Defence Stock Alert: Not BEL Or HAL, But This Midcap PSU Stock's Target Price Raised To Rs 3,700; BUY/SELL?

One defence PSU company's target price has been raised by brokerage Elara Capital, however, the recommendation is for SELL. Neither Bharat Electronics (BEL) nor Hindustan Aeronautics (HAL) are the two large-cap stocks in the defence sector. But instead, midcap PSU BEML witnessed a shift in the recommendation. In 5 sessions, BEML stock has corrected sharply.

BEML Ltd Share Price:

After market hours of November 13, the stock ended at Rs 3814.15 apiece, down by Rs 137.50 or 3.48% on BSE, with a market cap of Rs 15,883.84 crore. The stock has dropped by 9.7% on BSE in 5 sessions.

The stock's price-to-equity ratio is at 55.36x, and that of return on equity is at 11.23%.

Elara Capital On BEML:

According to the brokerage, BEML's (BEML IN) revenue fell, likely due to a significant drop in revenue from the rail & metro (R&M) segment. Sales for mining & construction (M&C) and defence & aerospace grew at a moderate pace in Q2FY25. Margin improved by 180bps YoY owing to product mix. Order inflows witnessed a significant decline due to high base and delay in receipt of new orders in rail & metro.

On the valuation, Elara's note said, "We lower FY25E earnings by 7%, on delayed execution. But we retain FY26E earnings estimates. We raise our TP to INR 3,770 from INR 3,600 on 32x (unchanged) September FY26E P/E as we roll forward."

Lastly, the brokerage said, "We reiterate Sell as we expect continued execution challenges in metro and product mix to restrict significant expansion in the margin. We expect an earnings CAGR of 18% in FY24-27E with an average ROE and ROCE of 14% each in FY25-27E. Significant rise in order inflows in rail & metros & armoured recovery vehicle may change our view."

BEML Dividend:

The company has a strong track record of dividend payouts. As per Trendlyne data, the company delivered up to 34 dividends since August 2001. In the past 12 months, the stock delivered up to Rs 20.50 dividend per share. Its dividend yield is currently at 0.54%.

About BEML Ltd:

BEML Limited, a 'Schedule 'A' Company under the Ministry of Defence, Govt. India, plays a pivotal role and serves India's core sectors like Defence, Aerospace, Rail, Metro, Power, Mining and Infrastructure.

BEML operates in three verticals viz. Defence & Aerospace, Mining & Construction and Rail & Metro and has state-of-the-art manufacturing facilities located at Bangalore, Kolar Gold Fields (KGF), Mysore, Palakkad. BEML has very strong R&D infrastructure. BEML also has nationwide network of sales and services.