Bharat Electronics rating – Buy: FY21 performance impressed again

he alternative from SDR can be important with BEL already supplying SDR (Naval fight) model and SDR-Air being underneath analysis.

Bharat Electronics (BEL) continues to impress with a 9% y-o-y topline progress and 150bps y-o-y standalone Ebitda margin enlargement for FY21 – a 12 months with a close to misplaced Q1FY21 (revenues declined 20% y-o-y in Q1FY21) on account of the pandemic. There was a working capital launch of Rs 23 bn for FY21, pushed by Rs 28 bn of H2FY21 working capital launch – one other exceptional statistic. So as to add to the achievements, order acquired has been Rs 152 bn (~Rs 54 bn for Q4FY21), thereby sustaining a wholesome ebook to invoice of three.9x on FY21e (standalone) topline of ~ Rs 140 bn. BEL’s efficiency continues to face out (execution + margin + orderbook visibility) inside listed DPSU house. We proceed to keep up Purchase with a revised goal value of Rs 177 (Rs 153 earlier).

FY21 order influx at Rs 152 bn: The FY22 order pipeline can be fairly seen with ~Rs 125 bn of missile orders to BDL and Rs 380 bn of LCA Mk1A orders to HAL. Q4FY21 witnessed Rs 10 bn of order influx from Software program outlined radio (tactical) for Indian Navy. The chance from SDR can be important with BEL already supplying SDR (Naval fight) model and SDR-Air being underneath analysis.

Close to-term order alternatives: BEL has already accounted for execution of avionics associated to LCA Mk 2 as HAL has obtained LoI for a similar. Future alternatives embrace Jammer for LCA. Additionally, LUH and LCH (helicopters) might permit sensors and weapons to considerably increase BEL’s avionics income.

Onus shall be on diversification and execution: BEL targets: (i) civilian section to extend from 7% of topline to fifteen% within the subsequent 2- 3 years; (ii) to extend the present 10% income contribution from service sector; (iii) seize a pie of the income expenditure finances of the Armed Forces through entry into digital fuses and RF seekers (new complicated in Machilipatnam to be commissioned quickly); and (iv) acquire share within the base enterprise, i.e. integration of missile complicated (Palasamudram; one other separate SBU for QRSAM in Bengaluru), entry into ammunition, and many others. Diversification away from defence enterprise is vital to realize medium-term visibility on double-digit income progress.

Preserve BUY: We worth BEL at 17x FY23e earnings (vs 15x FY22e earlier). We preserve Purchase with a revised TP of Rs 177/share. BEL continues to shock on execution, margins, order influx, progress regardless of reaching a commendable scale (in comparison with Indian defence finances) – FY21 efficiency highlights the power of underlying enterprise mannequin.