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BEL reported earnings of ?5.36 bn, against a yoy profit of ?4.3 bn while sequentially all the numbers were down as seasonally Q4 is the strongest quarter as bulk of the order execution happens in that quarter. Therefore analysing the numbers on yoy basis is practical. Revenues grew by 12.8% yoy at ?35.1 bn. EBITDA grew strongly by 29.3% yoy at ?6.64 bn. On the margins front, EBITDA margins came in at 18.9% which were 240 bps up yoy and were clearly better than BEL’s Q1 trend over the past. BEL received strong ?59 bn of orders in FY 24 so far led by multiple mid-to large-value project awards. In line with past trends, half of the Q1 orders accrued from large-scale projects (?39bn Akash in Q1FY24), with multiple base orders in the range of ?3-4bn. This implies that the order book should be surely higher than ?607 bn at the end of FY24.

Strong defence order pipeline gives us confidence for long term visibility

BEL has received orders worth ?59bn so far in FY24. These include: 1) Orders for 3rd and 4th regiments of improved Akash Weapon System (AWS) upgrades from BDL worth ?39.1bn (48.3% of total order value of ?81bn). 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 ?19.8bn for Shakti EW & Sanket MK III (Naval Systems) - estimated at ?10bn, 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 ?200bn. Also, the execution of existing orders is likely to maintain revenue growth at 16-17% through to FY25.

Sizeable opportunities for order-book expansion

Besides near-term opportunity of ?200bn, we believe MRSAM, QRSAM and ATGM orders in the medium term could add another ?200bn. 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.

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