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A slight miss; broader outlook intact

Bharat Electronics’ (BHE) 1QFY27 revenue/EBITDA/PAT came slightly lower than our estimates. Margin performance was hit by an adverse revenue mix. Inflows for 1Q stood at INR40b and are likely to improve in the coming quarters from both base as well as large orders. Despite a weaker-than-expected performance, BHE has retained its guidance of 15%+ revenue growth, 28%+ EBITDA margin, and inflows of INR550b for FY27, including QRSAM. The QRSAM project, worth INR300b, is expected to be awarded by 2QFY27. We continue to remain positive on BHE and expect it to benefit from various large platform orders, which will be finalized over the next few years from the Army, Navy, and Air Force. We tweak our estimates and expect BHE to post a 15%/14%/15% CAGR in revenue/EBITDA/PAT over FY26-29. Reiterate BUY with a revised TP of INR530 on roll forward to 45x Sep’28E earnings (vs. INR510 earlier).

Results slightly below our estimates on EBITDA and PAT

BHE’s results were slightly below our estimates on EBITDA and PAT, largely due to the execution product mix during the quarter. Revenue grew 25% YoY to INR55b, 8% above our estimates. Gross margin during the quarter contracted to 45.5% (53.2% in 1QFY26), vs. our estimate of 53.0%. Management attributed the contraction largely to product mix, while noting that commodity price inflation did not materially affect profitability. Absolute EBITDA increased 12% YoY to INR13.9b (vs. our est. of INR14.8b), while margin contracted 300bp YoY to 25.1% (vs. our estimate of 29.0%) mainly due to the product mix. PAT increased 8% YoY to INR10.5b, 7% below our estimates. The order book as of 1QFY27-end stood at INR723b, with an order inflow of ~INR40b during the quarter.

Current order book composition and execution visibility

BHE's order book stood at INR723b as of 1st Jul’26, with ~90% comprising defense programs and the balance from non-defense businesses. The backlog remains well diversified across the Army, Navy, and Air Force, with each contributing roughly one-third of the defense orders. Key programs include electronic fuzes, LRSAM, LCA Mk1/Mk1A LRUs, BMP-2 upgrades, Ashwini Radar, Mi-17 V5 EW suite, and multi-platform radar (Arudhra), with these seven programs together accounting for ~INR200b of the order book. During FY27, execution is expected to be driven by LRSAM (~INR21b), Akash Army (INR10- 12b), BMP-2 upgrades, Arudhra, Electronic Warfare Systems, LCA LRUs, and other major programs, each contributing ~INR5-10b of revenue

Near-to-long-term prospect pipeline

BHE maintained its FY27 order inflow guidance of over INR550b, including the QRSAM project worth INR300b, which is expected to receive CCS approval by 2QFY27. Excluding QRSAM, key expected inflows include next-generation corvettes (NGC), Project 75(I), Project Shatrughat, Samaghat (~INR90b), Project Shakti Phase IV (~INR20b), and the HAMMER weapon integration program (over INR25b), alongside a steady flow of base orders and support contracts. Beyond FY27, the company sees opportunities arising from multiple large-sized orders,including Project Kusha (commercial orders of ~INR400b expected by FY29), Next Generation Destroyers (NGD), Project 17B (P-17B), AMCA, missile electronics, counter-drone systems, next-generation radar, and exports.

Financial outlook and valuation

We trim our estimates by 1% each for FY27/FY28 and expect a CAGR of 15%/14%/ 15% in sales/ EBITDA/PAT over FY26-29. We expect OCF/FCF to remain strong, led by control over working capital. BHE is currently trading at 42.5x/36.4x/32.4x P/E on FY27E/FY28E/FY29E EPS. We arrive at a revised TP of INR530, on roll forward to 45x Sep’28E earnings. Reiterate BUY.

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