Mr. Arafat Saiyed, Senior Research Analyst at Reliance Securities.
Bharat Electronics (BEL) delivered a decent performance in 2QFY23. Revenue increased by 8% YoY, (26% QoQ) to Rs39.6bn, vs our estimates of Rs41.9bn. EBITDA increased 1% YoY (66% QoQ) to Rs8.7bn (in-line with our estimate of Rs8.7bn), while EBITDA margin declined by 157bps YoY (up 528 bps QoQ) to 21.9%, at the higher band of management guidance of 20-22%. PAT came in at Rs6.2bn, flat YoY (up 70% QoQ) against our estimate of Rs6.4bn. Order book at the end of 2QFY23 stands at Rs528bn (3.1x TTM revenue) and provides a healthy revenue visibility. The Order inflow for 1HFY23 declined by 64% YoY to Rs23.3bn, while the management maintain its inflow guidance of Rs200bn for FY23. We maintain our positive stance on BEL's long-term prospects led by the robust defence spending, strong expertise and relationship with government entities and diversification into non-defence business. For FY24E we increase EBITDA/PAT estimates by 4%/6% as we increase our margin estimates by 100bps to factor higher band of guidance. We expect the company to clock a double-digit growth over the next couple of years, aided by business opportunities in both defence and non-defence segments. We maintain our BUY rating on the stock, with a revised Target Price of Rs125, valuing the stock at a revised target multiple of 25x FY24E EPS.
Healthy Order Book despite low Order inflow in 1HFY23
Order book at the end of 2QFY23 stands at Rs528bn (3.1x TTM revenue) and provides a healthy revenue visibility. Despite lower order inflow in 1HFY23, the management has maintained order inflow guidance of Rs200bn. Some of the big-ticket orders expected during 2HFY23 includes 'Akash Prime' (Rs40bn), 'Himshakti' (Rs30bn), medium power radar, 'Arudhra' (Rs25bn), BMP-Upgrade (Rs19.5bn), EW Suite and EW MLH etc. For FY24E, the company is looking for order inflow of Rs180-200bn. BEL is executing major programmes like LRSM, Akash and Integrated Air Command Control System (IACCS). BEL is well placed to benefit from the government's strong indigenisation push in the defence sector. The company is looking to diversify into non-defence areas also, focus on increasing exports and services share would further aid long term growth.
Outlook & Valuation
BEL is among the few defence PSUs that historically delivered strong financials and has a track record of efficient capital allocation. The debt-free balance sheet, efficient working capital management, adequate R&D spend, technology adoption, track record of timely execution of large projects, strong cash flow and prudent capital allocation augur well for the company. BEL is looking to replicate its strong capabilities in manufacturing and R&D in the defence space in newer segments over the next few years. It is one of the prime beneficiaries of the government's indigenization drive. We expect BEL's revenue/EBITDA/PAT to clock 19%/23%/25% CAGR, respectively, over FY22-FY24E. We expect BEL to clock a double-digit growth over the next couple of years, aided by business opportunities in both defence and non-defence segments. We maintain our BUY rating on the stock, with a revised Target Price of Rs125 (earlier Rs103 - adjusted for bonus of 2:1), valuing the stock at a revised target multiple of 25x (from 22x) FY24E EPS.
Shares of Bharat Electronics Limited was last trading in BSE at Rs. 109.90 as compared to the previous close of Rs. 107.10. The total number of shares traded during the day was 1783789 in over 13720 trades.
The stock hit an intraday high of Rs. 112.20 and intraday low of 106.30. The net turnover during the day was Rs. 196963214.00.