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* In Q1FY25, BEL delivered, better than expected performance on all the fronts and above the consensus estimate as well. Strong growth in revenue was backed by execution of six to seven main orders like LRT project achieved (~Rs.842 crore). The TBIC project for the Central Board of Indirect Taxes (Rs.300 crore). The hammer missile system (~Rs.240 crore). Platform terminals (~Rs.143 crore). The EMS program (~Rs.132 crore). The Shakti EW system supplied equipment (~Rs. 127 crore), and the Links U2 system for naval requirements (~Rs.95 crore).

* Revenue for the quarter grew by 22.5% YoY to Rs.42.4bn vs CEBPL est. Rs.42.82bn. EBIDTA came at Rs.9.48bn (+41% YoY) (vs our est. Rs 9bn). Margin came at 22.3% (294 bps YoY) vs (CEBPL est. of 21%). APAT came at Rs.7.91bn (+47% YoY) vs (our est. Rs 6.7bn). Despite increase in other expenditure by 30% YoY company able to report stellar performance on all key parameters. Management is maintaining the growth guidance in the range of ~15% for FY25. On order book front current order book stood at Rs.767bn(3.8x of FY24 revenue).

* Faster topline growth supported by capacity expansion: BEL is expanding a five new capacity namely for EWS. Weapon system, missile and defence system integration, MRO of missiles etc. Two of this facility is expected to operationalize in FY25. Management expect post commission of this facilities revenue to grow better than current growth now. Management expects at least Rs.250bn+ order in flow in FY25 and around 15% revenue growth led by execution of few large orders like EW, RADAR, Mission system (Airborne system). Management expects order inflow of around Rs500bn over the next two years without considering QRSAM, MRSAM which is under the pipeline and may be awarded in the near to medium term.

* Modernization of existing programs continue to provide healthy revenue visibility: In recent times, defense acquisitions have been on the rise across all forces, spanning warships, fighter jets, tanks, underwater platforms, UAVs, and more. These platforms are expected to yield results in the medium to long term. The Ministry of Defence (MoD) is strategically planning the modernization of existing platforms such as tanks, electronic warfare (EW) systems, Aircraft and radars through electronics upgrades. Several projects are in the pipeline, with budget allocations for fuses (Rs. 40 billion), Next-Generation Offshore Patrol Vessels (NGOPV - Rs. 25 billion), BMP Tank Upgradation program (Rs. 30 billion), and EW systems (Rs. 20 billion). These orders could materialize by the end of this year or in the subsequent financial year. BEL expects roughly 4000-5000cr opportunity for 1st set of 84 units Sukhoi upgrade out of total 230. In this program upgrade will be related to radar/EW/Radio and other communication.

* View and valuation: BEL is well positioned to gain from the growing list of Indigenization procurement and winning new order on defense electronics such as high end electronics related to defence, industrial and various civil projects. Despite trading at rich valuation, we continue to maintain our positive stance on the BEL due to its position as the sole supplier of various equipment and systems and ongoing innovation in diverse products from tri forces. We have a positive outlook on BEL, supported by 1) BEL is the direct beneficiaries of GOI’s self-reliance on defense sector,2) Rising defense spending across all segment (Naval, Army, Air Force), 3) Diversified business opportunities like Defence, Civil aerospace, Railway etc., 4) Focusing on system level integration, and strong order book. We maintain our rating “ADD” with a TP of Rs.346, valuing it on (45x of FY26E EPS) Assigning a higher multiple on account of promising domestic defence manufacturing opportunities and increasing gamut of ToT.

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