Big wins set the stage for BEL to beat FY24 order inflow target

Shares of Bharat Electronics Ltd (BEL) have been hitting new highs of late. On Monday the state-owned aerospace and defence electronics company’s stock scaled a new 52-week high at 163.25. This momentum follows the announcement of significant order wins totalling 3,915 crore last week, including a 580-crore order from the Indian Army for artificial magnetic conductors (AMC) used in radars.

BEL also secured orders worth 3,335 crore for various defence systems, such as artificial magnetic conductors for airborne early warning & control systems, and uncooled thermal imaging sights. With this, its order inflow stands at 18,298 crore so far in FY24.

Amit Anwani, an analyst at Prabhudas Lilladher said, “The recent order win has mitigated the risk of (BEL) falling short of its order inflow guidance, bringing significant relief and enthusiasm to investors.”

The company had projected an order inflow of more than 20,000 crore in FY24. ICICI Securities believes BEL will receive orders worth 6,800 crore for fuses for the Indian Army and sub-systems for naval platforms, taking its total order inflow for FY24 to 25,000 crore.

“As a result, we believe the management might revise up its earnings/order inflow guidance,” ICICI Securities wrote in a note dated 7 December. For FY24, the company projected revenue growth of 15-17% and Ebitda margin growth of 21-23%. Ebitda stands for earnings before interest, tax, depreciation, and amortization and is a measure of profitability. For the six months to September (H1FY24), year-on-year revenue growth stood at 6% year-on-year and the Ebitda margin growth was 22.4%.

So far in 2023, BEL shares have risen by about 60%, mainly because of the government’s increased spending on defence and focus on indigenisation, improving the share of its non-defense segments, and the rising share of exports. Steady execution and a healthy order pipeline have also helped the stock climb higher.

Order execution will be tracked closely, keeping in mind the upcoming general elections. Moreover, there is a potential risk of a delay in awarding key orders, such as for quick reaction surface-to-air missiles (QRSAM).

During its Q2 earnings call, the company said it was confident that big projects such as QRSAM, LRSAM (long range surface-to-air missile), radar systems, tank electronics, and tank-upgrade programmes would boost BEL’s growth. The stock trades at 30 times estimated FY25 earnings, according to Bloomberg data. While this may be considered expensive, Anwani believes that the broader market momentum and the upward trend in defence stocks justify BEL’s valuation.

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