BEL intends to clock a 15-17% revenue growth and expects order inflows of ₹15,000-17,000 crore
Shares of Bharat Electronics Ltd (BEL) hit a new 52-week high on Thursday on the National Stock Exchange. Note that the stock has risen by 13% in the past two trading days since the company announced its earnings for the quarter ended March and the full year.
Not only are BEL’s FY21 numbers strong, but the company’s guidance for FY22 is also encouraging. For FY22, BEL intends to clock a 15-17% revenue growth and its order inflows guidance stands at ₹15,000-17,000 crore.
“It is banking on a combination of 1. healthy ordering for weapon systems, 2. increasing relevance of electronic warfare systems, 3. opening up of the naval air force equipment market on the back of BEL’s efforts in indigenization and 4. support from non-defence areas," said analysts from Kotak Institutional Equities in a report on 23 June.
In FY21, BEL secured orders worth ₹15,000 crore. As of 1 April, its order book position stood at ₹53,434 crore, which translates into a healthy 3.9 times FY21 standalone revenue. Further, the company has forecast earnings before interest, tax, depreciation and amortization (Ebitda) margin of 20-22% in FY22. Note that the Ebitda margin for FY21 stood at 21.6%, representing an expansion of 150 basis points vis-à-vis FY20. One basis point is one-hundredth of a percentage point. BEL’s FY21 revenues increased by 9.6% from a year earlier. If it had been a normal year, the company might have crossed double-digit growth of more than 10% for FY21, it said.
During the March quarter, strong execution and cost optimization measures helped BEL’s Ebitda margin expand by 300 basis points to 28.5%.
Investors have taken note of the company’s performance. After all, the BEL stock has substantially outperformed the Nifty 200 index in the past year. The shares now trade at around 17 times the estimated earnings for FY23, based on Bloomberg data.
“Apart from gaining market share in the defence segment, the management is also diversifying into non-defence verticals, such as EVs (electric vehicles), metros, electronic warfare, healthcare, etc., expecting to reach 25% of total revenues over next 2-3 years," pointed out a report by Prabhudas Lilladher Pvt. Ltd.
On the flip side, lower-than-expected order inflows or margins are key risks for the stock.
“Higher growth in the non-defence business poses an upside risk to our earnings per share estimates, while working capital deterioration poses a key downside risk to valuations," said analysts from Motilal Oswal Financial Services Ltd in a 24 June report.