BEL stock hits new high on robust Q4 results; brokerages bullish, see 20% potential upside

Analysts at Nomura remain positive on Bharat Electronics as they expect the secular growth to sustain, driven by its market dominance and increased project sizes, as it further ascends the value chain as a system integrator.

Shares of Bharat Electronics Ltd (BEL) zoomed 8 percent to hit a fresh record high of Rs 283 apiece on NSE on May 21, a day after the company reported above-estimate earnings for the quarter ended March 2024, driven by better-than-expected EBITDA margin, PAT and strong revenue growth.

Up-fronting of order inflows led to a beat in overall order inflows for the company.

The state-owned company reported 30 percent year-on-year rise in its consolidated net profit at Rs 1,797 crore. Its revenue from operations also jumped 32 percent to Rs 8,564 crore.

Analysts at Motilal Oswal expect BEL to remain a key beneficiary of defense indigenisation potential worth Rs 5 lakh crore over the next five years with its presence across defense platforms and products ranging from radars, simulators, EW systems, electronic fuses, thermal imaging, integrated air command and control system, border surveillance system and counter drone systems etc.

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The share of indigenisation in the Indian defense sector has been continuously moving up and the brokerage expects BEL's revenue market share to remain high at around 12-13 percent. "The company is continuously taking initiatives to increase the share of exports and non-defense revenue, which will reduce its dependence on only domestic defense," it said.

Motilal Oswal analysts expect BEL's operating cash flow/free cash flow to remain strong over FY24-26 on control over working capital. Further, the company had a cash surplus of Rs 11,000 crore (as of FY24), providing scope for further capacity expansion.

The brokerage upgraded the stock to 'buy' from Neutral earlier and revised the target price upwards to Rs 310 per share.

BEL is a Navratna PSU under the Ministry of Defence, Government of India. It produces advanced electronic products for the Indian Army. It received orders worth Rs 30,000 crore FY24 and has surpassed its original Rs 20,000 crore FY24 guidance estimates.

In February this year, the defence ministry signed a deal worth Rs 2,269 crore with BEL for the procurement of 11 Shakti warfare systems, along with associated equipment.

Analysts at Nomura remain positive on Bharat Electronics as they expect the secular growth to sustain, driven by its market dominance and increased project sizes, as it further ascends the value chain as a system integrator.

The foreign brokerage firm maintained a 'buy' rating on the stock. "We value the stock at 40x FY26F EPS of INR7.4, with a TP of Rs 300, it said, adding that the stock is currently trading at a P/E of 42x/ 35x FY25F/FY26F EPS."

Also Read | BEL Q4 results: Net profit rises 30% to Rs 1,797 crore, dividend declared

At 10:20 am, BEL shares were trading 7.8 percent higher at Rs 278.65 on the National Stock Exchange (NSE). The defence stock has more than doubled investors' wealth in the last one year, rising 161 percent. The stock has extended its gains for 2024 to over 40 percent.

In the next 12 months, the counter is projected to rally to Rs 305 per share. That price target came from Jefferies, which has maintained a 'buy' rating on the BEL stock.

The international brokerage firm also raised its target price to Rs 305 per share, implying a potential upside of 18 percent from the stock's closing levels on May 18. Based on BEL's order book and pipeline, Jefferies analysts expects BEL to see double-digit revenue growth from FY24 to FY26. It added that margin strength gives confidence in profitability sustaining.

Morgan Stanley has an 'overweight' rating on BEL and a revised upward target price of Rs 300 per share. The brokerage expects some operational efficiencies to remain sticky while raising its EBITDA margin estimates to 24-24.5 percent as against 22.5-23 percent earlier.

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