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Bharat Electronics (BHE) reported its provisional results for FY23, reporting 15% sales growth for FY23 and marginal growth of 1% YoY for 4QFY23. This was in line with management guidance of 15% growth for full year (4% below JMFe for 4QFY23), on the back of ease in semiconductor supplies and better order execution. Further, release of large value orders by MoD in the month of Mar’23 led to healthy order inflow growth of 6% YoY to INR202bn (1.2x TTM sales) for FY23, thus meeting the optimistic guidance given by the management. Radars, electronic warfare and automated air defence control and reporting systems contributed larger share of these inflows. Given a 15% CAGR in order inflows in last 5 years, the current order book stood at INR605bn, resulting in an improved revenue growth visibility over next 3 years. We expect sales growth to sustain on a) robust order book of INR 605bn, +5% YoY (3.4x TTM sales), b) 4th positive indigenisation list to present opportunity of INR300bn over next 4-5 years, c) non-defence revenue share increase due to growth in EVMs, smart cities, fibre optic and doubling of exports, d) diversification in new business segments of energy storage, solar cells, space electronics, unmanned systems, etc. and e) focus on export of defence equipment, specifically platforms like missiles and commun

* Marginal lower revenues for 4Q23: Bharat Electronics (BHE) reported in-line FY23 provisional numbers, as net sales stood at INR 173bn, +15% YoY, in line with JMFe given better execution of the order backlog. For 4Q22, revenue came at INR 62.9bn (+1% YoY) lower by 4% vs JMFe.

* Order inflow surprised positively: Order inflows surprised positively in 4QFY23 and reported growth of 132% YoY at INR 167bn. OI in FY23 came in at INR 202 bn vs JMFe: INR161 bn (1.2x TTM sales), increasing the order book to INR605bn (3.4x TTM sales), while the order pipeline indicates that annual inflows may range in INR180-200bn per annum over next 2 years. Major orders acquired were Himshakti, Arudhra radar, Akashteer, EW suite, etc.

* Exports growing at a fast pace: The company achieved export sales of around USD 46.5mn during FY23 against sales of USD 33.3mn registering a growth of 40% YoY. Major products exported include Transmit & Receive (TR) Modules, Radar Warning Receiver (RWR), Control Cards, Link-II Systems, Compact Multi-Purpose Advanced Stabilisation System (CoMPASS), Low Band Receivers (LBREC), Medical Electronics, etc. The company has acquired export orders worth USD 75.7mn during the year FY23.

* Maintain BUY with a TP of INR130: We maintain our positive view on Bharat Electronics, due to its steady margins over past 7 years despite several headwinds, consistently improving order book and a robust balance sheet. We maintain BUY with TP of INR125 (25x FY25E EPS), as we forecast sales and EPS CAGR of 14%/18% over FY23-25E, led by better than expected order inflows, faster indigenisation of defence subcomponents. Key risk is sharp cut in defence capex by government.

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