Hold Bharat Electronics Ltd for the Target Rs. 407 By Prabhudas Liladhar Capital Ltd
Strong Q2; order pipeline remains strong
Quick Pointers:
* Management maintained their guidance of ~15% revenue growth with ~27% EBITDA margin and ~Rs270bn+ order intake (ex. QRSAM) in FY26.
* Order intake increased by ~131% YoY to Rs53.6bn with Order book remained flattish YoY and stood at ~Rs744.5bn
We revised our FY26/FY27E EPS estimates by +2.6%/+1.1% factoring in strong execution pace and robust order pipeline. Bharat Electronics (BEL) reported a strong quarterly performance with revenue rising by ~25.8% YoY led by strong execution with EBITDA margin contracted by 88bps to 29.4% due to decline in gross margin. BEL continues to enhance its system integration capabilities, moving up the value chain by participating in key defense programs like AMCA (in consortium with L&T) and Project Kusha (with DRDO), both offering significant long-term growth potential. The company expects a Rs100bn+ opportunity from the recently approved Rs790bn DAC acquisitions, further strengthening its order pipeline. To support capacity expansion and future program requirements, BEL plans to invest ~Rs14bn over the next 3–4 years in a new Defense System Integration Complex in Andhra Pradesh, which will house QRSAM, unmanned systems, missile, and radar systems. BEL targets to lift its non-defense revenue share to 10% by FY26, supported by traction in Kavach, homeland security, data center, and fiber optic projects. With strong execution and rising export contribution (~10% of revenue), BEL remains wellpositioned for sustained growth and margin resilience. The stock is trading at a P/E of 45.1x/39.1x on FY27/28E earnings. We roll forward to Sep’27E and maintain our ‘Hold’ rating, valuing the stock at a PE of 40x Sep’27E (Mar’27E earlier) arriving at a TP of Rs407 (Rs374 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 Kavach, fiber optics, anti-drone tech, data centers etc., to aid non-defense growth and 3) govt’s focus on product indigenization.
Strong execution led to robust growth: Standalone revenue grew 25.8% YoY to Rs57.6bn (PLe: Rs51.7bn). Gross margin contracted by 234bps YoY to 50.9%. EBITDA grew 22.1% YoY to Rs17.0bn (PLe: Rs15.2bn). EBITDA margin contracted by 88bps YoY to 29.4% as the impact of lower gross margin was partially offset by better operating leverage. PBT grew 19.5% YoY to Rs17.3bn (PLe: Rs15.8bn). PAT rose 17.9% YoY to Rs12.9bn (Ple: Rs11.9bn) despite of decline in other income (- 4.5% YoY to Rs1.6bn) and higher effective tax rate (+116bps YoY to 25.8%)
Order book stands strong at ~Rs744.5bn (3.0x TTM sales): Order intake for the quarter stood at ~Rs53.6bn. Order intake guidance for FY26 is ~Rs270bn excluding QARSM orders worth of ~Rs300bn expected to be awarded in Q4FY26. The company’s order book stood strong at Rs744.5bn.
Please refer disclaimer at https://www.plindia.com/disclaimer/
SEBI Registration No. INH000000271
