1:10 Split, 2:1 Bonus, 80% Dividend. 137,127% All-Time Up: Is Zero-Debt Defence PSU Stock Undervalued? Next TP

Bharat Electronics (BEL), leading defence PSU giant who has zero-debt, has corrected from its all-time high of over Rs 340 that was witnessed on July 10. In a month, BEL stock has dipped over 11%. And it is currently undervalued with price-to-equity ratio of 52.14x, which lower than its overall sector whose PE ratio is at 68.98x.

Meanwhile, although, BEL stock surged by 133.5% in past year, it has still underperformed its sector by 18.6% om a year. Not just that its mutual fund holding has dipped by 1.98% to 16.08% in June 2024 quarter.

However, brokerages are still optimistic on BEL's share and have recommended buy with potential gains of over 29%.

Some of the key positive fundamentals in BEL as per Trendlyne data is that the company's debt-to-equity ratio is zero, meaning the company is debt-free. While return on equity for the last financial year was 24.4%, more than 20% in the last financial year, indicating an efficient use of shareholder's capital to generate profit.

Further, BEL's Interest Coverage Ratio is 800.64, higher than 1.5, meaning that it is able to meet its interest payments comfortably with its earnings (EBIT). While Promoter Share Holding stayed the same in the most recent quarter at 51.14%. Lastly, Promoter Pledges are zero.

Among the technical, BEL's relative strength index and money flow index are stable at 47.4 and 51 respectively. This is because RSI and MFI below 30 level is seen as oversold and above 70 mark means the stock is overbought.

As per the Trendlyne data, BEL is trading below 4 out of 8 SMAs, while it is trading below 5 out of 9 Oscillators in bearish zone. Also, BEL has 2 bullish and no bearish candles active.

On NSE, after market hours of August 9, BEL share price ended at Rs 301.90 apiece, with market cap of Rs 2,20,682.22 crore. BEL's all-time returns is about 137,127.27% on NSE, making it a crorepati stock. 25 years ago, BEL stock was merely at Rs 0.22 apiece on NSE on January 1, 1999.

The highest target price on BEL ios currently set at Rs 390 apiece, hinting at over 29% potential upside in the stock. This target is set by ICICI Direct.

However, Geojit is the latest to recommend on BEL. The brokerage has recommended HOLD on BEL share for target price of Rs 320.

According to Geojit, BEL's Q1 FY25 revenue grew by a robust 20% YoY, largely led by better execution as supply disruptions due to conflict have eased. EBITDA grew by 41% YoY, while margins expanded by 340bps to 22.3% on account of higher execution and a better product mix.

Also, Geojit highlighted that BEL's order inflow for Q1FY25 was down by 38% YoY to Rs.5,225cr due to general elections and also impacted by higher base. The current order backlog is at Rs.76,705cr, 3.3x FY25E projected sales, which ensures robust earnings visibility for the next 3-4 years. In the near future, management anticipates some large order EW, avionics, airborne systems, radars, and NGMVs taking total order inflow opportunities amounting to Rs.50,000 over FY25E-26E. While fruitions of the QRSAM order will entail additional Rs. 25,000 crore opportunities.

On the valuation, Geojit said, "We marginally increase our EPS estimates by 1.5% & 2.4% on account of better execution and healthy margin expansion. We reiterate our positive outlook on BEL given the government's thrust in domestic manufacturing, increasing electronics share in defence, its market leadership position, a strong order backlog, and healthy margin profile. However, given premium valuation, we value BEL at P/E to 43x on FY26E EPS and maintain Hold rating with a target price of Rs.320."

Going ahead, BEL will be in focus as it is set to pay a Final Dividend of Rs.0.80 per Equity share (having a face value of Rs.1/- each). The record date for the final dividend is likely to be announced soon.

Apart from being a top dividend-paying defence stock, BEL also 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. Also, BEL has paid three bonuses to its shareholders since 2015, in total it distributed 5 bonuses. The first bonus reward of a 2:1 ratio in September 2015, followed by 1:10 and 2:1 bonus issues in September 2017 and 2022 respectively.