Bharat Electronics

Buy - BEL

CMP (NSE) 15:58, 11 Jun

154.05 21.32%




Heavy Electrical Equipment

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Last updated on

03 Dec, 2020

Bharat Electronics (BEL), 51% owned by the Government of India, is primarily a supplier of electronic equipment to Indian defence services. It supplies electronic products such as radars, sonar, communication equipment, electronic warfare equipment and navigation equipment to the Indian defence forces and the civilian sector.

Upbeat on FY21 growth prospects: Despite Covid headwinds, BEL has been able to swiftly recover from various disruptions and open-up new growth avenues in high-grade medical equipment during the pandemic. BEL is confident of double-digit (10-12%) revenue growth in FY21, led by the execution of a strong order book (Rs52.7bn, 4.1x TTM sales), while cost discipline and execution of one squad of the Akash missile (with ~90% indigenisation) will help sustain operating profitability. NWC, which increased due to higher receivables in 1HFY21, is expected to ease by Dec-2020, with higher budgetary allocation for defence procurement. 
Thrust on domestic procurement improves visibility: BEL will cater to >35 products in 101 systems notified under negative list and expect continuous additions to this list (1000+ items under review). Inflows would see sustainable growth, beyond Rs150bn in FY21, via various system orders & avionics. Diversification by FY22-23 in fuses & seekers will also make BEL a continuous supply chain partner of the services. High growth likely in civilian, services & exports verticals: Diversification in the civilian segments – e.g. transportation, medical equipment, smart cities, homeland security systems, space and digitalisation (e-governance) − will de-risk the company portfolio and double its revenue share to 15% by FY24ii. It is also hopeful of a 2.5x OB in defence exports (radars & communication systems) and 10-15% Cagr in services, over three years.   
Attractive Valuations: BEL is currently trading at 12x FY22ii EPS (close to -1SD). We expect a EPS Cagr for FY21-23ii EPS of 18% (post 2-4% upgrade) and RoE of 19-20%. We recommend a BUY on BEL with a target price of Rs139.

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