Buy Bharat Electronics Ltd For Target Rs. 405 By JM Financial Services
Margin guidance revised upwards
Bharat Electronics (BEL) reported revenues broadly in line with JMFe. Revenue came in at INR 91.2bn, up 6.9% YoY. Company reported strong EBITDA margins at 30.6% vs 26.7% Yoy, due to operating leverage. Order inflows for FY25 came in at INR 187bn (down 46.9% YoY, high base). Order book as on FY25 stands at INR 716.5bn (3x FY25 sales), providing healthy revenue visibility going forward. Order inflows for FY26 to be c.INR 270bn, excluding QRSAM order (worth INR 300bn). QRSAM order is expected to be booked in 4QFY26, however there might be some delay and may slip to 1QFY27. Management guided for revenue growth of 15% for FY26. Management is confident to maintain EBITDA margins at 27% level, driven by increasing indigenise components in its subsystems and operating leverage. Strengthening vendor/supplier base along with internal process improvement will help company to execute projects faster. Capex planned to be c.INR 10bn/year for next couple of years towards capacity expansion. BEL continues to explore new growth opportunities through diversification, capability enhancement, competitiveness, modernization and export initiatives.
* Better than expected operating margins: Net sales grew 6.9% YoY to INR 91.2bn, broadly inline with JMFe of INR 93.6bn. EBITDA grew 22.3% YoY to INR 27.9bn (JMFe of INR 23.8bn) and EBITDA margin expanded 380bps YoY to 30.6% above JMFe of 25.4%), mainly due to lower other expenses as % of sales (9% vs 14.3% YoY) benefiting from scale of operation. PAT grew 18% YoY to INR 21bn, (JMFe of INR 18.7bn). FY25 revenue/EBITDA/PAT grew 17.3%/35.4%/31.5% YoY.
* Order book stands healthy: In FY25 BEL reported order inflows of INR 187bn, vs management guidance of INR 250bn. Order book at end of FY25 stands at INR 716bn (3x FY25 sales). Order book comprises of LRSAM, Himshakti EW, Akash Prime, EW suites, Akashteer projects, Rudra radar etc. Top 12 orders accounts for 40% of total order book. QRSAM projects: Order is worth INR 300bn and project is progressing well. Management expects to bag order in 4QFY26, with chance of it getting slipped to 1QFY27.
* Maintain BUY with revised TP of INR 405: We remain positive on BEL given strong order backlog (INR 716bn) providing revenue visibility, sustained steady margin profile, healthy order prospects, increasing business opportunity from Indian Navy (indigenization and increasing fleet), continuous focus on diversification (including anti-drone system) & exports markets and indigenisation push by GoI. Factoring in strong EBITDA margin guidance, we revise upwards our EPS estimates by 3.6%/4.3% for FY26/27E. We expect revenue and PAT CAGR of 16%/12% over FY25-27E. Maintain Buy rating on stock with revised TP of INR 405 (INR 360 earlier), valuing it at 45x FY27E (42x FY27E EPS earlier), on back of strong defence outlook and order pipeline.
* Key Risk: Delay in ordering activity and lower than expected margins.
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SEBI Registration Number is INM000010361
