Bharat Electronics shares may see up to 38% fall: Here's what brokerage say on multibagger PSU stock

Bharat Electronics (BEL) reported a strong set of numbers in the June 2024 quarter but the brokerage firms have a mixed view on the multibagger PSU counter as they see up to 38 per cent fall in the stock on the back of rich valuations amid concerns of steep margin sustainability at elevated levels.

Bharat Electronics Ltd reported a 46.17 per cent on a year-on-year (YoY) basis in its net profit at Rs 776.14 crore for the quarter ended on June 30, 2024. The Navratna PSU reported a 19.6 per cent on a yearly basis in revenue from operations at an amount of Rs 4,199 crore.

The state-run defence player's order book stood at Rs 76,705 crore, as of July 1, 2024. Ebitda for the quarter increased 41 per cent YoY to Rs 937 crore, while Ebitda margins in Q1FY25 increased 330 basis points (bps) to 22.3 per cent.

\Bharat Electronics' order pipeline continues to remain robust for the next couple of years, driven by government focus on product localization and increasing government capex on the defence sector. Order pipeline for FY26 stands at Rs 50,000 crore, including QRSAM order, said JM Financial.

"Management reaffirmed its revenue guidance of 15 per cent growth for FY25; with Ebitda margins of 23-25 per cent. BEL will continue to explore new growth opportunities through export initiatives, diversification, capability enhancement, competitiveness and modernisation. Capex planned for FY25 stands at Rs 800 crore," it said with a 'buy' rating and a target price of Rs 360.

Shares of Bharat Electronics rose about 1.68 per cent to Rs 326.75 during the trading session on Tuesday, commanding a total market capitalization of more than Rs 2.40 lakh crore. But the stock, which settled at Rs 321.35 in the previous trading session on Monday, fell down to Rs 318.05 during the session.

Motilal Oswal said that BEL's results came ahead of estimates, driven by better-than-expected revenue and PAT. Revenue growth was led by a strong order book, while order inflows stood at Rs 49,600 crore. The company has maintained its guidance on revenues and order inflows despite a strong execution in Q1, it added with a target price of Rs 360 on the stock and a ' buy' tag.

In a positive news for BEL, The Defence Acquisition Council (DAC) has approved two significant procurement proposals designed to enhance the operational capabilities of the Indian Army and the Indian Coast Guard. BEL, Chennai, will be acquired under the buy Indian-Indigenously Designed, Developed, and Manufactured (IDDM) category.

Prahbudas Lilladher remains positive on BEL’s long-term growth story given its robust order backlog & pipeline driven by government’s push on indigenization in defense; diversification into non-defense verticals like metros, civil aviation, IT infra, etc; strong balance sheet, cash flow generation, & return ratios; and healthy margin improvement. It upgraded the stock to 'accumulate' with a target price of Rs 341.

Bharat Electronics' robust backlog in the order book implies revenue visibility for two–three years. Management maintained FY25 guidance of Rs 25,000 crore order inflows, 15 per cent revenue growth and 23–25% OPMs, said Nuvama Institutional Equities. "We remain optimistic on India’s defence growth story, with a 'hold' rating and a revised target price of Rs 304," it said.

Shares of Bharat Electronics have surged about 165 per cent from its 52-week lows at Rs 123.55, while the stock has gained over 75 per cent in the year 2024 so far. The stock is up 70 per cent in the last six months but its is up 5 per cent on the last one month.

BEL reported results 14 per cent ahead of expectations, as stronger-than-expected topline growth was aided by higher other income. BEL has retained its guidance for FY25 including 15 per cent revenue, 23-25 per cent Ebitda margins and Rs 25,000 crore order inflow, which indicates strong near-term momentum, said Kotak Institutional Equities.

"We fine-tune our estimates by 1 per cent to 4 per cent, largely on account of adjustments to our margin estimates. We revise our fair value to Rs200 (from Rs170) and roll forward to June 2026E EPS. A continued strong ordering environment and higher-than-expected margins remain key risks," it added with a 'sell' call, suggesting a 38% slide from its previous close.

Another brokerage Nirmal Bang Institutional Equities has a 'sell' rating on BEL. "We anticipate revenue, Ebitda and PAT CAGR of 16 per cent, 18 per cent and 15 per cent during FY25-25E. The stock is trading at a 1-year forward P/E of 43 times, above the 5-year average P/E of 16 times," it said, maintaining a 'sell' tag on the stock with a target price of Rs 280 citing steep valuations.

Among the global brokerage firms, Jefferies has maintained its 'buy' rating BEL and increased its target price to Rs 370. On the other hand, UBS has downgraded the stock to 'neutral' but raised its target price to Rs 340. Nomura is also positive on the stock citing its strong order book and silver lining from the exports.

Disclaimer: Business Today provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.