On January 16, Motilal Oswal released a research report on Bharat Electronics ahead of results. The defence sector stock, leader in electronics, will be announcing their results on Jan 30.
Motilal Oswal Top pick: Report on BEL
Motilal Oswal has recommended a ‘Buy’ rating for Bharat Electronics (BEL), one of India’s leading stocks in the defense industry, with a target price of ₹360, indicating an upside of 28%. Here are some key highlights from the research.
Key Points of the Report
Market Leader
Bharat Electronics (BEL) is a market leader in defense electronics, holding nearly 60% of the sector’s market share. Over the past four years, the company has steadily increased its revenue market share in the overall defense market, reaching 12.8% in FY24. This growth has been driven by the government’s focus on defense indigenization and BEL’s involvement in the Ministry of Defence’s (MoD) indigenous projects.
With several large defense platform orders expected in the next 1-3 years, BEL is poised to benefit from the growing scope of indigenization and is expected to capture a larger share of orders. As a result, BEL’s market share is likely to continue growing, outpacing the overall growth in defense market capital expenditure.
Budget Expectation
The defense budget has consistently grown in absolute terms, with capital allocation typically making up about a third of the total. However, since the COVID-19 pandemic, the defense budget as a percentage of GDP has declined to around 1.5-1.6%. To reach the target defense turnover of USD 25 billion, defense spending needs to increase to 1.8-2.0% of GDP.
In the upcoming Union Budget, attention will be focused on the allocation for defense, as well as the expedited finalization of large platform orders from the Ministry of Defence (MoD).
Financial Outlook
Bharat Electronics (BEL) is expected to achieve a sales/EBITDA/PAT CAGR of 17%/18%/20% over FY24-27, driven by strong operational performance and effective working capital management. Operating and free cash flows are forecasted to remain robust during FY25-27, supported by the company’s ₹110 billion cash surplus (as of FY24), providing opportunities for capacity expansion.
However, these estimates may be revised if order inflows in the defense sector weaken in the coming quarters.
Order Book
Having already secured order inflow ₹100 billion year-to-date (YTD), The company aims to achieve its order inflow target of ₹250 billion for FY25. It expects significant orders from key projects like radars, the EW suite, Atulya, and Shakti EW, which are in final negotiations and likely to be awarded in 2HFY25. Even if some orders shift to 1QFY26, the strong order book keeps revenue estimates for FY25 stable. The company also expects inflows from the QRSAM project in FY26.
BEL’s Growth Potential Across Defense Platforms
Bharat Electronics (BEL) will gain from the growing scope of defense projects. DRDO plans to finalize several large projects within the next 1-3 years. BEL, as a PSU and market leader in defense electronics, is in a strong position to benefit. The company expects to secure significant orders for radar systems, TR modules, and EW systems. It is also likely to win contracts for related subsystems across these projects.
The company is actively pursuing naval defense electronics projects and is qualified for integrating Uttam AESA radar into Tejas MK1 and later into Tejas MK2. Additionally, BEL expects a significant influx of orders from the QRSAM system in FY26. The company focuses on increasing volumes and indigenization to expand its market share across defense platforms.
Key Risks and Concerns
Potential risks for Bharat Electronics (BEL) include a slowdown in order inflows from both defense and non-defense segments, increased competition, delays in finalizing large tenders, sharp rises in commodity prices, and delayed payments from the Ministry of Defence (MoD). These factors could negatively affect the company’s revenue, margins, and cash flow projections.
Valuation and Recommendation
BEL is currently trading at 35.0x/29.0x on FY26E/FY27E EPS. Following adjustments to account for slightly lower order estimates, the target price has been updated to 35x Mar’27E EPS. Consequently, the research reaffirms its BUY rating on the stock, with an updated target price of ₹360.
Past FY 25 Quarterly Results
In the first half of FY 25, the Revenue of the company rose by 20% YoY to Rs 4,244 crore in the first quarter. Additionally, continuing the growth, BEL registered sales of Rs 4,605 crore up by 14.8% in the second quarter.
Moreover, the profit of the company increased by YoY 46.7% to Rs 791 in the June Quarter. Subsequently, In 2nd Quarter, the net profit surged by 38% to Rs 1,093 crore from 790 crore previous year.
Stock Overview
After a Buy recommendation from the research report, BEL’s share price rose by 1.29% to ₹285 on Monday. Currently, the defense stock trades with a market capitalization of ₹2,08,877 crore and a P/E ratio of 46. Despite this, the stock remains nearly 16% below its 52-week high. Over the past year, BEL has delivered an impressive return of 46%.
With Current Market Price of 285.80, Motilal Oswal expects share price to rise by 26% to Rs 360 with the duration of 1 year.
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