Buy Bharat Electronics Ltd For Target Rs.323 By Geojit Financial Services Ltd
Better product mix boost margins…outlook intact
Bharat Electronics Ltd. (BEL) is a Navaratna enterprise with a 37% market share in Indian defence electronics. BEL’s core capabilities are in radar & weapons systems, defence communication, & electronic warfare
* In Q2FY25, revenue was up by 15% YoY, which was largely in line with our estimates due to better execution. While net profit surged by 34.3% YoY.
* EBITDA grew by 38% YoY, and margin was up by 510bps YoY to 30.3%, led by a better product mix and lower cost.
* The current order backlog is at Rs.74,595cr (3.2x FY25E sales), providing strong visibility for the next 3–4 years.
* The Q2 order inflow was at ~Rs.2,473cr, while the total order inflow guidance for FY25E & FY26E is maintained at ~Rs.50,000cr. If QRSAM fruitions, additional Rs.25-30,000cr orders will be added to order inflow over FY25E-26E.
* Margin profile in the range of ~24-25%, while profitability is anticipated to grow by 18.2% CAGR over FY24-26E.
Outlook & Valuation
We reiterate our positive outlook on BEL given the government's thrust in domestic manufacturing, increasing electronics share in defence, its market leadership position, a strong order backlog, and healthy margin profile. Given upgrade in our estimates and sharp correction in stocks prices, we value BEL at P/E to 42x on FY26E EPS and maintain upgrade to BUY from Hold rating with a target price of Rs.323.
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