10:1 Split, 2:1 Bonus, 80% Dividend: Is Zero-Debt Defence PSU Stock BEL Overvalued After 163% Jump In 1-Year?

Navratna Defence PSU giant, Bharat Electronics (BEL) has seen a significant upside in 2024. With an impressive gain of 67.5% YTD, BEL has a PE ratio of 56.8x and a return on equity of 24.4%. BEL stock has touched a back-to-back 52-week high in the periodic events of 2024. Currently, the stock is near Rs 310 levels which is the target price set by Motilal Oswal recently. Does that mean BEL shares are overvalued? Or is it time to book profits or buy further in BEL?

Last week, on June 14, BEL stock ended at Rs 309.7 apiece up by 2.92% on NSE with a market cap of Rs 2,26,383.85 crore. This is near its 52-week high of Rs 323 apiece which was recorded just a day before Lok Sabha election results.

The stock is up by 163% from its 52-week low of Rs 117.90 apiece which was recorded on June 27, 2023. Accordingly, BEL is a multibagger.

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.

Is BEL's share price overvalued? Despite a PE above 50x, BEL is still undervalued compared to its sector which has humungous PE. Also, BEL's fundamentals are strong except mutual funds decreasing their holding in the stock.

As per Trendlyne data, BEL has outperformed its sector by 3.28% in the past year. While its Price to Earning Ratio of 56.8, is lower than its sector PE ratio of 75.02. Further, its return on equity (Roe) comes at 24.4% for the last financial year, which is healthy as more than 20% ROE in fiscal hints at an efficient use of shareholder's capital to generate profit.

Also, BEL's Debt to Equity Ratio is zero, meaning the company is debt-free. Moreover, its Interest Coverage Ratio is 800.64, higher than 1.5, meaning that it can meet its interest payments comfortably with its earnings (EBIT).

BUY/SELL BEL Shares?

BEL is just close to Motilal Oswal's target price. On the valuation, Motilal Oswal earlier said, "BHE is currently trading at 39x/32x on FY25E/FY26E EPS. Our revised valuation multiple takes into account a larger market share of BHE, the benefit of technology tie-ups, MoUs, and an improving share of exports and non-defence in total revenues."

Accordingly, Motilal values BHE at 35x P/E on two-year forward earnings and revised the target price to INR310, which bakes in a 19% CAGR in revenue over the next decade vs. 11% CAGR over the last decade. We upgrade the stock to BUY from Neutral earlier.

On the other hand, Kotak Institutional Equities has suggested a selling on BEL share price with a fair value of Rs 170.

Last week, Technical analyst Manas Jaiswal told CNBC Awaaz that levels of ₹320 and ₹325 are crucial for Bharat Electronics and once those get taken out on a sustained basis, the stock will see the next leg of up move. He added that in the next leg of the up move, the stock can test levels of ₹375 to ₹400 on the upside. Hence, he suggests holding BEL shares for the mentioned target while keeping the stop loss at Rs 265.

Recommending BUY as well, Antique Stock Broking has set a target price of Rs 339 apiece. JM Financial has also suggested BUY on BEL stock with a target price of Rs 320. In the buy recommendation list is also HDFC Securities on BEL shares.

As per Trendlyne data, the consensus recommendation from 26 analysts for Bharat Electronics Ltd. is BUY. Of the total, 20 analysts have given a 'STRONG BUY' and 'BUY' call on BEL shares, while 3 have suggested HOLD, and 3 analysts recommend SELL. EPS is expected to grow by 13.4% in FY25.