Buy Bharat Electronics target of Rs 208: Prabhudas Lilladher

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Prabhudas Lilladher's research report on Bharat Electronics

Bharat Electronic (BEL) reported stellar quarterly performance above our and street estimates, led by strong execution and cost optimization measures. Revenue grew 19% YoY mainly due to strong execution in large value projects such as Akash weapon system and LRSAM. Despite pandemic, OI came in at Rs155mn (up 17%) in FY21. Ordering pipeline remains robust across segments such as electronic warfare system (~Rs150bn opportunity size), army equipment’s like Akash weapon system, QRSAM, LRSAM, MRSAM (Rs250-300bn) and naval equipments like surveillance system, radars, navigation system (~Rs150-200bn) etc. Given strong bid pipeline (~Rs250bn), management guided OI of Rs150-170bn with healthy revenue growth of 15- 20% YoY and EBITDA margins in 20-22% range for FY22. Apart from gaining market share in defense segment, management is also diversifying in nondefense verticals such as EV, metros, electronic warfare, healthcare, etc. expecting to reach 25% of total revenues over next 2-3 years.

Outlook

We roll over to FY23 estimates and upgrade to ‘Buy’ rating on the stock from Accumulate, with revised TP of Rs208 (Rs110 earlier). Further we have raised our PE multiple to 17x (avg. of 10 years) from 13x earlier given improved visibility on order inflows, ramp up in execution and diversification into newer business vertical.

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