Bharat Electronics Limited

The Indian defence sector has staged a dramatic comeback, soaring over 65 per cent since February’s lows and reaching a record ₹11.23 lakh crore in market capitalization. Fueled by geopolitical tailwinds, robust government support, and stellar earnings—especially from frontrunner Bharat Electronics—defence stocks are outpacing broader markets. With mutual funds delivering double-digit monthly returns and marquee stocks hitting new highs, this sector’s resurgence offers a compelling story of opportunity and momentum for investors

The Indian defence sector has witnessed an extraordinary resurgence in recent weeks, capturing significant investor interest and driving stock valuations to unprecedented levels. Following a notable 30 per cent correction between November 2024 and February 2025, the sector has staged a spectacular comeback, surging over 65 per cent since its February lows to achieve a record market capitalisation of ₹11.23 lakh crore. This remarkable turnaround stems from a powerful combination of geopolitical developments, robust government backing, and strong quarterly earnings from key players.

Leading this resurgence, the Nifty India Defence Index has displayed impressive strength, climbing 10 per cent in May, building on gains of 11.5 per cent in April and 24.6 per cent in March. This bullish sentiment has translated directly into substantial price appreciation for individual stocks. Just last week, Cochin Shipyard and Garden Reach Shipbuilders soared over 37 per cent and 40 per cent respectively, while Zen Technologies and Data Patterns posted gains of 28 per cent and 25 per cent. Other strong performers include Mazagon Dock (+21 per cent), Bharat Dynamics (+20 per cent), and BEML (+20 per cent).

A primary catalyst for this rally has been the successful execution of 'Operation Sindoor,' which effectively showcased the prowess of India's indigenous weaponry in real-world scenarios. This operational triumph has significantly boosted confidence in Indian defence products, fuelling expectations for increased government orders—particularly for advanced drone and missile systems—and expanded export opportunities. Investors are keenly anticipating the government's intensified 'Make-in-India' initiative to further propel the sector's growth.

Adding to this positive momentum, the recent strong Quarterly Results from defence companies have bolstered investor confidence. Mirroring this outperformance, mutual funds focused on the defence sector have delivered impressive returns ranging between 13.67 per cent and 18.75 per cent in the past month, clearly outpacing broader equity markets. Within this flourishing landscape of sectoral outperformance, Bharat Electronics Limited has been a frontrunner in this rally, with its stock reaching record highs, propelled by robust March quarter results and strong fiscal 2025 earnings. The stock surged more than 20 per cent to ₹380, which boosted its market capitalisation to ₹2.81 lakh crore, highlighting its crucial position. With an 18 per cent year-on-year rise in Q4 net profit to ₹2,127 crore and a 7 per cent growth in revenue to ₹9,150 crore, coupled with expanded margins of 30.6 per cent that exceeded expectations, BEL presents a compelling case for in-depth examination within this thriving sector.

India’s Defence Budget and Growing Exports
The Indian defence sector has experienced remarkable growth over the past decade. The defence budget has nearly tripled from ₹2.3 lakh crore in 2014 to approximately ₹6.8 lakh crore by 2025, driven by a strong push for modernisation and indigenous manufacturing, with 75 per cent of the modernisation budget now earmarked for Indian companies. Parallel to this, defence exports have surged dramatically, from a mere ₹686 crore in 2014 to over ₹21,000 crore by 2024. The government aims to reach ₹30,000 crore in exports by FY26 and ₹50,000 crore by 2029, firmly establishing India as a rising global defence exporter.

About the company
Bharat Electronics Limited (BEL) is a Navratna Public Sector Undertaking (PSU) operating under the Ministry of Defence, Government of India. Established in 1954, BEL has evolved into a leading manufacturer and supplier of state-of-the-art electronic products and systems primarily for the Indian Armed Forces, serving the Army, Navy, and Air Force. The company operates through nine units strategically located across India, reflecting its extensive manufacturing footprint and commitment to indigenous production.

BEL’s business model is centred on providing high-technology electronic solutions for critical applications. While its core competency lies in defence, the company has actively diversified its product portfolio to include non-defence sectors. The defence segment encompasses a wide array of products and systems, including Radars & Weapon Systems, Sonars, Communication Systems, Electronic Warfare (EW) Systems, Electro-Optics, and Tank Electronics. In parallel, BEL has expanded into nondefence areas such as Homeland Security Solutions, Smart Cities, E-governance Solutions, Space Electronics (including satellite integration), Energy Storage Products (like e-vehicle charging stations and solar solutions), Network & Cyber Security, Railways & Metro Solutions, and Airport Solutions. This deliberate diversification into non-defence sectors and new defence sub-segments, such as Unmanned Systems, Seekers, and Arms & Ammunition, represents a strategic effort to reduce its historical over-reliance on traditional defence procurement cycles. This proactive approach aims to de-risk the business model and fosters more stable, broader revenue streams over the long term by leveraging its core electronics expertise in new and emerging markets.

