Rising defence-related opportunities may boost Bharat Electronics stock

The combination of high geopolitical tensions and India’s policy of defence indigenisation is driving a super cycle for the Indian defence equipment industry.

 

Bharat Electronics (BEL) is one of the biggest beneficiaries as its electronics products are utilised across all three arms of the defence forces. It supplies to key programmes like LCA Tejas Mk1A, Mk2, AMCA, QRSAM, Project Kusha, and P-75.

 

The combination of big order books and high margins could be further boosted as India is turning into a cost competitive global exporter of certain defence systems.

 

BEL is a manufacturer and integrator of radars, communication systems, EW suites, and avionics. The latest results also indicate that it has strong execution capacity alongside a rising order-book and good balance sheet. 

India’s defence electronics market is projected to clock 7 per cent compound annual growth rate (CAGR) through till 2032 and BEL is well placed to capture this opportunity.

 

BEL’s order backlog as of Q3FY26 is around ₹73,000 crore, which is a book: bill ratio of around 2.8x trailing 12 months revenue. The FY26 order inflow guidance is of ₹27,000 crore (ex-QRSAM or Quick Reaction Surface-to-Air Missile), which may be achievable.

 

The QRSAM (order value ₹30,000 crore) may come in by Q1FY27 and Project Kusha (₹40,000 crore) by FY29. Order inflows including QRSAM is projected to be around ₹57,000 crore by Q1FY27.

 

BEL invests around 6 per cent of turnover into R&D, and indigenous products contribute 74 per cent of turnover. Between FY22 and FY25, BEL delivered 15.6 per cent revenue CAGR. It is expected to maintain mid-teen revenue growth and mid-high twenties margins.

 

The company reported revenue of ₹7,120 crore in Q3FY26, up 24 per cent year-on-year (Y-o-Y) with earnings before interest, taxes, depreciation and amortisation (Ebidta) growth of 28 per cent Y-o-Y and an Ebitda margin of 29.7 per cent, up 100 basis points (bps).

 

Order inflows were ₹5,680 crore, up 150 per cent Y-o-Y. The Ebitda was ₹2,120 crore. Profit after tax (PAT) was at ₹1,590 crore, up 21 per cent Y-o-Y.

 

This was a beat of consensus on all counts. For FY26, BEL continues to retain its 15 per cent revenue growth guidance along with Ebitda margin guidance of 27-28 per cent and order inflow guidance of ₹27,000 crore (excluding QRSAM).

 

Good execution and multiple large-ticket orders like LRSAM, Himshakti, Akash Army, D29 EW system, LRUs for LTA 83 aircraft, the BSF project, Shakti EW system and Lynx-U2 fire control systems supported revenue growth.

 

Expected orders like LRSAM, Himshakti, Akash Army, Arudhra MPR Radar, D-29 EW system, Avionics LRUs for LCA Mk-1A ensure future revenue visibility.

 

BEL has planned an annual capex of ₹1,000 crore for FY26 and ₹2,400 crore over the next 3-4 years for modernising and capacity expansion.

 

These expansions will help with faster execution and boost margins. BEL is also looking at diversifying into non-defence products (currently contributing around 10 per cent of revenues) and increasing focus on R&D with investment of over ₹1,600 crore. 

 

Current exports are 3-4 per cent of turnover and the target is to expand exports long-term to around 10 per cent, which will boost margins.

 

The orders acquired in 9MFY26 are worth ₹18,600 crore, implying that ₹8,500 crore of order inflows are expected in Q4 to meet the FY26 guidance.

 

In Q3, seven major projects accounted for ₹5,000 crore in revenue. The top projects planned in Q4FY26 include i) LRSAM, ii) Himshakti, iii) Akash Army, iv) Arudhra MPR Radar, v) D-29 EW system, and vi) Avionics LRUs for LCA Mk-1A.

 

For the Advanced Medium Combat Aircraft (AMCA) programme, BEL has partnered L&T in a consortium and submitted an RFI response.

 

For the initial phase (of realising five prototypes), major capex is not expected. BEL may need to invest around ₹100-200 crore over the next five to eight years for jigs and module testing.

 

BEL is not facing any major challenge due to chip shortages as its required chip designs are generic and it has started designing its own chips. R&D expenditure target is at ₹1,600-1,700 crore for FY26 and ₹2,000 crore for FY27 (6-7 per cent of sales). The share price movement to new highs indicates valuation upgrades, though the lumpiness of defence procurement can produce revenue volatility.

 

According to Bloomberg, 12 of the 13 analysts polled since February are bullish, while one is neutral. Their average one-year target price is ₹507. On Friday, the stock hit a fresh high of ₹473.25 before closing 1.8 per cent higher at ₹468.35 on the BSE.