Bharat Electronics ends FY21 on a strong note; stock hits new high

Not only are BEL’s last year’s numbers strong but the company’s guidance for financial year 2022 (FY22) is encouraging as well. For FY22, BEL intends to clock a revenue growth of 15-17% and its order inflows guidance stands at ₹15000-17000 crore. “It is banking on a combination of (1) healthy ordering for weapon systems, (2) increasing relevance of electronic warfare systems and (3) opening up of the naval air force equipment market on the back of BEL’s efforts in indigenization and (4) support from non-defense areas,” said analysts from Kotak Institutional Equities in a report on 23 June.

In FY21, BEL secured orders worth ₹15,000 crore. As on 1 April, its order book stood at ₹53,434 crore, which translates into a healthy 3.9 times FY21 standalone revenues.

Further, the company has guided for an Ebitda margin of 20-22% in FY22. Ebitda is earnings before interest, tax, depreciation and amortization; a key measure of profitability for companies. Note that Ebitda margin for FY21 stood at 21.6%, representing an expansion of 150 basis points vis-à-vis FY20. One basis point is one-hundredth of a percentage point. BEL’s FY21 revenues have increased by 9.6% year-on-year. The company said if it had been a normal situation, it might have crossed double-digit growth of more than 10% for FY21.

During the March quarter, strong execution and cost optimization measures helped BEL’s Ebitda margins expand by 300 basis points to 28.5%.

Meanwhile, the BEL stock has substantially outperformed the Nifty 200 index in the past one year. The shares now trade at around 17 times estimated earnings for financial year 2023, based on Bloomberg data. Most analysts remain positive on the stock. “Apart from gaining market share in defense segment, management is also diversifying in non-defense verticals such as EV, metros, electronic warfare, healthcare, etc. expecting to reach 25% of total revenues over next 2-3 years,” pointed out a report by Prabhudas Lilladher Pvt. Ltd.

On the flip side, lower-than-expected order inflows or margins are key risks for the stock, going ahead. “While cash flow has a lot to do with the government’s cash flow capability, BEL’s augmented integration capability could help it generate better growth/returns over 2-3 years. Any potential policy change in surface to air missiles remains a prime risk for BEL,” said a report by Edelweiss Securities on 23 June.