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Strong performance continues; positive outlook intact

Bharat Electronics (BHE) reported numbers above expectation, with revenue growing 19.6% YoY to INR 42bn and EBITDA margins expanding 340bps YoY. Order book as on 1QFY25 stands strong at INR 767bn (3.7x TTM sales). Order pipeline continues to remain robust for next couple of year, driven by government focus on product localization and increasing government capex on defence sector. BEL expects to bag orders worth INR 250bn, in FY25. QRSAM (project worth INR 250bn) all trails are completed successfully and orders are expect to be placed in FY26. Order pipeline for FY26 stands at INR 500bn (incl. QRSAM order). Management reaffirmed its revenue guidance of 15% growth for FY25; with EIBTDA margins of 23%-25%. BEL will continue to explore new growth opportunities through export initiatives, diversification, capability enhancement, competitiveness and modernisation. Capex planned for FY25 stands at INR8bn.

* Revenue reported strong growth for 1QFY25: Net sales grew 19.6% YoY to INR 42bn above JMFe INR 38.8bn, driven by strong opening order backlog (INR 759bn, 3.8x TTM sales as on FY24). EBITDA grew 41% YoY to INR 9.4bn (JMFe of INR 7.5bn). with EBITDA margin expanding 340bps YoY to 22.3% (JMFe 19.2% and con. est of 21.3%), mainly driven by gross margins expansion of 200bps and lower employee cost as % of sales (15.7% vs 17.8% YoY). Other expenses were higher by 30% YoY due to higher provision of LD’s (INR 1320mn vs INR 540mn YoY). PAT grew 46.2%YoY to INR 7.8bn, (JMFe of INR 5.9bn).

* Order book stands strong at INR 767bn: Order inflow during the quarter came in c.INR 48bn (down 40% YoY, high base). Order book stands as on Jun’24 stands at INR 767bn (3.7x TTM sales, up 17.4% YoY). Off the total order book- Defence accounts for 85.8%, non-Defence 11.3% and exports 2.9%. Order pipeline continues to remain strong with expected orders like ADFCR Atulya, EW suite B17, security & surveillance system for Army, mountain radar etc.

* KAVACH to be a add on for diversification plans: Supply challenges of Kavach systems from existing vendor (three existing), has opened up a new opportunity for BEL. BEL is in process of developing prototype of KAVACH system and Indian Railways has granted BEL an 18-month timeline for same. It will take another 24 months for BEL to generate revenue from same. BEL opportunity size stands at INR 200-300bn over 5-6 years.

* Maintain BUY with TP of INR 360: We remain positive on BEL given strong order backlog, strong revenue visibility, sustained steady margin profile, healthy order prospects, continuous focus on diversification & exports markets and continued indigenisation push by GoI. We have assumed order inflows of INR 700bn for FY25 and FY26 combined, vs management guidance of INR 750bn (excl. QRSAM INR 500bn guidance). Factoring this, we expect revenue and PAT CAGR of 20% over FY24 - FY26E. We maintain BUY rating on stock with TP of INR 360 valuing it at PE of 45x FY26E (earlier 40x FY26E), factoring in strong order pipeline and defence outlook

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