Bharat Electronics: Meets FY23 guidance

3 Apr 2023 , 10:20 AM

Recommendation: Buy

Target Price: Rs 139

Healthy closing order book of Rs605 billion (+5% YoY, 3.5x TTM sales) ensures healthy visibility for 15% revenue CAGR over FY23-25. Further, management guides to sustain Rs200 billion annual inflows in FY24 irrespective of the timing of QRSAM (Rs350-400 billion project), where the size of the Ph-I project award is not clear). Analysts at IIFL Capital Services have kept their forecasts unchanged.

Meets inflow targets despite slippage of Akash to FY24

Despite 9MFY23 inflows of barely Rs35 billion,the company managed to close FY23 with inflows worth Rs202 billion led by bunching of project awards in March 2023 (~Rs165 billion). Key projects include – Arudhara, Himshakti, Akashteer, Sarang, DR-118 for Su-30. Akash missiles order from Indian Army has been awarded to BDL and receipt to BHE is expected in Q1FY24 (~Rs40 billion). Award of various MRSAM units for naval vessels, Akash Missiles, fuzes among others are expected to drive similar inflows of Rs200 billion+ in FY24 as well (excludes QRSAM).

Provisional revenues indicate marginal growth in Q4FY23

BHE has met its FY23 revenue guidance of 15% YoY growth, with provisional sales of Rs173 billion (ex-OOI), implying 2% YoY growth in Q4FY23. Q4FY23 was expected to be soft on revenues given 9MFY23 revenue growth of 24%. While actual numbers tend to be slightly better than provisional results, the 4% gap versus IIFL estimates for FY23 may narrow down, but not entirely bridge. Export revenues bounced back with 40% YoY growth.

Quality defensive bet with high growth visibility

Analysts at IIFL Capital Services continue to reiterate BUY on BHE given strong nature of its book and greater certainty on execution and profitability, irrespective of challenging macroeconomic environment. Valuations are inexpensive at 20x FY24 and 16x FY25 estimated EPS.