Bharat Electronics, a key player in the defense sector, has caught the attention of investors, especially after its recent stock price dip. The stock, which once traded at Rs 340, has fallen to Rs 284. However, despite this drop, experts see growth potential. Bharat Electronics’ strong business model, robust order book, and continuous capacity expansion make it a stock worth considering for future gains. Let’s dive into why this stock could be a smart investment.
Bharat Electronics Stock Performance and Potential
Currently, Bharat Electronics is trading at 36 times the estimated earnings of FY26, and analysts believe that the company’s valuation is still justified considering its growth prospects. With a dividend yield of 1.5%, this stock is more attractive when compared to other companies in the defense sector that often have higher valuations. Despite the recent stock price decline, the company’s strong fundamentals indicate that there could be significant returns for investors in the future.
Impressive Revenue Growth in First Quarter
One of the primary reasons for Bharat Electronics’ positive outlook is its solid revenue growth in the first quarter of FY24. The company reported a revenue increase of 20.1%, driven by easing supply chain challenges. The standout contribution came from the Long-Range Surface-to-Air Missile (LRSM), which added Rs 842 crore to the company’s revenue. Additionally, the company’s EBITDA saw an impressive growth of 41%, with margins improving from 18.4% last year to 22.8% in the current year. This growth highlights the company’s ability to manage costs efficiently, which could lead to further profitability.
Strong Order Book Ensures Future Growth
One of the major factors supporting Bharat Electronics’ potential is its strong order book of Rs 76,000 crore. This large backlog provides a clear indication that the company’s revenue is set to remain robust for the next three years. In FY24 alone, Bharat Electronics secured Rs 35,000 crore in orders, significantly higher than the original guidance of Rs 20,000 crore. For FY25, the company expects new orders of Rs 25,000 crore, excluding a large potential contract for the Quick Reaction Surface-to-Air Missile (QRSM), which could be worth Rs 20,000-25,000 crore.
Capacity Expansion Plans
Bharat Electronics is actively working on increasing its capacity, which is expected to positively impact its performance in the coming years. The company has allocated Rs 800 crore for FY25 towards this expansion, and several plants are already under construction. One of these plants is expected to be completed within this year, while three more will be ready by the next financial year. This increase in capacity will enable Bharat Electronics to meet growing demand both in India and international markets. The company has set a target of achieving 15% revenue growth in this financial year.
Is This the Right Time to Invest?
Given the company’s strong order book, expanding capacity, and improving margins, Bharat Electronics looks like a solid investment opportunity. The EBITDA margin is projected to remain between 23-25% in FY25, while the company’s ongoing efforts to reduce costs could further improve profitability. With its defensive business model, Bharat Electronics offers a reliable option for long-term investors. Moreover, the recent dip in stock prices makes it even more attractive for those looking to enter the market at a lower price point.
In conclusion, Bharat Electronics’ strong financials, impressive growth prospects, and strategic investments in capacity expansion make it a stock to watch. For investors seeking a steady performer in the defense sector, this stock could offer substantial returns in the years to come.
(Disclaimer: Stock investments are subject to risks. Always consult with a financial expert before making any investment decisions.)
