Bharat Electronics remained range-bound during morning trades on Tuesday, despite posting strong Q1 earnings. Over the past year, BEL has delivered multibagger returns, with its share price rising nearly 146%. The company’s Q1 performance was impressive, with net profit increasing by 47% year-on-year and revenue growing by 20% year-on-year. Additionally, EBITDA surged by 41% year-on-year.
Despite these strong financial results, UBS has downgraded BEL to a Neutral rating. The investment bank cited several key reasons for this decision. Firstly, UBS highlighted the limited scope for surprises. The substantial rise in BEL’s share price has largely been driven by a 70% higher order intake for FY24 compared to the management’s guidance. Earnings upgrades during this period were 13%, reflecting a strong valuation re-rating.
According to consensus and UBS estimates, BEL’s share price already factors in a robust Rs. 30,000-34,000 crore per year new order run rate, compared to the previous Rs. 25,000 crore. This translates to a 19% top-line and EBITDA compound annual growth rate during FY24-27 and a 12-month-forward price-to-earnings ratio of 48 times, leaving little room for positive surprises.
UBS also noted that large ticket orders remain crucial for BEL. Based on its bottom-up new order pipeline, UBS’s new order estimate for FY25-27 is higher than consensus, implying Rs. 7,600 crore higher orders over the next three years. While base orders could continue for BEL, the timely closure of large-ticket orders is essential to sustain a higher 19% top-line CAGR, compared to the 11-12% growth observed in the past five to ten years.
UBS believes that Hindustan Aeronautics Limited is better positioned than BEL for new order growth. BEL management’s guidance of a 15% top line and a Rs. 25,000 crore order run rate seems achievable. However, UBS does not foresee significant upside beyond this and seeks greater clarity on timelines for larger platforms such as the Quick Reaction Surface-to-Air Missile (QRSAM) system and future Akash orders. UBS maintains that HAL presents better new order growth potential than BEL in the next 12-24 months.
Valuations are another factor limiting BEL’s upside. UBS remains directionally constructive on BEL’s earnings and order book growth but believes the stock’s medium-term growth potential is already priced in. Consequently, they have downgraded their rating to Neutral, while raising their price target from Rs. 333 to Rs. 340. This is based on an unchanged target price-to-earnings ratio of 40 times on 12-month-forward earnings as of July 2025. UBS also retains its above-consensus earnings and new order assumptions.
Despite the downgrade from UBS, BEL’s performance has been strong, reflecting its robust fundamentals and growth potential. Investors have seen significant returns over the past year, and the company’s Q1 results further reinforce its solid position in the market. The range-bound trading seen on Tuesday morning may be a temporary pause as the market digests the latest earnings report and UBS’s revised rating.
