CMP (NSE) 15:58, 11 Jun
Heavy Electrical Equipment
Last updated on
03 Dec, 2020
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.