Bharat Electronics Stock Downgraded Despite Strong Q1: 4 Reasons Why UBS Changed Its Rating

Despite strong Q1 earnings, Bharat Electronics (BEL) stock was downgraded by UBS to a “Neutral” rating. Here are the key reasons:

1. Limited Room for Surprises
   • BEL’s stock rise was driven by a 70% higher order intake in FY24, exceeding management’s guidance.
   • Earnings upgrades were 13%, reflecting a strong valuation.
   • With high expectations already priced in, there’s little room for positive surprises.
     
2. Dependence on Large Orders
   • UBS estimates higher new orders for FY25-27, implying ₹7600 crore more orders over three years.
   • Sustaining a higher growth rate depends on timely closure of large orders like QRSAM and Akash systems.
     
3. HAL Viewed as Better Positioned
   • BEL’s guidance for 15% top-line growth and a ₹25000 crore order run rate is seen as achievable but with limited upside.
   • UBS believes HAL has better growth potential in the next 12-24 months.
     
4. Valuation Limits Upside
   • While positive on BEL’s earnings and order book growth, UBS thinks the stock’s medium-term potential is already priced in.
   • UBS downgraded the rating to Neutral but raised the price target slightly from ₹333 to ₹340, maintaining a price-to-earnings ratio of 40 times.

Despite strong performance, UBS’s downgrade reflects limited growth potential and reliance on large orders.