltd
Order pipeline remains healthy
We revise our EPS estimates for FY27/FY28E by +1.3%/2.8% factoring in sustained healthy execution momentum and margin profile. Bharat Electronics (BEL) reported a healthy 4QFY26 performance, with revenues growing 11.6% YoY while EBITDA margins contracted 147bps YoY to 29.1%. Management retained FY27 guidance of >15% YoY revenue growth and Rs550bn order inflow supported by large opportunities such as QRSAM, P75I submarines, next-generation corvettes, Shakti EW systems and MFR radars. The order book remains robust at ~Rs739bn, providing strong multi-year visibility, with key executable programs including electronic fuses (Rs43bn), LRSAM (~Rs35bn), LCA Mk1A LRUs (~Rs35bn), BMP-2 upgrades (Rs28bn+), Ashwini radars and EW systems. The QRSAM order, a key near-term catalyst, is anticipated by June'27 with the first production model expected within 18 months of contract signing. BEL continues to strengthen its positioning in emerging areas such as drones, quantum technologies, AI-led systems, cyber security, directed-energy weapons and indigenous data centres through partnerships with DRDO, startups and academia, alongside increasing investments in R&D and high-performance computing infrastructure. Additionally, rising indigenisation (~80–85%), growing export opportunities and increasing non-defence contribution (from 8% to 15%) are expected to support medium-term growth. The stock is currently trading at PE of 42.8x/36.5x on FY27E/FY28E. We roll forward to Mar’28E and upgrade our rating from ‘Reduce’ to ‘Accumulate’ given recent correction in stock price while valuing the stock at a PE of 40x Mar’28E (40x Sep’27E earlier) arriving at a TP of Rs453 (Rs411 earlier).
Long term View:
We remain positive on long-term growth story of BEL given
1) strong order backlog & strong multi-year order pipeline
2) diversification in newer business verticals like data centres, cyber-security, drones and quantum communication to aid non-defense growth
3) govt's focus on product indigenization.
EBITDA margins impacted due to higher expenses:
Standalone revenue grew 11.6% YoY to Rs101.8bn (PLe: Rs100.2bn). Gross margin expanded by 32bps YoY to 48.2%. EBITDA grew 6.2% YoY to Rs29.6bn (PLe: Rs28.0bn). EBITDA margin contracted by 147bps YoY to 29.1% due to higher other expenses (+36.4% YoY to Rs11.1bn). PBT grew 2.0% YoY to Rs29.0bn (PLe: Rs29.1bn). Adj. PAT rose 4.7% YoY to Rs22.0bn (Ple: Rs22.1bn) regardless of a decline in other income (-44.3% YoY to Rs1.1bn) offset by lower effective tax rate (-196bps YoY to 24.1%)
Order book stands strong at ~Rs738.8bn (2.7x TTM sales):
Order intake for FY26 stood at ~Rs300bn. Order intake guidance for FY26 is ~Rs550bn including QRSAM orders worth ~Rs300bn expected to be awarded in Q2FY27. The company’s order book stood strong at Rs738.8bn.
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