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Better than expected performance

BHE’s 1QFY25 results came ahead of estimates, driven by better-than-expected revenue and PAT. Revenue growth was led by a strong order book, which stood at INR767b. Order inflows stood at INR49.6b. The company has maintained its guidance on revenues and order inflows despite a strong execution in 1Q. We maintain our estimates and TP of INR360 on BHE with a BUY rating on the stock.

Results outperformed expectations

BHE’s performance was ahead of our estimates during 1QFY25. Revenue grew 20% YoY to INR42b (est. INR37.8b), led by strong execution of the order book. Gross margin was up ~190bp YoY at 45.4%. EBITDA grew 41% YoY to INR9.4b, with margin at 22.3%, up ~240bp YoY. PAT grew 46% YoY to INR7.7b (4% beat). The order book stood at INR767b, up 17% YoY. Order inflows stood at INR49.6b, down YoY. Order inflows were diversified across BMP 2 upgrade, T/R module, MPR radar, Akash AMC, CMS system, spares for ships etc. The company has maintained its guidance of 15% growth in revenue and EBITDA margins in the range of 22-23% for FY25. It has also maintained its order inflow guidance of INR250b each for FY25/FY26, excluding the QRSAM project.

Strong FY24 inflows of INR350b took order book to record high of INR760b

BHE targets order inflows of INR250b in FY25, which can include projects such as air defense fire control radar – Atulya, security and surveillance system for army, EWC radar, mountain radar, Ground Based Mobile ELINT System, Shivalik, combat weapon systems, etc. QRSAM trials are completed and it is expected to be finalized by 1QFY26, which would be an additional inflow of INR200-250b. BHE’s scope of work in Sukhoi would include supply of radar, EW systems, radio and communication system and this would be an opportunity worth INR40-50b from the first batch of 84-100 number of Sukhoi upgrades. BHE is also eyeing orders from Kavach from Indian railways, Netra and Uttam radar.

Supply chain issues have largely eased out

BHE’s revenue growth was strong at 20% YoY in 1Q. Key projects contributing to revenue growth during the quarter included LRSAM (INR8.4b), civil sector project (INR3b), hammer missile system (INR2.4b), platform terminal (INR1.4b), IACCS (INR1.3b), EW system (INR1.3b), naval systems (INR950m), etc. Going ahead too, execution over the next two years would come from projects like Akash, LRSAM, Himshakti, Arudra radar, air defense control, etc.

Financial outlook

We keep our estimates unchanged and expect a CAGR of 19%/19%/22% in revenue/ EBITDA/PAT over FY24-27. We expect OCF/FCF to remain strong over FY24-27, given its control over working capital. Further, the company has a cash surplus of INR39b (as of FY24), providing scope for further expansion in capacities.

Key risks and concerns

A slowdown in order inflows from the defense and non-defense segments, increased competition, further delays in finalization of large tenders, a sharp rise in commodity prices and delays in payments from MoD can adversely impact our estimates on revenues, margins and cash flows

Valuation and view 

BHE is currently trading at 39.4x/32.5x on FY26E/FY27E EPS. We maintain our twoyear forward TP of INR360 and maintain BUY rating on BHE.

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