Bharat Electronics (BHE IN) – Q2FY26 Result Update – Strong Q2; order pipeline remains strong – HOLD

We revised our FY26/FY27E EPS estimates by +2.6%/+1.1% factoring in strong execution pace and robust order pipeline. Bharat Electronics (BEL) reported a strong quarterly performance with revenue rising by ~25.8% YoY led by strong execution with EBITDA margin contracted by 88bps to 29.4% due to decline in gross margin. BEL continues to enhance its system integration capabilities, moving up the value chain by participating in key defense programs like AMCA (in consortium with L&T) and Project Kusha (with DRDO), both offering significant long-term growth potential. The company expects a Rs100bn+ opportunity from the recently approved Rs790bn DAC acquisitions, further strengthening its order pipeline. To support capacity expansion and future program requirements, BEL plans to invest ~Rs14bn over the next 3–4 years in a new Defense System Integration Complex in Andhra Pradesh, which will house QRSAM, unmanned systems, missile, and radar systems. BEL targets to lift its non-defense revenue share to 10% by FY26, supported by traction in Kavach, homeland security, data center, and fiber optic projects. With strong execution and rising export contribution (~10% of revenue), BEL remains well-positioned for sustained growth and margin resilience. The stock is trading at a P/E of 45.1x/39.1x on FY27/28E earnings. We roll forward to Sep’27E and maintain our ‘Hold’ rating, valuing the stock at a PE of 40x Sep’27E (Mar’27E earlier) arriving at a TP of Rs407 (Rs374 earlier).