Bharat Electronics Ltd (BEL) hit new highs on the National Stock Exchange on Tuesday and is up more than 70% since the start of the year.
Supportive government policies aimed at stimulating the indigenization of products through the Atmanirbhar Bharat initiative appeared to support growth prospects. BEL’s order book is solid, driven by defense orders, totaling ??55,800 crores. The order book provides nearly four years of revenue visibility.
The company recorded a significant influx of orders for ??5,300 crore in FY 22 year-to-date and expects momentum to continue thereafter. According to management, order entry rates are in the order of ??15,000 to 17,000 crore in FY22.
Its order portfolio includes orders for Akash missile systems, long-range surface-to-air missile systems, naval equipment and radar systems. BEL also participates in the realization of smart city development projects and the manufacture of electronic voting machines.
Prabhudas Lilladher analysts point out that with sound execution capabilities, massive opportunities in all three defense segments, a lean balance sheet, a niche technology advantage and a healthy market share, BEL is well positioned to capitalize on the opportunities to come.
Another factor that would help BEL drive new orders and growth is the fact that it has 30 items in various advanced stages of development that it has expressed interest in as part of the government’s Make-II initiative or of industry funded projects.
With a significant flow of orders to continue in the defense segment, the company is actively exploring opportunities in the non-defense area. Bharat Electronics already manufactures medical ventilators and is now exploring new opportunities in the field of medical electronics.
It is also said to be looking to diversify into software services, electronics and space systems, and ammunition, among others. The non-defense segment contributed 20% of total FY21 revenue, and analysts estimate that figure is expected to rise to 25-30% over the next two years.
The service activity also remains a priority area and the increase in annual maintenance contracts should contribute to this. In addition to its core defense business, BEL is exploring new segments to increase its service revenues.
From 10-12% of defense services business revenue currently, it aims to increase the services revenue share to 25% over the next five years, according to analysts at Motilal Oswal Financial Services Ltd.
With the planned expansions and diversifications, investment intensity is also expected to increase. TO ??1,800 crore over the next three years, however, capital expenditures can be sufficiently covered by firm cash flow and a strong, debt-free balance sheet.
Motilal Oswal analysts forecast revenue growth of 11% and EBITDA growth of 8% in fiscal years 21-24. EBITDA is earnings before interest, taxes, depreciation and amortization.
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