Bharat Electronics order book and defence pipeline support sustained earnings growth

Investment View and Valuation

Motilal Oswal Financial Services Limited’s May 20, 2026 result update on Bharat Electronics maintains a BUY rating and revises the target price to Rs 510 from Rs 520 previously. The target is based on 45 times March 2028 estimated earnings per share.

The broker views Bharat Electronics as a key beneficiary of large defence platform orders across the Army, Navy and Air Force. Its thesis is supported by a strong addressable market, improving indigenisation, operating leverage and a substantial multi-year order book.

4QFY26 Financial Performance

Bharat Electronics reported a broadly in-line 4QFY26 performance. Revenue rose 12 per cent year on year to Rs 102 billion, supported by a strong opening order book of Rs 730 billion. Gross margin expanded 40 basis points year on year to 48.2 per cent, 170 basis points ahead of Motilal Oswal’s estimate.

EBITDA margin was above the broker’s estimate because of gross-margin strength, partly offset by higher other expenses. Profit after tax grew 5 per cent year on year to Rs 22 billion and was in line with estimates.

FY26 Performance and Cash Flow

For FY26, Bharat Electronics delivered revenue, EBITDA and profit after tax growth of 16 per cent, 18 per cent and 14 per cent year on year, respectively. EBITDA margin expanded 60 basis points to 29.2 per cent.

Order inflow of about Rs 300 billion exceeded the company’s own guidance, taking the year-end order book to Rs 739 billion. Operating cash flow rose 211 per cent year on year to Rs 14.9 billion, while free cash flow turned positive at Rs 5 billion versus an outflow of Rs 5 billion in FY25. However, net working capital increased because of lower customer advances and higher receivables.

Order Book and Execution Visibility

The order book provides execution visibility across the following programmes:

• Electronic fuses worth Rs 43 billion, with a longer seven-year execution horizon.
• LRSAM orders worth Rs 35 billion.
• LCA Mk1A-related systems worth Rs 32 billion.
• BMP-2 upgrades worth Rs 28 billion.
• Ashwini radar worth Rs 24.6 billion.
• Mi-17V5 electronic warfare suites worth Rs 22 billion.
• Spare and services contracts worth Rs 25 billion.

Most programmes are executable over one to three years, while electronic fuses have a longer, seven-year execution horizon.

Management Outlook and Growth Pipeline

Management expects FY27 revenue growth of more than 15 per cent, EBITDA margin above 28 per cent and order inflow above Rs 550 billion, including QRSAM. Management expects the QRSAM contract to be signed by end-June 2026, with a small possibility of slipping into July. First-of-production delivery is targeted within 18 months of signing.

The prospective pipeline includes Next-Generation Corvette, Shatrughat and Samaghat electronic warfare systems, P75I submarines, Hammer, Shakti Phase 4 and naval multi-function radar.

Management also sees indigenous data-centre opportunities, with eventual potential of Rs 20 billion to Rs 100 billion. Bharat Electronics targets research and development investment of about Rs 22 billion and capex above Rs 12 billion in FY27. The defence to non-defence revenue mix is expected to remain about 90:10.

Earnings Estimates and Margin Outlook

Motilal Oswal expects sales, EBITDA and profit after tax compound annual growth of 17 per cent, 16 per cent and 17 per cent, respectively, over FY26 to FY28. The broker trimmed its FY27 and FY28 estimates by about 1 per cent.

The broker forecasts sustained gross margin near 49 per cent and EBITDA margin near 29 per cent, aided by higher indigenous content and operating leverage.

Key Risks

• Slower defence or non-defence order inflows.
• Intensified competition.
• Delays in finalising large tenders.
• Sharp increases in commodity prices.
• Delayed Ministry of Defence payments, which could pressure revenue, margins and cash flows.