Defence stocks to buy: This PSU down 29% from 52-week high; analyst see up to 55% upside

Defence stocks to buy: Brokerage firms continue to remain positive on state-run defence player BEML Ltd even as the earthmover player reported a net loss in the December 2025 quarter. However, the stock recovered from Friday's jitters on Monday as the analysts see up to 55 per cent upside potential in the counter.

BEML reported a net loss of Rs 22.4 crore in the quarter ended on December 31, 2025 against a net profit of Rs 24 crore in the same quarter a year ago. The PSU defence company clocked a revenue of Rs 1,083 crore for the quarter, rising 23.7 per cent on a year-on-year (YoY) basis.

BEML's ebitda came in at just Rs 4 crore, crashing sharply around 94 per cent on a yearly basis from Rs 60.4 crore in the year ago period. Margins also contracted to only 0.3 per cent from 6.9 per cent a year ago. The company board announced and approved a dividend of Rs 2.50 per share for the eligible shareholders of the company, fixing February 13 as the record date for it.

Nirmal Bang Institutional Equities believes the near-zero margin reported this quarter is largely due to one-off expenses, and expects margins to recover in 4QFY26, enabling it to close FY26 at around 11 per cent. BEML will deliver 9 trains to the Bangalore Metro in the current financial year. We believe Q4FY26 will be stable, with performance likely to be supported across all business divisions, it said.

BEML's order book provides solid revenue visibility. The stock is trading at a 1-year forward EV/EBITDA of 22.6 times. We maintain a 'buy' rating and value BEML at 22 times December 2027E EBITDA, below the 5-year average EV/Ebitda, implying a 18.9 per cent upside from current levels at a target price of Rs 2,094 (earlier Rs 2,610)," it added, trimming target by 20 per cent.

Shares of BEML rose nearly 3 per cent to Rs 1803.90 on Monday, commanding a market capitalization close to Rs 15,000 crore. The stock has already tumbled nearly 28 per cent from its 52-week high at Rs 2,437.43 hit in June 2025. The stock is down 11 per cent in the last six months, while it has fallen 5 per cent in the last one month.

Management has set a revenue growth target of 20 per cent in FY26, with margin improvement of 150 bps YoY and a closing order book of Rs 20,000 crore in FY26, led by the receipt of large tenders in R&M and defence, said Elara Capital, retaining its EPS estimates for FY 26-28. BEML has a huge orderbook visibility, led by rail & defence, with strong order inflows likely by the year-end.

"We reiterate 'buy' with a target price of Rs 2,700 on 37 times December FY27E P/E, due to robust execution in Q3, which drove margin improvement with execution momentum likely to continue in Q4.  We expect an earnings CAGR of 31 per cent," it added. "Key risks include the slowdown in execution and delay in receipt of large tenders in R&M and defence."