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PSU Defence Stock on Fire: Bharat Electronics share price rallies 14% in 2 days; should you buy?

by The Outlooker Web Desk
November 20, 2020
in Business
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PSU Defence Stock on Fire: Bharat Electronics share price rallies 14% in 2 days; should you buy?
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The brokerage firm believes that the company’s strong guidance, broad opportunities and a record-high order book would also provide strong support

Navratna Defence PSU Bharat Electronics Ltd (BEL) share price surged nearly 14 per cent to Rs 109.85 apiece in two days on the company’s strategic vision and strong management commentary. The state-run defence company shares had touched a 52-week high of Rs 118.45 on August 14. BEL said it is confident of clocking double-digit topline growth over the next decade on the back of huge opportunities in the defence as well as non-defence segments.

Brokerage firm Motilal Oswal has revised its target price to Rs 130 from Rs 116 apiece earlier with a ‘buy’ rating. The brokerage firm believes that the company’s strong guidance, broad opportunities and a record-high order book would also provide strong support towards such attainment. During 2019-20, the major orders executed by BEL include Long Range Surface to Air Missile, Integrated Air Command and Control System, Thermal Imaging Sight, TROPO Upgrade, Low-Level Transportable Radar (LLTR), Smart City Business, Weapon Locating Radar, Ground-Based Mobile Electronic Intelligence System, etc.

Brokerage firm Edelweiss believes BEL to be more capable to surprise the Street with better return/growth led by targeted policy action and high degree of agility/fungibility in capabilities. It has maintained a ‘buy’ rating with a 12-month target price of Rs 140, implying an upside of 36 per cent from the previous close. Edelweiss in its report said that its best case for BEL lies in crowding up of large systems execution and order awards, which augurs well for the company’s ROCE over three-five years, apart from normalising working capital scenario, translating better cash, which remains key. The major risks for BEL include entry of larger private sector players in BEL’s core areas like surface to air missile systems, sustained weakness in payment cycles and significant cuts in defence capex. 

With Bharat Electronics Ltd’s vast base of in-house manufacturing, Motilal Oswal sees the defence firm on a strong footing to capitalize on the Atmanirbhar Bharat initiative in the defence sector. From the recent 101 items banned by the Ministry of Defense (MoD) for imports, BEL is capable of catering 55 of those items. It has submitted an expression of interest (EoI) and 23 items are already under advanced stages of indigenization.

BEL’s management mentioned the bunching up of several large projects, with the surface to air missile systems (QR, LR, Akash etc) accounting for more than Rs 50,000 crore. According to Edelweiss, this remains a medium-to-long-term opportunity, which could see upside basis critical requirements/capability upgrades. At around 11.45 AM, BEL shares were trading 4.56 per cent higher at Rs 107.80 apiece on BSE, as compared to a  0.17 per cent fall in S&P BSE Sensex.

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