Buy Bharat Electronics; target of Rs 125: Prabhudas Lilladher

Prabhudas Lilladher's research report on Bharat Electronics

We recently attended Q3FY23 analyst call scheduled by Bharat Electronics (BEL), wherein the management sounded confident in meeting its FY23 order inflow guidance of Rs180-200bn (despite lower order inflows of ~Rs36bn in 9MFY23), factoring in orders worth Rs110-120bn already being finalized. BEL’s order pipeline remains healthy for next two years with large orders expected in defence segment such as QRSAM, LRSAM, naval systems etc. and in non-defence segment such as Air Traffic Management System-ATMS, Homeland security, Batteries etc. For FY23 management guided revenue growth of ~15% with EBITDA margin of ~20-22%. We remain positive on long term growth story of BEL given 1) strong order backlog & order pipeline 2) diversification in newer business verticals like, hydrogen fuel cell, EV batteries, ATMS etc., 3) focus on export markets (Egypt, Malaysia etc.) and 4) government emphasis towards product indigenization.

Outlook

The stock is currently trading at PE of 23.8x/19.9x/17.1x FY23/24/25E. Maintain ‘BUY’ with TP of Rs125 (same as earlier) valuing it at 23x FY25E EPS.