Buy Bharat Electronics Ltd for the Target Rs.500 by Choice Institutional Equities
Steady Performance; Higher Indigenisation Supports Margin
Bharat Electronics Limited delivered a strong FY26 performance, meeting guidance with 16% revenue growth and margin expansion (EBITDA ~30%), reinforcing execution strength despite minor, transient supply chain disruption. We believe the key takeaway from the conference call is continued stability in core operations, driven by favourable product mix and structurally high indigenisation (80–85%), which remains the primary lever for margin resilience. The management is expecting order inflow of more than INR 550 Bn this year, indicating a strong pickup ahead despite FY26 order inflow of INR 300 Bn, keeping the order book largely flat at ~INR 739 Bn (~2.7x book-to-bill). The management reiterated that this reflects the typical lumpiness of large defence orders rather than demand weakness; working capital pressure also proved to be temporary (receivables normalised after year-end).
More importantly, our conviction strengthens around BHE’s medium-term positioning, with a strong order pipeline across QRSAM (near-term), P-75(I), next-gen corvettes, EW systems and other large programmes, alongside a steady cadence of large-ticket opportunities every few years. The ongoing shift towards higher value-add (system-level participation, deeper indigenisation, new tech investments) should support margin sustainability rather than dilution. Beyond this, the key monitorable is execution conversion (timely ramp-up + higher content per platform), which should gradually improve revenue visibility and operating leverage. As the mix shifts toward more complex, system-driven opportunities, we expect earnings quality to strengthen, reinforcing BHE’s positioning as a structural play on the defence electronics upcycle.
Topline Stable, Margins Remain Soft
* Revenue for Q4FY26 was up 11.7% YoY and up 42.9% QoQ at INR 102.2 Bn (vs CIE est. INR 93.6 Bn)
* EBITDA for Q4FY26 was up 5.9% YoY and up 40.2% QoQ at INR 29.8 Bn (vs CIE est. INR 28.0 Bn). EBITDA Margin contracted by 162 bps YoY, reaching 29.2% (vs CIE est. of 29.9%)
* PAT for Q4FY26 was up 4.7% YoY and up 40.9% QoQ at INR 22.3 Bn (vs CIE est. INR 22.1 Bn). PAT Margin contracted by 147bps YoY, reaching 21.8% (vs CIE est. 23.6%)
View & Valuation: We maintain our positive stance on BHE, underpinned by its strong long-term growth visibility, supported by a robust order book and a healthy pipeline. While we have revised our FY27E/FY28E EPS estimate downwards by 9.1%/10.7%, respectively, this largely reflects a recalibration of earlier assumptions to align with mgmt.’s execution trajectory. We continue to expect strong growth (Revenue/EBITDA/PAT CAGR of 17.4%/ 17.8%/ 18.1% over FY27–29E) and retain our ‘BUY’ rating. We value the stock at 40x FY28E EPS. Accordingly, we revise our TP to INR 500 (earlier INR 550).
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SEBI Registration no.: INZ 000160131
