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About the stock: Bharat Electronics (BEL) is a leading aerospace and defence electronics company. It primarily manufactures advanced electronics products

• Multi-product, multi-technology - diverse product range including radar, missile systems, electronic warfare & avionics, anti-submarine warfare, electro-optics, homeland security, civilian products, etc

• FY23 Revenue mix : Defence ~87%, Non-defence ~11% and Exports ~2%

Key Investment Thesis:

• Increasing requirement of indigenised modern defence platforms provides a massive opportunity in defence electronics: BEL is favourably positioned to capture the larger pie of huge opportunity in Indian defence & space electronics systems/sub-systems or components industry which is expected to clock 13-14% CAGR over FY22-27 with the share of defence electronics (in total defence production) increasing to 40-42% by FY27 (vs. current share of 36-37%). BEL is expected to be the key beneficiary in this impending opportunity in indigenisation of defence platforms considering its strong technical expertise and capabilities in designing, developing and manufacturing a wide range of strategic electronic products/systems

• Healthy order-book position with robust orders pipeline provides strong visibility: Post the recent orders of | 8091 crore received in YTDFY24, order backlog is estimated to be at ~| 65000 crore at the end of June 2023 (3.7x FY23 revenues) which provides strong revenue visibility. We believe that the company would be able to meet its total order inflow guidance of ~| 20000 crore in FY24 (only considering orders with high possibility) considering the strong order pipeline of other electronic warfare & radar systems. We believe that order inflows during FY24 & FY25E will be higher than management’s annual guidance of | 20000 crore led by large scale defence projects like QRSAM, MRSAM and non-defence projects

Rating and Target Price

• Healthy order-backlog with robust order inflows and future pipeline provides strong earnings visibility. Company’s strategy to diversify into nondefence, focus on increasing exports & services share would aid long term growth and help de-risk its business. We expect revenue, EBITDA to grow at a CAGR of 17.7%, 15.5%, respectively, in FY23-25E aided by sustained margins at ~22%. Balance sheet remains strong with healthy returns ratios

• We maintain our BUY rating on the stock

• We value BEL at | 160 per share (based on 30x FY25 P/E)

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