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Business News/ Markets / Mark To Market/  Bharat Electronics' stock hits new 52-week high on strong Q1 execution
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Bharat Electronics' stock hits new 52-week high on strong Q1 execution

Investors would do well to closely track chip shortage as this is a key headwind for executing orders. Additionally, a lower-than-expected increase in defence capital budget would pose a risk to Bharat Electronics’ operations

Shares of Bharat Electronics Limited, a defence PSU, soared 6.2% in opening deals on Monday to hit a fresh 52-week high of ₹260.80 apiece on the National Stock Exchange.Premium
Shares of Bharat Electronics Limited, a defence PSU, soared 6.2% in opening deals on Monday to hit a fresh 52-week high of 260.80 apiece on the National Stock Exchange.

Shares of Bharat Electronics soared 6.2% in opening deals on Monday to hit a fresh 52-week high of 260.80 apiece on the National Stock Exchange. The company's June quarter (Q1FY23) performance surpassed expectations, earning the stock a thumbs up from investors.

Standalone revenue jumped 90.4% year-on-year (y-o-y) to 3,112.8 crore in Q1, helped by the low base of last year when operations were hit because the second wave of the coronavirus pandemic. Even so, robust execution was a key factor driving growth in the June quarter.

“Post three years of high single-digit growth, Bharat Electronics seems set to achieve double digit top-line growth for FY23E as Q1’s beat, by a wide margin, adds to the comfort," said analysts at Edelweiss Securities in a report on 17 July.

On the profitability front, gross margin made a recovery after bottoming out in Q3FY22. The measure stood was at 41.9% in Q1FY23, up from 41.8% in Q4FY22. Gross margin expanded 30 basis points y-o-y. One basis point is one-hundredth of a percentage point. Ebitda (earnings before interest, tax, depreciation and amortization) margin rose a whopping 12.6 percentage points y-o-y to 16.5%, helped by lower base. However, sequentially, Ebitda margin declined 830 basis points on account of negative operating leverage.

Order inflow also remained subdued last quarter, with the order book as on 30 June at 55,333 crore, down from 57,570 crore as of March end.

“But given the underlying trend in defence spending and the projects in the pipeline to be ordered, we do not see risks for Bharat Electronics garnering about 1.1 trillion of defence orders over the next 5 years," said analysts at ICICI Securities in a report on 17 July.

That said, investors would do well to closely track the chip shortage situation as this is a key headwind for executing orders. Additionally, a lower-than-expected increase in defence capital budget would pose a risk to Bharat Electronics’ operations. But analysts at ICICI Securities believe there is low probability of that given the heightened external threat perception.

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ABOUT THE AUTHOR
Vineetha Sampath
Vineetha is a part of the Mark to Market team, which specializes in offering cutting edge commentary on stocks and financial reports of companies. Vineetha looks at varied number of sectors, including automobile, aviation, FMCG, internet companies and metals. If you want to know -- why entry-level auto sales are not picking up; or which FMCG companies would be more adversely impacted due to weak rural demand; or why IndiGo’s landing is about to get tougher? You will find these answers and more in her stories. Vineetha is a chartered accountant.
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Published: 18 Jul 2022, 11:43 AM IST
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