BEL To Gain From Defence Order Pipeline? UBS Sees Attractive Risk-Reward, Raises Target Price

Bharat Electronics shares will remain in focus on Thursday after foreign brokerage UBS raised its target price on the defence public sector undertaking (PSU) to Rs 550 from Rs 500 earlier.

The brokerage, however, maintained its 'Buy' rating and added the stock to its APAC Key Call list, saying the market is underestimating its medium-term earnings growth potential.

Analysts believe Bharat Electronics (BEL) is well placed to sustain growth over the next few years, aided by a strong order pipeline, its position across key defence platforms and relatively limited competitive threats from private sector players.

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UBS expects BEL to deliver an 18% compound annual growth rate (CAGR) in revenue and earnings over FY27-FY30, with limited risk to operating margins.

Why UBS Is Upbeat On Bharat Electronics

UBS analysts Amit Mahawar, Akshay Gattani and Harshit Surana said BEL had secured around Rs 2 trillion (or Rs 2 lakh crore) in new orders over the past decade, driven by new platforms and upgrades and overhauls of domestic defence equipment, including radars and sub-systems.

The company has an order pipeline of Rs 2.5 trillion (or Rs 2.5 lakh crore) for FY27-FY30. Thus, UBS expects this to translate into around Rs 2 trillion (or Rs 2 lakh crore) in fresh order wins over the period, providing strong visibility for future execution and earnings.

"We believe the market underappreciates its medium-term earnings growth potential," the analysts said.

The brokerage also believes BEL is better placed than several other defence PSUs to withstand rising private sector competition.

Private Competition: Why UBS Believes BEL Has An Edge

UBS said BEL's role as a systems integrator has strengthened across its core defence verticals, despite increasing private sector participation in the industry.

The brokerage pointed out that a large part of import substitution and localisation is being undertaken by tier-2 and tier-3 suppliers, helping create a robust domestic supply chain for the company.

BEL has also built technological and integration capabilities over several decades across platforms such as Akash, LRSAM, electronic warfare systems, radars and integrated air command and control systems (IACCS).

This has created competitive barriers and a strong niche for the company, UBS said. Compared with defence PSUs operating in shipbuilding and aircraft manufacturing, analysts believe BEL's portfolio is relatively more stable and less vulnerable to competitive disruption.

Large Defence Orders Likely To Support The Next Growth Phase

UBS expects several mid-sized and large defence platforms to be awarded over the next 12-24 months, potentially supporting a meaningful ramp-up in BEL's order book.

The brokerage said recent management commentary and first-half results (H1FY27) reinforced its view of a steady growth trajectory, with an expanding addressable market and improving visibility on the timing of large platform orders.

It also sees relatively low competitive and execution risks across high-priority programmes, supported by an increasingly robust domestic supply chain.

UBS has raised its FY29 earnings per share estimate by 3% and increased its target price to Rs 550, based on 45 times its 12-month forward price-to-earnings multiple, in line with the sector average.

The brokerage believes BEL's recent underperformance has reflected concerns over its near-to-medium-term outlook, but sees the correction as an attractive opportunity to accumulate the stock.

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