Revenue Breakdown: Defence vs. NonDefence, Domestic vs. Exports
BEL continues to derive the majority of its revenue from the Indian defence sector, but recent years have seen a clear move towards diversification. In FY2021-22, defence contracts made up 89.76 per cent (₹13,504 crore) of BEL’s turnover, while non-defence contributed just 10.24 per cent (₹1,540 crore). By FY2024, the defence share had declined to about 81 per cent, with civil and export businesses collectively rising to 19 per cent of total turnover—up from 11 per cent in FY2023. While BEL’s core market remains domestic, export revenue has grown steadily, increasing from USD 33.3 million (1.57 per cent of turnover) in FY2021-22 to USD 106 million in FY2024-25, with export order books swelling from USD 179 million in 2021-22 to USD 359 million by April 2025. This shift toward non-defence and export markets not only broadens BEL’s revenue base but also enhances resilience against fluctuations in domestic defence spending and strengthens its global presence.

Growth Triggers
Robust Order Book and Pipeline: BEL’s order book stands at an impressive ₹71,650 crore as of April 2025, providing 3.5 times revenue visibility. Anticipated large-scale orders, including QRSAM (₹30,000 crore), NG Corvettes, and Project Kusha (Indigenous S-400), further enhance future revenue prospects.

Strong Government Support and Policy Tailwinds: The Make in India and Atmanirbhar initiatives, along with positive indigenisation lists and increased defence budget allocations, ensure a steady flow of orders for BEL and reinforce its leadership in indigenous defence manufacturing.

Diversification into Non-Defence and Export Markets: BEL is actively expanding into sectors like homeland security, smart cities, energy storage, and medical electronics, while export sales have grown to USD 106 million, targeting USD 120 million and beyond. This reduces reliance on domestic defence and opens new growth avenues. Management aims to increase non-defence revenue to 20-25 per cent over the next 5 years

Continued R&D and Indigenisation: With 7–8 per cent of turnover invested in R&D, BEL’s focus on in-house innovation and partnerships with DRDO and other institutions strengthens its technological edge and supports operational efficiency and margin expansion.

Q4FY25 – Financial performance
Bharat Electronics consolidated financial performance for the quarter ended March 2025 presented a solid picture, showcasing growth in key aspects. The company's quarterly results came with a positive surprise, with net sales for Q4FY25 increasing by 6.84 per cent year-on-year to ₹9,149.59 crore. The company’s profit after tax (PAT) also witnessed an upswing of 18.78 per cent year-on-year, reaching ₹2,121.01 crore. Moreover, these positive revenue and PAT trends were coupled with a strong improvement in the profitability margin. Both PBIDTM (Profit Before Interest, Depreciation, Taxes, and Margin) and PATM (Profit After Tax Margin) witnessed improvement. The company's current PATM stands at 23.18 per cent and PBIDTM at 32.91 per cent.

Ratios
■ dividend yield- 0.56%
■ ROCE- 39.0%
■ ROE- 29.3%
■ Face Value- ₹1.00
■ PE- 53.8x
■ Promoter Holding – 51.14%

Outlook and Valuation
Bharat Electronics Limited (BEL) is exceptionally wellpositioned for sustained growth, underpinned by a record order book, robust policy support, and a clear strategic vision. The company’s FY25 performance surpassed expectations, with revenue growing 17 per cent year-on-year, EBITDA up 30 per cent, and PAT surging by 32 per cent. BEL’s order book of ₹71,650 crore provides strong revenue visibility for the next 3–4 years, and management guidance of 15–17.5 per cent revenue and >20 per cent PAT growth over the next three to five years appears realistic given the pipeline of large-scale projects. The company’s proactive diversification into non-defence and exports, with new Strategic Business Units targeting highgrowth civilian sectors, will further de-risk its revenue mix and tap into emerging opportunities. BEL’s commitment to R&D and indigenisation not only enhances its technological leadership but also supports margin expansion, as seen in the rising EBITDA and net profit margins. The company’s operational discipline—evidenced by efficient working capital management and strong cash flows—provides the financial flexibility to invest in capacity and innovation. BEL is also poised to benefit from emergency procurement and geopolitical developments, with its solutions already deployed in forward areas. With planned capex exceeding ₹1,000 crore and a substantial increase in R&D manpower, BEL is preparing to scale up operations and maintain its leadership in strategic electronics. Overall, BEL’s strong fundamentals, policy tailwinds, and strategic initiatives make it a compelling play on India’s defence modernization and export ambitions, with significant upside potential as it continues to execute on its growth roadmap.

The shares of the company are currently trading at a PE of 52.9x, which is higher when compared with its 3-year median PE of 32.4x, suggesting premium valuation. However, its industry PE is at 69.9x. The company's interest coverage ratio is 734x (strong). The company is also a debt-free company. The PEG ratio of the company is 2.21, which also makes it a premium valuation. Over the last three years, the company has achieved compounded sales growth of about 16 per cent, with compounded profit growth of 31 per cent.

Given the impressive 22 per cent rally in Bharat Electronics’ stock during May, much of the near-term upside appears to be priced in with its recent quarterly number and buzz around the defence stock, leaving a narrower margin of safety for new investors. While the company’s fundamentals remain robust and its long-term growth outlook is intact, the recent surge has pushed valuations closer to their historical highs. At current levels, we recommend a ‘Hold’ stance—allowing existing investors to benefit from BEL’s strong order book and sector tailwinds, while waiting for a more attractive entry point.

As the saying goes, great companies don’t always make great investments at any price. A period of consolidation or a market correction could provide a better risk-reward opportunity for fresh positions in the future.