Accumulate Bharat Electronics Ltd For Target Rs.452 Prabhudas Liladhar Capital Ltd
Decent Q1; Order Inflow remains key monitorable
Bharat Electronics (BEL) reported a decent 1QFY27 performance, with revenue increasing 25.3% YoY, while EBITDA margin contracted 297bps YoY to 25.1% due to a decline in gross margin on account product mix. Management maintained its FY27 guidance of 15% revenue growth and 28% EBITDA margin guidance, with quarterly margins expected to fluctuate based on execution and product mix. EBITDA margins on its products vary from 25% to 31% and thus the management is confident of achieving its guidance. The order book remains healthy at Rs722.6bn, providing strong execution visibility, with key programmes including Electronic Fuses, LRSAM, LCA Mk1 LRUs, BMP-2 upgrades, Ashwini Radar and Arudhra accounting for over Rs200bn of the backlog. Despite a muted order inflow in Q1 (~Rs. 38bn), the full year guidance for order inflow was maintained at Rs550bn, backed by a robust pipeline including QRSAM (~Rs300bn), Shatrughat & Samaghaat EW systems (~Rs90bn), HAMMER (~Rs25bn), Shakti Phase-IV (~Rs20bn) and P75I/NGC programmes. The QRSAM order, a key nearterm catalyst, is expected by Sep‘27, with repeat orders from current platforms and Project Kusha (Rs400bn), where BEL is the largest subsystem partner, remain key longterm growth opportunities. Continued indigenisation, with indigenous content currently at ~78–80%, coupled with higher R&D investments, is expected to mitigate input cost pressures and support margin resilience over the medium term. BEL also continues to strengthen its capabilities across counter-drone systems, directed energy weapons, missile electronics, and non-defence applications, while maintaining healthy export visibility, supported by a US$465mn export order book and an export opportunity pipeline of 4–5x the current backlog.
The stock is currently trading at PE of 42.2x/36.1x on FY27E/FY28E. We maintain our rating of ‘Accumulate’ valuing the stock at a PE of 40x Mar’28E (same as earlier) arriving at a TP of Rs453 (same as 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 25.3% YoY to Rs55.3bn (PLe: Rs49.1bn). Gross margin contracted by 775bps YoY to 45.5% likely due to product mix. EBITDA grew 12% YoY to Rs13.9bn (PLe: Rs13.8bn). EBITDA margin contracted by 297bps YoY to 25.1% (Ple: 28.1) due to lower gross margin partially offset by better operating leverage. PBT grew ~9% YoY to Rs14bn (PLe: Rs14.4bn). Adj. PAT rose 8.2% YoY to Rs10.5bn (Ple: Rs10.8bn) with effective tax rate increased marginally by 44bps YoY to 25.3%
Order book stands strong at ~Rs722.6bn (2.6x TTM sales): Order intake for Q1 FY27 stood at ~Rs38bn. Order intake guidance for FY27 is unchanged at ~Rs550bn including QRSAM orders worth ~Rs300bn expected to be awarded in Sep ‘27. The company’s order book remained strong at Rs722.6bn.
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SEBI Registration number is INH000000933
