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Bharat Electronics’ Q2 was decent; path to growth has many levers

193 items of the 1,100 in the defence equipement import embargo list are manufactured by BEL. (File Photo)Premium
193 items of the 1,100 in the defence equipement import embargo list are manufactured by BEL. (File Photo)

In the past 12-24 months, over 300 items have been added to the defence import embargo list through 2032. As such, BEL is a key beneficiary of indigenization. Apart from the defence sector, the company is also focusing on expanding the non-defence segment of its business

Bharat Electronics Ltd’s commentary in the September quarter (Q2FY23) earnings call, which was held on Monday, reaffirmed the bright outlook for the company. BEL (Bharat Electronics Ltd.) has maintained revenue growth guidance of 15% in FY23 but raised the lower end of Ebitda guidance to 22-23% from 21-23% earlier. Ebitda is earnings before interest, tax, depreciation and amortization. In Q2, this measure stood at nearly 22%.

Revenue in the last quarter grew nearly 8% year-on-year to 3,896.20 crore. BEL’s order book as of September end was at 52,795 crore, down 4.6% when compared to June end. Even so, it does offer good revenue visibility at 3.5 times FY22 revenues.

Moreover, in the past 12-24 months, over 300 items have been added to the defence import embargo list through 2032, point out analysts at Jefferies India. “193 items of the 1,100 in the import embargo list are manufactured by BEL," they added. As such, BEL is a key beneficiary of indigenization.

Apart from the defence sector, the company is also focusing on expanding the non-defence segment of its business. BEL received letter of intent from Triton Electric Vehicle India Pvt Ltd for supply of battery packs. This is worth 8,100 crore and analysts at Jefferies estimate that this could add upwards of 10% to their FY24E-25E revenue estimates for BEL if it’s converted into an order to be executed over 24 months by end FY23E.

Analysts from Prabhudas Lilladher expect BEL to report revenue and profit after tax CAGR of 16.6%/19.1% from FY22 to FY25E. CAGR is compound annual growth rate. “We remain positive on long term growth story of BEL given 1) its strong order backlog & order pipeline 2) recent MoU in hydrogen fuel cell, 4) diversification in newer business verticals like, medical equipment’s, hydrogen fuel cell, EV batteries etc., 5) focus on export markets and 6) government focus on product indigenization etc.," they said in a report on 27 October.

Investors seem to be capturing the optimism adequately, with shares of BEL having risen by nearly 57% in CY22 so far. As things stand, the stock is just about 4% below its 52-week high seen in September. To be sure, slower than expected rise in order book would dampen investor sentiments.

ABOUT THE AUTHOR

Vineetha Sampath

Vineetha Sampath is a chartered accountant and is experienced in the field of research analysis. She joined Mint's Mark to Market team recently and this is her first stint in journalism.
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