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Defence – Order Pipeline Remains Robust

ICICIdirect Research 01 Aug 2025 DISCLAIMER

Bharat Electronics: Execution to pick-up; orders pipeline remains robust

  • Revenue increased by ~5% YoY as execution was little muted during the quarter. This was mainly on account of ~Rs 200 crore of revenue shortfall due to some delays in delivery of imported components. However, management has maintained its guidance of 15%+ revenue growth for FY26E as the execution is expected to pick-up in coming quarters and shortfall in revenue will be recognised in Q2FY26
  • EBITDA margin stood at 28% (+555 bps YoY), largely in-line with expectations. Management also retains guidance of 27%+ in the coming years. This will be mainly led by increasing indigenisation of products and increase in exports share
  • Order backlog stands strong at Rs 80000 crore (3.3x TTM revenue) gives healthy growth visibility
  • Order inflow guidance for FY26E was also maintained at Rs 27000+ crore. The QRSAM contract (values ~Rs 30000 crore) is also likely to be placed by Q4FY26E or Q1FY27E and provides strong order inflow visibility.
  • Longer term orders inflow visibility also looks strong considering that many large projects like Project Kusha (indigenous air defence system), next-generation corvettes, radars and electronic warfare systems for other platforms etc
  • We expect revenue & PAT CAGR of ~17% each during FY25-27E. We have a Buy rating on BEL with a target price of Rs 450

 

Mazagon Dock Shipbuilders: Steady execution; orders pipeline remains robust

  • Revenue grew by ~11% YoY in Q1FY26 as execution remained steady, in-line with management’s guidance of 8-10% growth. EBITDA margin during the quarter contracted sharply to 11.5% (down 1576 bps YoY) on account of higher provisions (in two specific contracts) and other project related expenses. However, management guides that no additional provisions will be made in the following quarters. Moreover, these provisions may be written back in future
  • Order backlog stands strong at Rs ~30000 crore (2.6x TTM revenue) which includes key projects like P-15B destroyers, P-17A frigates, P-75 submarines and other vessels.
  • Orders pipeline also looks robust in defence ship-building as the order of additional 3 scorpene submarines (values ~Rs 32000 crore) is expected in this year. Moreover, company is in advanced stages of commercial negotiations for six submarines contract under P-75 (I), which is expected to be a ~Rs 90000 crore contract. Management also expects order book to reach Rs 1.25 lakh crore after these two contracts
  • We remain positive on MDL. Our earlier target price was Rs 3100 on the stock
View our research recommendation on Mazagon Dock Shipbuilders Ltd Also explore more on Research page

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