Buy Centum Electronics; target of Rs 3000: Choice Institutional Equities

Choice Institutional Equities's report on Centum Electronics

CTE reported a modest Q2FY26 performance, with revenue rising 14.2% YoY, which was below our estimate. The performance was driven by execution in its built-to-spec (BTS) business for domestic defence and space customers. The company’s domestic order pipeline remains healthy, with the BTS orderbook at INR 650–665 Cr and EMS orders at INR 763 Cr. BTS execution is expected over 2–2.5 years, while the timeframe for EMS orders is 10 months. We believe strategic partnerships continue to strengthen CTE’s positioning, including MOUs with GRSE for naval navigation systems and BEL for defence electronics, as well as contribution to ISRO’s CMS-3 GSAT-7R program. We expect management remains focussed on operational efficiency and targeted CAPEX. Expectation of a strong H2FY26, with standalone revenue growth of ~30% and EBITDA margin of 13–15% for the full year.

Outlook

We maintain a positive outlook on CTE, expecting Revenue /EBITDA /PAT to expand at a CAGR of 19%/29%/51%, respectively, over FY26 – 28E. We value the stock at a PE of 35x on the avg. of FY27–28E EPS, implying a target price of INR 3,000. In view of the recent correction in the stock, we have upgraded our rating to BUY (from ADD).