10:1 Split, 2:1 Bonus, 80% Dividend: Zero-Debt Defence PSU Stock Up 70% In 6 Months; BUY For Rs 320-340 Target

Defence stocks are once again back in the focus ahead of the full-fledged Union Budget 2024 which will be announced by PM Modi and his government after winning third tenure. Expectations of key measures to ramp-up exports and capital allocation for the sector in Budget will keep defence stocks in trend. Bharat Electronics (BEL) is a leading defence PSU stock.

On NSE, BEL's share price is at Rs 309.70 apiece, flat on June 25 with a market cap of Rs 2,26,383.85 crore. The stock has been gaining traction to take on HAL which holds the largest defence PSU title.

BEL stock's 52-week high and low are at Rs 323 apiece and Rs 117.90 apiece respectively.

In a span of six-months, BEL share price has zoomed by 70.21%. The stock was below Rs 182 on December 26, 2023. In 2024 so far, BEL stock rallied by 67.5%. In a year, the stock surged by 155%, emerging as a multibagger.

All-time gains of BEL is of a whopping 140,672.73%. On NSE, BEL was once upon a time at Rs 0.22, 25 years ago, on January 1, 1999.

After reigning for the third time in a row, the Prime Minister Narendra Modi-led government will announce the full-fledged Union Budget 2024-25. The latest Budget is expected to be presented between July 20-25. This comes after the interim budget which was announced on February 1, 2024. Defence, infra, and railway among sectors that are likely to witness huge push by government in Budget 2024.

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 55x, 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's Price to Earning Ratio is 56.81, lower than its sector PE ratio of 74.43. While Stock Price rose 157.98% and outperformed its sector by 2.28% in the past year. Further, its Return on Equity(ROE) 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. A

Additionally, BEL's Debt to Equity Ratio is zero as the company is debt-free. Also, Promoter Pledges are zero in the company. However, Mutual Fund Holding decreased by 0.27% in the last quarter to 18.06. And, Interest Coverage Ratio is 800.64, higher than 1.5. This means that it is able to meet its interest payments comfortably with its earnings (EBIT), as per the data.

Trendlyne data showed that the consensus recommendation from 26 analysts for Bharat Electronics Ltd. is BUY.

At the latest, Antique Stock Broking has set a target price of Rs 339 apiece on BEL with BUY recommendation. Also, with BUY recommendation, JM Financial has set a target price of Rs 320.

As per Motilal Oswal, Bharat Electronics (BHE) is expected to benefit from government's focus on investment-led growth, capex, infrastructure, manufacturing, and defense. Also, the company's order inflows for FY24 were far ahead of its guidance, hedging it against any slowdown in order inflows in FY25.

Motilal said that BEL is well-positioned to benefit from continued defense spending and has re-rated in the last two years. The brokerage highlighted that the company has secured orders worth around INR350b in FY24, resulting in a strong order book of INR760b for the next 2-3 years.

Furthermore, Motilal's note said, BEL is continuously investing in capex for advanced night vision factory, EW system, weapon system, and more. The brokerage expects a CAGR of 19%/20%/22% in sales/EBITDA/PAT over FY24-26E.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.