Bharat Electronics to gain from indigenisation; easing of chip shortage key
Focus on defence indigenisation will only accelerate with the Russia-Ukraine crisis especially given Russia has accounted for over 40% of India’s defence imports, said analysts
Bharat Electronics Ltd is a key beneficiary of the indigenisation drive in the defence sector. In the June quarter (Q1FY23) earnings call held on Thursday, the company said it has been asked to submit a roadmap for indigenising the components it imports from Russia and Ukraine.
Further, the company is in discussions to take up annual maintenance contracts of Russian platforms, which are heavy on electronics.
“We believe focus on defence indigenisation will only accelerate with the Russia-Ukraine crisis especially given Russia has accounted for 40%+ of India’s defence imports," said analysts at Jefferies India in a report on 21 July.
With respect to the non-defence business, it aims to increase the mix to 15% of sales in FY23 from 12% in FY22. The company sees Rs10000-12000 crore opportunity size from rail and metro sector where systems are currently being imported. Such diversification would aid in reducing dependence on the government, which is the sole buyer of defence equipment.
On the export front, it targets to increase the share to 10% eventually from 2% in FY22. It expects orders worth $400 million in FY23.
However, the chip crisis is a major roadblock for executing orders smoothly. In FY22, the company could not post an additional revenue of Rs2700 crore on account of this shortage. With improvement in this situation, Bharat Electronics realized revenue of ₹800 crore in Q1FY23. It expects to realize the balance in the ensuing quarters.
This is included in the FY23 revenue growth guidance of 15% reiterated by the company and it is confident of achieving the same. It maintained its guidance for Ebitda (earnings before interest, tax, depreciation and amortization) margin in the range of 21-23% and order inflow of ₹20000 crore in FY23.
“With management assessment of about 200 basis points of cost benefit in raw materials and a stated confidence to maintain margins in 21-23% range, with high confidence on achieving the upper band, it can be safely stated that margin compression concerns are a thing of the past," said analysts at ICICI Securities in a report on 21 July. One basis point is 0.01%.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!