Bharat Electronics shares rise on advanced medium combat aircraft deal

Bharat Electronics: Bharat Electronics in pact with Delhi Metro Rail Corporation to develop train control system. The Navratna defence PSU has signed a Memorandum of Understanding (MoU) with Delhi Metro Rail Corporation (DMRC) for jointly developing the indigenous communication-based train control system (i-CBTC). This is an important milestone in India's journey towards self-reliance in Rail and Metro operations.

Shares of Bharat Electronics (BEL) edged up on February 22 following an announcement that the company had signed a deal with the Aeronautical Development Agency (ADA) and the Defence Research and Development Organisation (DRDO) for an advanced medium combat aircraft (AMCA) programme.

Amid weakness in the overall market, the defence company’s stock failed to sustain gains. At 9:16am, the shares of the company traded 0.3 percent lower at Rs 95.30 on the BSE.

The deal outlines a collaboration between the companies to design, develop, and produce the Internal Weapon Bay Computer and other LRUs for the AMCA, with the aim of providing lifetime product support to the Indian Air Force.

Sharekhan pointed out that its order backlog stood at Rs 50,116 crore, down 11 percent on-year and 5 percent on-quarter, indicating that order inflow in the third quarter has not been very strong.

Despite the order book receding to a two-year low, BEL's management remains confident in the company's future prospects. In an analyst call to discuss Q3FY23 results, the company announced that it expects new facilities to be completed within the next 2-3 years, which will aid in meeting upcoming requirements for defence orders.

BEL has budgeted for capital expenditures of Rs 600 crore and Rs 600-800 crore for FY23 and FY24, respectively.

Of the current order book of Rs 51,200 crore, almost 75-80 percent is on a nomination basis, with around Rs 46,000 crore (80 percent) coming from the defence sector. ICICI Securities noted that the order book accretion is a major driver of stock performance, and that they will be monitoring the near-term orders that the company is expecting.