Bharat Electronics is the market leader in defense electronics & is well equipped to benefit from defense ordering. Buy for target price of ₹360 (30% upside): Motilal Oswal

Well equipped to benefit from defense ordering

 We continue to remain positive on Bharat Electronics (BEL) given 1) its market leadership in defense electronics and ability to benefit from defense indigenization as well as from the upcoming large defense platform orders (QRSAM, MRSAM, Tejas Mk1A, naval platforms, etc.), 2) a strong order book of INR746b as of 2QFY25-end, providing healthy visibility on revenue, 3) stable margins and control over working capital, and 4) healthy return ratios.

 Despite BEL’s overall FY25YTD orders of INR103b being lower than last year’s, we expect the company to gain from the further ramp-up in defense orders in the coming months. The recent DAC approvals augur well for the sector and emphasize the government’s focus on defense indigenization. The company is continuously expanding its presence across new areas via its SBUs. It is also focusing on improving the share of exports and non-defense projects in the overall order book.

 We tweak our estimates to bake in slightly lower ordering estimates and roll forward our TP to 35x Mar’27 estimates. Reiterate BUY with a TP of INR360.

Key investment thesis

Market leader in defense electronics

BEL is a market leader in the highly specialized defense electronics market with nearly 60% share. In the overall defense market, the company has consistently improved its revenue market share over the last four years, reaching 12.8% in FY24. This was led by the government’s continued focus on defense indigenization and BEL’s focus on the Ministry of Defence (MoD)’s Make-I, Make-II, and Make-III projects involving indigenous solution development, with emphasis on systems, sub-systems, and services. With various large platform orders likely to be finalized over the next 1-3 years (Ref Exhibit 3), we expect defense PSUs to garner a larger share of ordering, and within that we expect BEL to benefit from the increased scope of its offerings via indigenization. We thus expect BEL’s market share to continue growing in the coming years and anticipate that it will clock faster growth than the growth in capex in the defense market.

Valuation and recommendation

BEL is currently trading at 35.0x/29x on FY26E/FY27E EPS. We tweak our estimates to bake in slightly lower ordering estimates and roll forward our TP to 35x Mar’27E. We reiterate our BUY rating on the stock with a TP of INR360.

Bharat Electronics is the market leader in defense electronics