BEL Vs HAL: Which Navratna Defence PSU Stocks Offer Better Returns On Equity? Key Fundamentals

When talking about defence stocks, two PSUs holding Navratna status, will be the centre of attention. They are Bharat Electronics (BEL) and Hindustan Aeronautics (HAL). The outlook on both companies is positive as they're packed with a strong order book and a robust pipeline of execution, making them attractive bets for long-term cases. Both companies will soon announce their Q4 results in May month.

However, on the current price levels, although broadly both BEL and HAL have healthy fundamentals, the former is mildly behind when it comes to performance against the sector and mutual funds holding.

Both are debt-free companies, and their interest coverage ratio is higher than 1.5. However, when it comes to return on equity, HAL has the upper hand, and in the case of the price-to-equity ratio, BEL takes the lead.

The return on equity is an important fundamental for any listed company.

As per Motilal Oswal's website, Return on Equity (ROE) is one of the most popular measures of the return earned by shareholders. When you put money into an investment, you are interested to know how much your investment is earning. When the company makes a profit, the company pays dividends to shareholders out of that. The profit left after paying dividends is added to the net worth of the company. ROE is important as it tells investors that the money that is being ploughed back into the company is still earning a healthy return.

There are two ways in which the company treats its profits. Firstly, it pays out dividends to shareholders, which is equivalent to partially extinguishing the wealth of the company. The second method is to plough back the funds for internal use. If a company ploughs back profits rather than paying out as dividends, it needs to justify this decision with an attractive ROE, the brokerage explained.

Typically high ROE companies are those companies that are asset-light and have very low levels of debt. The bottom line is that ROE is more useful from a shareholder point of view and from the point of view of determining the trajectory of the P/E Ratio, it said.

How is ROE calculated? The formula for ROE is -- (Net Profit)/(Net Worth (Equity).

Let's compare the fundamentals of BEL and HAL:

Bharat Electronics (BEL) Share Price:

Currently, BEL's stock price is at Rs 238.90 apiece with a market cap of Rs 1,74,630.62 crore. Last week, on Friday, BEL shares touched a new all-time high of Rs 241.65 apiece as well, while their 52-week low is at Rs 100.40 apiece.

YTD, BEL is up by 29%, while in a year, the upside is massive by 129.05%, and in 5 years, the stock has rallied by 710.38% so far. But, BEL's all-time gains are breathtaking by 108,490.91% on NSE.

In terms of fundamentals, as per Trendlyne data, BEL's stock price has still underperformed its sector by 4.5% in the past year. While its mutual fund investors have decreased their holding by 0.27% in the last quarter to 18.06.

On the positive, the data revealed that BEL's Debt to debt-equity ratio is zero as the company is debt-free, while its interest Coverage Ratio is 292.09, higher than 1.5, meaning that it can meet its interest payments comfortably with its earnings (EBIT).

Furthermore, the Price to price-to-earning ratio is 48.93, lower than its sector PE ratio of 64, while the Return on Equity(ROE) for the last financial year was 21.53%, more than 20% in the last financial year, indicating an efficient use of shareholder's capital to generate profit. Also, Promoter Share Holding stayed the same in the most recent quarter at 51.14%, while Promoter Pledges were zero.

Among corporate actions, BEL has turned ex-dividend in March and February of 2024, for a dividend payout of 70% each valuing Rs 0.70 per share each, totalling 140% or Rs 1.4 per share so far in the current year. As per Trendlyne data, BEL has delivered up to 50 dividends since August 2001. While BEL has carried only one stock split so far. It was in 2017, when 1 BEL share split into ten smaller shares effective from March 16. The face value split from Rs 10 to Rs 1.

BEL has achieved a turnover of around Rs. 19700 Cr (Provisional & Unaudited), during the Financial Year 2023-24, against the previous year's turnover of Rs. 17,333 Cr registering a growth of 13.65%. In FY24, the company secured an order book worth Rs 35,000 crore. With this, the total order book of BEL as of April 1st, 2024, stands at around Rs. 76000 crore.

Hindustan Aeronautics (HAL):

HAL's share price is currently at 3,990 with a market cap of Rs 2,66,841.23 crore. Just like BEL, HAL also touched a new all-time high of Rs 4,039.95 apiece on April 26, while its 52-week low is at Rs 1,409.18 apiece.

YTD, HAL shares have risen much higher than BEL to the tune of 41% gains. In a year, the stock has rallied further higher by 172%. 5-year gain is massive by 1,122.50%.

Data from Trendlyne showed that HAL's stock outperformed its sector by 37.07% in the past year. Its Debt to Equity Ratio is zero as the company is debt-free, and that of Mutual Fund Holding increased by 0.06% in the last quarter to 6.75. Also, its Interest Coverage Ratio is 154.33, higher than 1.5, meaning that it can meet its interest payments comfortably with its earnings (EBIT).

Furthermore, the data showcased that the Price to Earning Ratio is 43.37, lower than its sector PE ratio of 64. Additionally, its Return on Equity(ROE) for the last financial year was 24.72%, more than 20% in the last financial year, indicating an efficient use of shareholder's capital to generate profit. Lastly, its Promoter Share Holding stayed the same in the most recent quarter at 71.64%, and Promoter Pledges are zero.

In the case of corporate actions, the CPSE giant carried its first stock split in September 2023, in the ratio of 1:5. The face value of Rs 10 of HAL was trimmed to Rs 5, which came into effect on September 28th of last year. Apart from the stock split, HAL is also among dividend-paying stocks. As per Trendlyne data, HAL has delivered up to 11 dividends since March 2019. At the latest, the company paid dividends up to Rs 57 per share.

Meanwhile, earlier in April, HAL said that it recorded the highest-ever revenue from operations of over Rs. 29,810 crores (provisional and unaudited) for the financial year ended on March 31, 2024, registering a double-digit growth of around 11% as against 9% in the previous financial year. The corresponding figure for the previous year was Rs. 26,928 crores. As of March 31, 2024, the company's order book stands over Rs 94,000 crores with additional major orders expected during FY 2024-25, said C. B. Ananthakrishnan, CMD(Addl Charge), HAL.

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