Bharat Electronics stock check: Up 142% in last 1 year, should you buy the defense PSU?

Bharat Electronics (BEL) has garnered significant attention following its remarkable performance in the quarter ending June 2024 (Q1FY25), with key metrics surpassing market expectations.

For Q1FY25, the defense PSU stock reported a substantial 46.1 percent increase in net profit, totaling ₹776 crore, compared to ₹531 crore during the same period last year. However, there was a 56.48 percent decline in net profit quarter-on-quarter (QoQ) from ₹1,783.5 crore in Q4FY24.

The company’s revenue rose by 19.6 percent, reaching ₹4,199 crore, up from ₹3,511 crore in the corresponding quarter of the previous year. Despite this year-on-year increase, revenue fell 50.76 percent QoQ from ₹8,528.54 crore in Q4FY24.

On the operational side, BEL’s earnings before interest, taxes, depreciation, and amortization (EBITDA) grew by 41 percent, amounting to ₹937 crore, compared to ₹665 crore in the prior year. Furthermore, the company’s EBITDA margin improved significantly to 22.3 percent from 19 percent a year earlier.

During the June quarter, the Navratna Defense PSU achieved a turnover of ₹4,105.14 crore, compared to ₹3,446.69 crore in the corresponding period the previous year. As of July 1, 2024, BEL's order book stood at an impressive ₹76,705 crore.

Stock Price Trend

The stock has delivered exceptional returns over the past year, surging over 142 percent and approximately 75 percent year-to-date in 2024, giving positive returns in 6 of the 7 months so far this year.

In July, the stock rose over 3 percent, marking its fourth consecutive month of gains. Before this, it added 3.3 percent in June, 26.6 percent in May and 16 percent in April. The stock, however, fell around 2 percent in March following an over 10 percent jump in February and 1 percent gain in January.

Currently trading at ₹311.15, the stock is just 8.4 percent shy of its all-time high of ₹340.35, reached on July 10, 2024. It has also climbed around 158 percent from its 52-week low of ₹123.55, recorded on August 3, 2023.

The stock has also given exemplary returns in the long term, soaring 791 percent in the last 5 years and 395 percent in the past 3 years.

With the stock experiencing such a huge rally in recent times, should you still consider buying it? Here’s what technical and fundamental experts have to say:

Technical View

Om Mehra, Technical Analyst, SAMCO Securities

Bharat Electronics Ltd. is currently trading at ₹316.05. The stock is trading above its 10-day and 50-day moving averages (DMA) but below its 20 DMA, indicating a mixed trend in the short term. However, the primary trend remains positive. BEL has remained sideways over the past couple of weeks, mirroring the broader trend in the defence sector, which has remained muted. The daily RSI stands at 53, which indicates a neutral perspective and the volume participation remains average. The stock is likely to remain range-bound within the ₹ 306-326 levels. A break above or below these levels will likely dictate its direction in the coming weeks.

Rajesh Palviya, SVP - Technical and Derivatives Research, Axis Securities

Since May 2024, the stock has shown high volatility, fluctuating between levels of 340 and 260. This indicates extreme volatility. On the daily time frame, the stock placed below its 20-day SMA which shows weakness in the near term. The crucial support zone is around 290-285 levels. Any violation of this support level may lead to further decline towards 260-240 levels. On the other hand, the supply zone is around 330-340 levels. The daily strength indicator RSI is showing negative divergence, suggesting potential profit booking in the near future. Investors are advised to book partial profits and re-enter on dips near the mentioned support zone.

Fundamental View

Morgan Stanley: The global brokerage firm has assigned an "overweight" rating to the stock and increased its target price to ₹364, suggesting an upside potential of 17 percent. This revision follows the better-than-expected Q1FY25 performance of the government-owned aerospace and defense electronics company in terms of revenue, EBITDA, and adjusted PAT growth. The brokerage highlighted that BEL has upheld its FY25 guidance and expects to secure the substantial QRSAM (quick-reaction surface-to-air missile system) order. Furthermore, the robust Q1 results have prompted an upward revision of margin forecasts.

UBS: On the other hand, UBS has downgraded its rating on the state-owned Navratna defense company from "Buy" to "Neutral." Despite this, the brokerage has raised its price target to ₹340 from ₹333 for the next 12 months, indicating a modest upside potential of 9 percent.

UBS remains positive about BEL's earnings and order book growth but believes that the stock's medium-term growth potential is already reflected in its current price. UBS noted that BEL has seen a substantial stock rally over the past year, primarily due to a 70 percent increase in order intake in FY24 compared to management guidance. Earnings upgrades during this time were 13 percent, indicating a strong valuation re-rating. "BEL factors in a healthy ₹30,000-34,000 crore per year new order run rate, 19 percent top-line/EBITDA CAGRs (FY24-27E), and a 12-month forward PE of 48x, leaving little room for a positive surprise," UBS stated.

Bharat Electronics Limited's robust Q1FY25 performance has reaffirmed its position as a formidable player in the defense sector. With a substantial order book and strategic growth initiatives, the company is well-positioned for continued success. While Morgan Stanley remains optimistic about BEL's future, projecting a significant upside, UBS takes a more cautious approach, highlighting that the recent stock rally might have already priced in the growth potential. Investors should carefully consider both technical and fundamental analyses to navigate the stock's volatility and make informed investment decisions in this dynamic sector.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.