Motilal Oswal see 4% downside for Bharat Dynamics, starts coverage with neutral call amid lofty valuations

Time of India

5 days ago

Motilal Oswal
has initiated coverage on
Bharat Dynamics
Ltd with a 'neutral' rating and a target price of Rs 1,900, about 4% below its current market value, cautioning that the stock's sharp run-up leaves little room for near-term upside.
While lauding the defence manufacturer's robust order book, export momentum, and earnings potential, the brokerage said it would 'look for lower price points to enter the stock' given the demanding valuations.
Shares of
Bharat Dynamics
fell 2.2% on Thursday to Rs 1,941.25 on the BSE.
Motilal Oswal expects a sharp scale-up in execution as supply chain headwinds ease, driving a 35% revenue CAGR and 51% PAT CAGR over FY25–28. 'We like the business model of BDL and its ability to scale up its revenues and order book in current scenario,' the brokerage said, but noted that the stock is already trading at 70x/52x/38x FY26/FY27/FY28 earnings, valuations it considers fair.
The target price of Rs 1,900 is based on 42 times the company's estimated earnings for September 2027.
BDL's EBITDA margins are expected to remain strong at 24–26%, supported by backwards integration and a higher share of indigenized products. The company has indigenized 80–90% of several key missile platforms and is working with DRDO on about 40 development programs.
Export momentum and order pipeline
BDL's export revenue surged to Rs 12 billion in FY25 from Rs 1.6 billion the previous year, buoyed by demand for its Akash, Astra, and Helina missile systems, among others. The company has received export approvals for the Akash Weapon System to nine countries and is attracting further interest for torpedoes and air-to-air missiles, the brokerage noted.
Its order book currently stands at Rs 227 billion, with a potential addressable market of Rs 500 billion over the next few years, including large-ticket orders such as the Quick Reaction Surface-to-Air Missile (QRSAM), Astra Mk1, and the indigenous long-range SAM system under Project Kusha.
Defence spending tailwinds
The brokerage highlighted a supportive macro backdrop, with NATO's revised 5% defence spending target by 2035 and India's recent Defence Acquisition Council approvals worth Rs 1 trillion. These developments are likely to expand the addressable market for domestic defence manufacturers.
Motilal Oswal also pointed to BDL's diversification into new areas such as drone-delivered payloads, cruise missile engines, and advanced seekers, which could support long-term growth.
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Despite the promising outlook, the brokerage flagged risks including reprioritisation of India's defence budget, delays in execution, and any changes in procurement policy. Supply chain dependencies, though easing, remain a sensitivity given BDL's integration with global vendors.
(
Disclaimer
: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)