HAL, BEL, BEML & More Stock:
India’s defense ministry recently unveiled a 15-year strategic program for defense, with plans to invest several hundred billion dollars over the next 15 years. As a taxpayer, I believe every rupee I pay in taxes is worth it, especially when I see successes like Operation Sindur.
However, as an investor, the defense sector excites me even more. With massive investments planned and a 360-degree modernization of our forces—spanning the army, navy, and air force—there’s significant potential for growth.
For instance, the army will acquire 1,800 new tanks with UAV integration. The navy is set to procure 10 next-generation frigates, each costing thousands of crores. The air force will acquire 75 high-altitude satellites. These are just examples. You can read more about the planned procurements in this article, but one thing is clear: any country that underestimates India will face serious consequences.
Let’s discuss the first stock: BEML (Bharat Earth Movers Limited), a public sector undertaking (PSU). I’ll highlight two or three key strengths of this company, followed by its drawbacks, to provide an unbiased perspective.
Strengths of BEML:
1. Improving Margins: Over the past four to five years, BEML’s gross margin (EBITDA percentage) has shown consistent growth. In 2021, it was 5.63%, rising to 7.40%, 9.97%, 11.98%, and 13.20% in subsequent years. Management projects a further increase of 150 basis points for FY26, potentially reaching around 15%. Expanding margins indicate that even if revenue growth is modest, profitability will improve, which is a strong fundamental for any company.
2. Revenue Growth Guidance: Management is confident of achieving a 20% CAGR in topline growth, which they believe is very achievable. While it’s uncertain whether they’ll meet this target, the guidance is promising.
3. Growing Order Book: BEML’s order book has been steadily increasing over the past three years, reaching approximately ₹14,000 crores by the end of FY25.
Drawbacks of BEML:
1. Not a Pure Defense Play: Only 27% of BEML’s revenue comes from defense, with 54% from mining and construction and 19% from rail and metro. If you’re looking for a pure defense stock, BEML doesn’t fit the bill.
2. Flat Revenue Growth: Over the past three years, BEML’s revenue has remained stagnant—₹3,899 crores in FY22, ₹4,054 crores in FY23, and ₹4,022 crores in FY24. This raises doubts about whether the management can achieve the projected 20% CAGR growth, given their lackluster historical performance.
3. High Valuations: BEML’s median price-to-earnings (PE) ratio over the past three years has been around 53, and it’s currently trading at approximately 56. The price-to-book (PB) ratio has a median of 4.9, with the current value at 5.8. These metrics suggest BEML is not trading at a bargain. While the 20% CAGR growth guidance could justify the valuation if achieved, it’s a risky bet.
To make an informed investment decision, it’s essential to compare BEML with other defense sector stocks. Let’s evaluate a few more.
Stock 2: Bharat Dynamics Limited (BDL)
Here’s a quick analysis, as I see several red flags with this company:
– Stagnant Revenue: Over the past five years, BDL’s revenue growth has been negligible and inconsistent. In FY21, revenues were ₹3,345 crores, compared to ₹4,000 crores a decade ago (2015–16). This indicates a lack of growth.
– Lumpy Financials: Profit after tax (PAT) has been erratic—₹57 crores in FY21, ₹499 crores in FY22, and ₹352 crores in FY23. EBITDA margins also fluctuate significantly, ranging from 18% to 25% to 16% and back to 22% over recent years. Such inconsistency is a concern for investors seeking stability.
– Lack of Transparency: Management has not conducted conference calls in 2025, leaving investors without recent updates on the company’s performance or strategy.
– High Valuations: BDL’s median PE ratio over the past three years is 67, but it’s currently trading at 96. The PB ratio is at 13.6, compared to a median of 9.6. These elevated valuations are hard to justify given the lack of revenue and profit growth.
– Positive Note: BDL’s order book as of March 2025 stands at ₹22,800 crores, which is stronger than BEML’s. However, it’s unclear how much of this will translate into revenue in the near term.
Given these concerns, I’m hesitant to consider BDL as an investment at this stage.
Stock 3: Bharat Electronics Limited (BEL)
BEL is a standout in the defense sector, with 90% of its revenue derived from defense, making it a pure-play defense stock.
– Strong Track Record: Over the past five years, BEL’s revenues have grown consistently, reaching ₹23,000 crores in FY25—six times that of BDL or BEML.
– Robust Order Book: BEL’s order book was ₹71,000 crores at the end of FY25, slightly down from ₹75,000 crores the previous year but still impressive. Large orders like QRSAM could add another ₹40,000–50,000 crores, bringing the total to over ₹80,000 crores.
– Improving Margins: Both EBITDA and PAT margins have consistently improved, with PAT margins at an all-time high of 23% in FY25.
– Growth Guidance: Management projects a 16–17% growth rate, which is lower than BEML’s 20% but more reliable given BEL’s larger revenue base and consistent track record.
– Valuations: The median PE ratio over the past three years is 40, with the current PE at 51. The PB ratio is 14, compared to a median of 10. While slightly overvalued, BEL’s large order book and growth visibility provide some justification.
Stock 4: Hindustan Aeronautics Limited (HAL)
HAL is another high-quality PSU with attractive valuations compared to peers.
– Massive Order Book: HAL’s order book doubled from ₹94,000 crores in FY24 to ₹189,000 crores in FY25, the largest among all defense companies.
– Strong Profit Growth: While topline growth is modest at 7–8% annually (potentially reaching double digits in the future), PAT has grown at a 24% CAGR in recent years.
– Attractive Valuations: HAL’s PE ratio is around 36, significantly lower than peers trading at 50–90. The company is also investing ₹14,000–15,000 crores in capital expenditure, signaling confidence in future growth.
Stock 5: Data Patterns Limited
Data Patterns, a private company specializing in defense electronics, has shown strong growth but also some concerns.
– Strong Historical Growth: Over the past five years, revenues have grown at a 33% CAGR, with consistent profit growth.
– Recent Margin Decline: In Q1 FY26, EBITDA margins dropped from 38% to 32%, and net profit margins fell from 32% to 26%, which is concerning.
– Shrinking Order Book: The order book in FY25 declined compared to FY23–24, which could pressure future growth unless new orders are secured.
– Management Outlook: Management projects 20–25% growth over the next 2–3 years, which is ambitious but reasonable for a smaller company.
– Valuations: The median PE ratio is 71, with the current PE at 67. High valuations make it a risky investment unless the order book improves.
Apart from these five, other notable defense stocks include GRSE, Cochin Shipyard, Mazagon Dock, and Zen Technologies, which are worth exploring but not covered here.
Key Improvements Made:
1. Grammar and Syntax: Corrected minor grammatical errors (e.g., “is post me” to “in this post”) and improved sentence structure for clarity and flow.
2. Consistency: Standardized terms like “crores” and financial years (e.g., FY25 instead of 2024–25 for consistency).
3. Clarity: Simplified complex sentences and broke up long paragraphs to improve readability.
4. Professional Tone: Maintained the conversational tone but made it slightly more polished for clarity and professionalism.
5. Redundancy: Removed repetitive phrases (e.g., “you know what”) and streamlined explanations without losing detail.
6. Formatting: Added bold headings for each stock to improve readability and structure.
Let me know if you’d like further refinements or additional analysis!
