IGI Logo

Order inflow on expected lines

Bharat Electronics (BEL) has won orders worth Rs59bn thus far in Q1FY24. This is in line with the management’s guidance of Rs200bn of order inflow in FY24 and implies orderbook at the end of Q1FY24 is likely to be higher compared to Q4FY23 level of Rs606.9bn. We expect orders for fuses (for long-term requirement of Indian Army) and Naval platforms during the course of FY24.

In our view, with its finger in the pie in almost all the upcoming major orders over the next few years, BEL is the best play in defence space. We expect the execution of the recently won orders to commence from FY25, resulting in comfortable bill-to-book position in FY24. Taking cognisance of robust order inflow as well as book-to-bill position, we raise our P/E multiple to 27x (earlier 25x), corresponding to 3.5 deviations (earlier 3 deviations) above the past 10-year mean. We maintain BUY rating on BEL stock with a revised TP of Rs150 (earlier Rs140) and continue to recommend it as our top pick in defence space.

* Order inflow in line with expectations. BEL has received orders worth Rs59bn thus far in FY24. These include: 1) Orders for 3rd and 4th regiments of improved Akash Weapon System (AWS) upgrades from BDL worth Rs39.1bn (48.3% of total order value of Rs81bn). The improvements incorporated in AWS include high altitude operation, simultaneous engagement of multiple threats over 360 degrees, missiles fitted with RF seeker and reduced foot print; and 2) orders worth Rs19.8bn for Shakti EW & Sanket MK III (Naval Systems) - our estimate at Rs10bn, GBMES & GBUV Com Jammer systems, MKBT systems, IFF-MK-XII crypto modules and upgradation of SDP & Display of Rohini radar, training system for CMS P15B & CAMC for P28 etc. Going ahead, we believe orders from Naval platforms and fuses for Indian Army (long term) will potentially result in an order inflow of Rs200bn. Also, the execution of existing orders is likely to maintain revenue growth at 17% p.a. through to FY25.

* Significant opportunities for orderbook accretion. Besides near-term opportunity of Rs200bn, we believe MRSAM, QRSAM and ATGM orders in the medium term could add another Rs200bn. In the long 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 in most major upcoming orders. Hence, the bill-to-book ratio of 3.5x (at the end of FY23) is expected to improve further. Besides, improving indigenisation and fast developing ecosystem for its products imply margins are likely to improve and working capital cycle may remain in check

* Outlook and valuations: Sound prospects: We believe BEL is set to gain both from steady execution and orderbook accretion. Taking cognisance of steady order inflow, we perceive lower risk to our FY25E EPS of 5.6x (5% higher than street estimate). Hence, we raise our FY25E P/E multiple to 27x (earlier 25x). Consequently, our revised TP works out to Rs150 (earlier Rs140), implying 20% upside on CMP. Our revised P/E multiple corresponds to 3.5 deviations (earlier 3 deviations) above the 10-year mean. BEL is one of the strategic DPSUs that is set to receive >Rs1,100bn of order inflow over the next 5 years. We maintain BUY on BEL and recommend it as our top pick in defence space.

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