Buy Bharat Electronics (BEL); Target of Rs 125: Prabhudas Lilladher
Prabhudas Lilladher Research Report on Bharat Electronics (BEL)
Bharat Electronics (BEL) results were broadly in-line with estimates. BEL reported revenue of Rs39.5bn (up 7.8% YoY) and PAT came in at Rs6.1bn (flat YoY) in Q2FY23. H1FY23 EBITDA margin improved 204bps YoY to 19.4%, owing to better absorption of fixed overheads. Order inflows came in at ~Rs13.6bn (down 49.3% YoY) in Q2FY23, while order book stood at ~Rs528bn (3.1x TTM revenue), providing revenue visibility for the next couple of years. Order pipeline stands strong from Akash weapon system, QRSAM, LRSAM, and Naval equipment like surveillance systems, radars, navigation systems, etc. The company has been focusing on diversification in non-defense verticals such as EV, metros, electronic warfare, healthcare, homeland security, etc.
Moreover, BEL recently signed an MoU with Triton Electric Vehicle Pvt. Ltd (TEV) for manufacturing Hydrogen Fuel cells, with technology transfer from TEV. BEL also bagged an order worth Rs80.6bn from Triton Electric Vehicle India Pvt Ltd. (in Q3FY23), for supplying Li-Ion Battery Packs. Earlier management guided revenue growth of ~15%, with an EBITDA margin in the range of 20-22% and order inflows of ~Rs200bn for FY23.
Prabhudas Lilladher’s Outlook on Bharat Electronics (BHE IN)
We remain positive on the long-term growth story of BEL given 1) its strong order backlog & order pipeline 2) its recent MoU in a hydrogen fuel cell, 4) diversification in newer business verticals like medical equipment, hydrogen fuel cell, EV batteries, etc., 5) focus on export markets and 6) government focus on product indigenization, etc. We expect BEL to report revenue and PAT CAGR of 16.6%/19.1% from FY22 to FY25E. The stock is currently trading at a PE of 27.5x/23x/19.8x FY23/24/25E. We maintain a ‘BUY’ rating on the stock with a Target Price of Rs125 (same as earlier) valuing it at 23x FY25E EPS. The share price of BEL is currently (11 am 28 Oct 2022) trading at 105.65 on NSE down 2.04% from the previous close.
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