Bharat Electronics shares: UBS ups target price on multibagger defence stock; 3 factors to watch
BEL share price: UBS said sharply higher new orders reflect fast-tracking of the defence pipeline, which could help BEL sustain a consistent order book ramp-up, justifying higher valuations akin to industrial peers.
- Mar 7, 2024,
- Updated Mar 7, 2024 8:50 AM IST
Foreign brokerage has increased its target price on Bharat Electronics Ltd (BEL) to Rs 257 from Rs 205 earlier, as it built in upward surprise in FY24 new orders. The broking firm has upgraded its FY24 inflow estimates for the second consecutive time within three months), retaining its consensus-leading growth estimates. BEL shares are up 13 per cent year-to-date and 118 per cent in the last one year.
UBS said sharply higher new orders reflect fast-tracking of the defence pipeline, which could help BEL sustain a consistent order book ramp-up, justifying higher valuations akin to industrial peers.
"We raise our target price to Rs 257 and maintain Buy, assigning a 35 times PE to March 2026 earnings (against 30 per cent earlier), building in a lower 10 per cent discount to industrial peers (against 25 per cent 10-year average), given better earnings/new orders momentum," UBS said.
The brokerage said typical of any long-cycle order business, new order run rate is by far the most important value catalyst for BEL given it drives sentiment for the future revenue growth rate.
Execution run rate and cash flow are other relevant parameters for Bharat Electronics, both of which remain largely stable at this stage.
"Lastly, share of nomination business (where Bharat Electronics is assured fixed cost plus markup), which still accounts for a major share of BEL's revenues, remains crucial for its margin trajectory," UBS said.
UBS said a slower order book accretion has been a key concern for investors over the past two years. In its view , accretion (excess in orders booked over sales) of Rs 10,000 crore-plus in FY24E paves the way for an upward revision in top line against consensus estimates of 14 per cent revenue growth each in FY25 and FY26.
According to the BEL management, many of the large projects due in FY25 were fast-tracked by the Ministry of Defence (MoD) and were awarded in FY24, suggesting government's robust pace of finalization on defence preparedness. BEL management expects Rs 50,000 crore total orders in FY25/26 (QRSAM of Rs 10,000 crore included), while the MRSAM project is not yet factored in given it is early stage, UBS said.
Foreign brokerage has increased its target price on Bharat Electronics Ltd (BEL) to Rs 257 from Rs 205 earlier, as it built in upward surprise in FY24 new orders. The broking firm has upgraded its FY24 inflow estimates for the second consecutive time within three months), retaining its consensus-leading growth estimates. BEL shares are up 13 per cent year-to-date and 118 per cent in the last one year.
UBS said sharply higher new orders reflect fast-tracking of the defence pipeline, which could help BEL sustain a consistent order book ramp-up, justifying higher valuations akin to industrial peers.
"We raise our target price to Rs 257 and maintain Buy, assigning a 35 times PE to March 2026 earnings (against 30 per cent earlier), building in a lower 10 per cent discount to industrial peers (against 25 per cent 10-year average), given better earnings/new orders momentum," UBS said.
The brokerage said typical of any long-cycle order business, new order run rate is by far the most important value catalyst for BEL given it drives sentiment for the future revenue growth rate.
Execution run rate and cash flow are other relevant parameters for Bharat Electronics, both of which remain largely stable at this stage.
"Lastly, share of nomination business (where Bharat Electronics is assured fixed cost plus markup), which still accounts for a major share of BEL's revenues, remains crucial for its margin trajectory," UBS said.
UBS said a slower order book accretion has been a key concern for investors over the past two years. In its view , accretion (excess in orders booked over sales) of Rs 10,000 crore-plus in FY24E paves the way for an upward revision in top line against consensus estimates of 14 per cent revenue growth each in FY25 and FY26.
According to the BEL management, many of the large projects due in FY25 were fast-tracked by the Ministry of Defence (MoD) and were awarded in FY24, suggesting government's robust pace of finalization on defence preparedness. BEL management expects Rs 50,000 crore total orders in FY25/26 (QRSAM of Rs 10,000 crore included), while the MRSAM project is not yet factored in given it is early stage, UBS said.