IGI Logo

Bharat Electronics’ (BEL) Q4FY23 performance was ahead of street estimates on all counts. In FY23, management met its guidance for order inflow of Rs205bn, revenue growth of 15% and EBITDA margin of 21-23%. Key points: 1) EBITDA at Rs18.3bn (up 16% YoY) was 8% ahead of street estimates; 2) orderbook at Rs607bn implies bill-to-book ratio of 3.5x; 3) EBITDA margin rose to 28% in Q4FY23 (FY23: 23%); 4) receivable days were stable YoY at 148; cash & equivalents were at Rs3.9bn vs Rs1.3bn in FY22; and 5) cash dividend of Rs1.2/share thus far for FY23, besides, bonus share issue of 2:1 in Sep-22.

Going ahead, management has guided for order inflow of Rs200bn, revenue growth of 17% YoY and EBITDA margin of 21-23% (incl. other income) for FY24. We introduce FY25E numbers at this stage and expect 12.6% EPS (FY23-FY25E) CAGR. In our view, with its finger in the pie in almost all the upcoming orders over the next few years, BEL is the best play in the defence space. We roll-over the valuation to FY25E and maintain BUY rating on the stock with a revised TP of Rs140 (earlier Rs125) on an unchanged 25x FY25E EPS.

* Performance ahead of estimates; orderbook concerns allayed. BEL’s Q4FY23 performance was ahead of street’s estimates and achieved management’s guidance for FY23. Key points: 1) Orderbook has risen to the highest-ever level of Rs607bn, implying bill-to-book ratio of 3.5x (ttm); 2) EBITDA margin rose to 28% owing to raw material sourcing efficiencies and higher value of production (VoP)/material cost ratio; 3) other expenses during the quarter rose 46% YoY to Rs7.3bn owing to liquidated damages (LD) charge of Rs3.6bn; 4) working capital for FY23 remained firmly in control with receivable days unchanged YoY at 148 and higher cash balance at Rs3.9bn; and 4) Board recommended second interim dividend of Rs0.6/share. Going ahead, management expects growth momentum to sustain with EBITDA margin at 21-23% and revenue growth of 17% YoY in FY24.

* Significant opportunities for orderbook accretion. During Q4FY24 earnings call, the management guided for an order inflow of Rs200bn in FY24, comprising: 1) Rs40bn from Akash 3rd and 4th regiment orders; 2) Rs45bn from long term fuse requirement contract; 3) Rs50-60bn from the recently issued orders of naval platforms; and 4) Rs10bn from Shakti EW system for Indian Navy. In addition, we believe MRSAM, QRSAM and ATGM orders in medium term could add another Rs200bn. In the longer term, we believe orders from Tejas Mk1A and Mk2 as well as next-generation corvettes are likely to keep orderbook robust. In our view, BEL is significantly immune to potential delays or lower spending as it has exposure to most major upcoming orders. Hence, the current bill to book ratio of 3.5x is comforting. Besides, improving indigenisation and fast developing ecosystem for its products imply margins are likely to improve and working capital cycle is expected to remain in check.

Outlook and valuation: Robust potential- We believe BEL is set to gain both from steady execution and orderbook accretion. We maintain BUY on BEL stock with a revised TP of Rs140/share (earlier Rs125) on 25x FY25E EPS. Slower-than- expected orderbook build up is the key risk to our thesis.

To Read Complete Report & Disclaimer Click Here

For More ICICI Securities Disclaimer https://www.icicisecurities.com/AboutUs.aspx?About=7

Above views are of the author and not of the website kindly read disclaimer