Buy Bharat Electronics Ltd For Target Rs.135 - ICICI Direct
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Turns ex-bonus today
About the stock: Bharat Electronics (BEL) is a leading aerospace and defence electronics company. It primarily manufactures advanced electronics products.
* Multi-product, multi-technology- diverse product range including radar, missile systems, electronic warfare & avionics, anti-submarine warfare, electro-optics, homeland security, civilian products, etc
* Focus to increase the non-defence share to ~20% over two to three years
Turns ex-bonus today
* The company had made an announcement regarding bonus issue on August 4, 2022. The issue of bonus shares is in the ratio of 2:1 i.e. two new bonus equity shares each for every existing equity share
* Ex-bonus date is today i.e. September 15 and record date for the same is September 16. Accordingly, the share price has been adjusted to opening price of | 112/share against closing price of | 336/share yesterday
* Hence, we revise our target price to | 135/share post this corporate action. We maintain our BUY rating on the stock and value Bharat Electronics based on 30x P/E on FY24 EPS
Key triggers for future price performance:
* Strategy to diversify into non-defence areas, focus on increasing exports and services share would aid long term growth and help de-risk its business
* Order backlog at | 55,333 crore as of June 2022 end (~3.3x TTM revenues). Strong order pipeline in FY23-24E
* The major orders in the pipeline are: Akash Prime from Bharat Dynamics worth | 4,000 crore, Himshakti Electronic Warfare (EW) worth | 3,200 crore, Arudhra Radar worth | 3,000 crore, EW system for Mi-17 helicopters worth | 1,500 crore, electronic warfare systems for ships worth | 12,000 crore, 12 weapon detecting radars (WDR) worth | 1,000 crore
* Major orders expected in FY24E in quick reaction surface-to-air missile (QRSAM) worth | 20,000 crore, medium range surface to air missile (MRSAM) worth | 15,000-20,000 crore. Army is in process of taking up acceptance of necessity (AoN) post which they will issue RFP after approvals
* We expect revenue, EBITDA to grow at a CAGR of 18.5%, 20.1%, respectively, in FY22-FY24E aided by sustained margins in range of ~22%
* Strong balance sheet, double digit returns ratios
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