Strong order book, favorable government schemes to help BEL’s prospects

Favorable government policies towards promoting indigenization of products through the Atmanirbhar Bharat initiative seem to support the development approach. BEL’s order book is strong led by defense orders, overall ₹55,800 crores. The order book provides approximately four years of revenue visibility.

The company has seen strong order flow of ₹5,300 crore year-on-year in FY22 and the momentum is expected to continue beyond that. As per management, order inflow will be in the range of run rate ₹15,000-17,000 crore in FY22.

Its order pipeline includes orders for Akash missile systems, long-range surface-to-air missile systems, naval equipment and radar systems. BEL is also in the project execution for development of smart cities and manufacturing of Electronic Voting Machines.

Analysts at Prabhudas Lilladher say that with healthy execution capabilities, massive opportunities across all three defense segments, weak balance sheets, distinctive technology advantages and healthy market share, BEL is well-positioned to capitalize on the upcoming opportunities.

Another factor that will help BEL in order inflow and growth is that it has 30 items in various advanced stages of development for which it had expressed interest under the government’s Make-II initiative or industry-funded projects .

With a strong order flow to continue from the Defense segment, the company is actively exploring opportunities in the non-defense sector. Bharat Electronics is already manufacturing medical ventilators and is now exploring more opportunities in medical electronics.

It is also said to be trying to diversify into software services, space electronics and systems, and ammunition. The non-defense segment contributed 20% to the total revenue in FY21 and analysts say the figure is expected to reach 25-30% in the next few years.

The service business also remains a focus area and rising annual maintenance contracts should help here. Apart from its core defense business, BEL is exploring new areas to enhance its services revenue.

According to analysts at Motilal Oswal Financial Services Ltd, it aims to increase the share of services revenue to 25% in the next five years, as against 10-12% of revenue of defense services business at present.

With the planned expansion and diversification, the intensity of capital expenditure is also expected to increase. Feather ₹1,800 crore over the next three years, however, the capital expenditure can be adequately met by strong cash flows and a strong debt-free balance sheet.

Analysts at Motilal Oswal forecast revenue growth of 11% and EBITDA growth of 8% during FY21-24. Ebitda is earnings before interest, taxes, depreciation and amortization.