Two defence giants, one surprising twist. In a sector that has been on investors’ radar, two heavyweight defence companies – Bharat Dynamics (BDL) and Bharat Electronics (BEL) have caught the eye of brokerage firm Motilal Oswal. While most would expect both to get a thumbs up, the brokerage has backed Bharat Electronics with a ‘Buy’ call, but kept a ‘Neutral’ rating on Bharat Dynamics.
Let’s take a look at the brokerage’s call on these stocks and why it holds two different views on these defence sector names –
Bharat Electronics: A ‘Buy’ on better margins and order prospects
Motilal Oswal has maintained a Buy rating on Bharat Electronics with a target price of Rs 410 per share. This implies an upside of about 13% from current levels.
According to the brokerage, Bharat Electronics has delivered strong results for both the quarter and the year. Even though the order inflows for FY25 were slightly below guidance, the “order prospect pipeline remains strong for the next two years.”
The report further noted that the company is well-positioned to benefit from upcoming emergency procurements and has exposure across the Army, Navy, and Air Force. With a growing focus on indigenisation and continuous investment in R&D, Motilal Oswal expects margins to stay strong.
The brokerage increased its FY26 and FY27 estimates by 7% and 8%, respectively. It also revised the valuation multiple from 36x to 40x. As per the report, Bharat Electronics is now trading at 43.5x/35.7x P/E on FY26/27E earnings.
“We expect OCF/FCF to remain strong over FY25-27, led by control over working capital. Further, the company had a cash surplus of RS 94 billion as of FY25, providing scope for further capacity expansion,” the report added.
Bharat Dynamics: Neutral call despite strong growth outlook
In contrast, Bharat Dynamics has received a Neutral rating from Motilal Oswal with a target price of Rs 1,900, suggesting a downside of around 4% from current market levels.
Bharat Dynamics is a leading integrator of missile systems and holds an order book of Rs 22,700 crore with a prospective pipeline of Rs 50,000 crore. While the outlook is positive, recent performance has been weighed down by supply chain challenges, especially for components sourced from Russia and Israel, the brokerage noted in its report.
Motilal Oswal sees a revenue CAGR of 35% between FY25-28, with EBITDA margins remaining healthy at 23.8% to 25.5%. The report also expects a PAT CAGR of 51% during the same period.
So why the Neutral call? Despite strong growth potential, the brokerage believes Bharat Dynamics is currently fairly valued.
“We like the business model of Bharat Dynamics and its ability to scale up its revenues and order book…however, with fair valuations, we would look for lower price points to enter the stock,” it noted.
Bharat Dynamics is currently trading at 70x/52x/38x P/E for FY26/27/28.