Strong Q2 and order inflows to drive gains for Bharat Electronics

Bharat Electronics maintained its FY27 order inflow guidance of ₹55,000 crore despite delays in major projects, while brokerages remain positive on its growth outlook

A strong September quarter performance, a robust order pipeline and steady execution are positives for the country’s second-largest listed defence major by market capitalisation, Bharat Electronics. Though order inflows saw a dip in the September quarter, the company has reiterated its FY27 inflow guidance of ₹55,000 crore. In addition, the company has also reaffirmed its revenue growth guidance of 15 per cent and operating profit margin guidance of 28 per cent-plus for FY27. Brokerages have upgraded the stock given the healthy order book, sales growth and margin guidance. The stock was the top gainer in the Sensex basket, rising 4.56 per cent to ₹397 in trade. Gains going ahead will depend on the pace of order inflows and robust execution. 

 

Led by strong execution, the company reported a 27 per cent year-on-year (Y-o-Y) increase in revenue. Order inflows, however, declined by 31.1 per cent Y-o-Y in Q2 as the Quick Reaction Surface-to-Air Missile (QRSAM) tender worth ₹30,000 crore was delayed. The company, however, expects to receive it soon and has maintained its inflow guidance of ₹55,000 crore, including QRSAM, for FY27. Inflows for H1FY27 were down 43.3 per cent on a higher base. The order book remains healthy at ₹68,720 crore, which is 2.3 times trailing 12-month sales and offers revenue visibility. 

 

Going ahead, in addition to QRSAM and next-generation corvette (NGC), key expected inflows include electronic warfare programmes under Project Shatrughat and Samaghat orders, the HAMMER weapon integration programme, the P75I submarine-related orders (expected in FY28) and the advanced medium combat aircraft (AMCA) project, for which Bharat Electronics has submitted a bid in a consortium with L&T. Motilal Oswal Research expects base order inflows for Bharat Electronics to grow in line with defence capex spending. Analysts led by Teena Virmani expect steady order inflows, combining base orders and large project orders, which are staggered over the next few years. The brokerage has reiterated a buy rating with a target price of ₹540.

 

While the top-line performance was strong, margins disappointed. Gross margins contracted to 45.8 per cent compared with 51 per cent in Q2FY26. Overall operating profit rose 20 per cent Y-o-Y, while operating profit margins contracted 140 basis points Y-o-Y to 27.9 per cent. Flat employee costs cushioned a 530-basis-point Y-o-Y contraction in gross margins.

 

The H1FY27 operating profit margin stood at 26.6 per cent, below the FY27 guided margin of 28 per cent. This was on account of raw material costs rising to 54 per cent of sales in H1 from 48 per cent in the year-ago period. The management expects similar margins on nominated and competitive orders as its edge rests on product uniqueness and indigenisation. Analysts led by Harshit Patel of Equirus Securities believe that future margins may be capped as localisation benefits could be passed on to the Ministry of Defence through price resets, and large system integrator programmes such as QRSAM and Project Kusha (long-range SAM) carry lower margins, with 70 per cent of the order value to be shared with over 200 MSME partners. The brokerage is positive on the outlook and has upgraded the stock. It has a target price of ₹450.