Bharat Electronics Ltd (BEL) scaled fresh highs on the National Stock Exchange on Tuesday and is up by more than 70% year-to-date.
Favourable government policies towards boosting indigenization of products through the Atmanirbhar Bharat initiative seemed to support the outlook on growth. BEL’s order book is robust led by defence orders, totalling ₹55,800 crore. The order book provides almost four years of revenue visibility.
The company has seen a strong order inflow of ₹5,300 crore in FY22 year-to-date and expects the momentum to continue thereafter. According to the management, order inflow run rates would be in the range of ₹15,000-17,000 crore in FY22.
Its order pipeline includes orders for Akash missile system, long-range surface-to-air missile systems, naval equipment and radar systems. BEL is also into project execution for the development of smart cities and manufacturing of electronic voting machines.
Analysts at Prabhudas Lilladher point out that with healthy execution capabilities, massive opportunity arising in all three defence segments, lean balance sheet, niche technology advantage and healthy market share, BEL is well placed to capitalize on upcoming opportunities.
Another factor that would help BEL drive order inflows and growth is the fact that it has 30 items in various advanced stages of development towards which it had expressed interest under the government’s Make-II initiative or industry-funded projects.
With a strong order flow to continue from the defence segment, the company is actively exploring opportunities in the non-defence space. Bharat Electronics has already been manufacturing medical ventilators and is now exploring more opportunities in medical electronics.
It is also said to be looking to diversify into software services, space electronics and systems, and ammunition among others. The non-defence segment contributed 20% to total revenue in FY21 and analysts say the figure is expected to reach 25-30% in the next couple of years.
The services business, too, remains a focus area and rising annual maintenance contracts should help here. Besides its core defence business, BEL is exploring newer segments to grow its services revenue.
As against 10-12% of defence services business revenue currently, it aims to ramp up the share of services revenues to 25% over the next five years, according to analysts at Motilal Oswal Financial Services Ltd.
With the planned expansions and diversifications, the capex intensity is also expected to increase. At ₹1,800 crore over the next three years, capex, however, can be sufficiently met by firm cash flows and a strong debt-free balance sheet.
Motilal Oswal analysts forecast a revenue growth of 11% and an Ebitda growth of 8% during FY21-24. Ebitda is earnings before interest, taxes, depreciation and amortization.
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