Prabhudas Lilladher's research report on Bharat Electronics
We attended analyst meet of Bharat Electronics Ltd (BEL) to understand opportunity and business outlook of the company. Management remains quite optimistic on upcoming opportunities in defense as well as non-defense space as government focus on indigenization, spending and initiative’s such as PLI schemes. In order to capitalize on huge opportunities and mitigate risk of defense, BEL is diversifying into different business verticals such as Medical Electronics, Energy Storage, Unmanned System, Space Electronics and Systems, Software Service, etc. Further, it is expanding its global footprint by entering in new regions such as Kenya, Chile, Suriname, Malaysia, Nepal and Bangladesh through strategic collaborations. Given strong tender pipeline (OI guidance of Rs150-170bn), comfortable order book (Rs558bn, 4.0x TTM revenues), healthy execution capabilities and diversification into newer business verticals like Medical Electronics, Energy Storage, Unmanned System, Space Electronics and Systems, Software Service, etc. we expect BEL to report revenue/PAT CAGR of 17%/20% over FY21-23E.
The stock is currently trading at 20.6x/17.2x FY22/FY23E. We maintain our ‘BUY’ rating on the stock with revised TP of Rs245 (Rs208 earlier) valuing the company at PE of 20x (17x earlier) on FY23E EPS of Rs12.2. TP has been revised upwards, as we believe risk of lower EBITDA margins on account of diversification has been mitigated.
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