Bharat Electronics to soon issue bonus shares. IIFL has ’Buy’ tag

Bharat Electronics (BEL) remains bullish on increasing growth opportunities from large domestic defence procurement programs and expanding base of civilian applications, highlighted domestic brokerage and research firm IIFL.

“Investments in R&D and rising localisation across large platforms, will augment value-addition, cost competitiveness, and support gross-margin expansion. Lean cost structure with improving operating profitability and NWC cycle, will aid RoE/RoCE, to improve to 24%/31% by FY25ii; while retaining strong FCF and cash chest,” the note stated.

IIFL believes BEL is on track to deliver 21% EPS cagr over FY22-24ii and is attractively priced within the sector. The brokerage house has reiterated its Buy rating on BEL shares with a 12-month target price of ₹363 apiece.

“Gradual increase in the share of localisation content in large system orders, favourable sales mix and various cost optimisation measures - will help GMs to recover to 43% in FY23ii (+200 bps YoY). Operating leverage and benign employee costs, will help BEL to deliver 23% Ebitda margin in FY23ii, and improve further,” it added.

Last month, PSU Bharat Electronics declared a bonus issue of equity shares in the ratio of 2:1, which means that an investor will receive two bonus equity shares for every one equity share held in the company. The company's board of directors decided issuance of bonus shares to the shareholders by capitalizing over ₹487 crore. Bonus shares are fully paid additional shares issued by a company to its existing shareholders. 

BEL shares are up more than 72% in a year's period whereas the PSU defence stock has surged about 55% in year-to-date or YTD terms as compared to nearly a per cent fall in benchmark BSE Sensex. Bharat Electronics Limited (BEL) is an Indian Government-owned aerospace and defence electronics company.

For the first quarter ended June 2022 (Q1FY23), the company's standalone net profit rose to ₹431 crore as against ₹11 crore recorded in the corresponding period of the previous year. As of June 30, 2022, the company's order book position is around ₹55,333 crore.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.