Bharat Electronics Ltd’s (BEL) consolidated revenue growth of 1% year-on-year for the September quarter (Q2FY24) to ₹4,009 crore is obviously nothing to write home about. Growth was hurt due to a spillover of executions worth ₹400 crore due to holidays and some delay in the dispatches reaching the destinations.
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However, margins were robust and order prospects promising. Thus, BEL has retained its revenue and Earnings before interest, taxes, depreciation, and amortization (Ebitda) margin guidance for FY24 of 15-17% and 21-23%, respectively. BEL’s exports revenue stood at $27 million in the first half of FY24 and the target for the year is $80-$90 million. Many analysts believe this target is achievable on the back of the government’s thrust on indigenization and strong order pipeline. However, investors should watch out for any adverse impact of the Israel Hamas conflict.
Furthermore, BEL had projected an order inflow of more than ₹20,000 crore for FY24. The good news for investors is that it has already received orders worth over ₹15,000 crore so far. As far as order pipeline is concerned, it expects large ticket orders like long-term fuse order ( ₹4,000 crore), ship-based orders ( ₹2,500 crore), electronic warfare systems for ships ( ₹2,000 crore) and battle tank upgrade programme ( ₹2,700-3,000 crore).
“Larger projects like LRSAM, QRSAM, which are ₹15,000 crore-plus each, are not included in FY24E and point to stronger FY25E-26E growth prospects,” pointed out Jefferies India analysts. LRSAM is a long-range surface-to-air missile and QRSAM refers to a quick reaction surface-to-air missile. As of 1 October, BEL’s order book stood at ₹68,728 crore. This translates into 3.8 times its trailing twelve-month revenue, according to Antique Stock Broking. Meanwhile, the company has planned a capital expenditure (capex) of around ₹700-800 crore during FY24 on modernizing its facilities and for capacity expansion. “These expansions will help BEL generate a new stream of revenue, expand margins, and be prepared for the next level of growth,” said Antique’s analysts in a report dated 1 November.
BEL’s shares have risen by 35% so far in 2023. Hereon, timely ordering of large defence orders, ramp up in exports and a pick up in execution are factors that will determine BEL’s stock movement to a good extent. Further, BEL also plans to increase its share of the non-defence portfolio to 20-25% from 10-15% now. This is seen to lower the business concentration risk and is an important check point for investors ahead.