Provisional revenues in FY21 higher than expected; upgraded to ‘Buy’ rating with revised TP of Rs 153
Bharat Electronics (BEL) reported higher than expected FY21 provisional revenues (in line with guidance) at Rs 135 bn. This highlights the (i) buoyancy in defence budget seen over CY20; (ii) BEL’s ability to keep diversifying its revenue stream as indicated by the execution mix; and (iii) BEL’s ability to execute in an accelerated manner 30,000 ICU ventilator. We believe, the risks to a constrained defence budget have largely reduced over the past year, specially for defence primes like BEL.
Management has earlier guided towards higher capex run rate to achieve double digit revenue growth (10-15% y-o-y capex growth p.a. from the likely Rs 5.5 bn in FY21e). We upgrade BEL to Buy from REDUCE with a revised target price of Rs 153/share (from Rs 121) based on FY23e PE of 15x.
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FY21e order inflow in line with guidance at Rs 150 bn: FY21 end orderbook stood at Rs 530 bn. Some of the major orders acquired during the year are ICU ventilators, software defined radios & communication equipment, etc.
Execution much higher than expected at Rs 135 bn: This has been driven by ICU Ventilators, Missile Systems (Akash & LRSAM), Gun Upgrades, Various Radars, Various Sonars, Command & Control Systems, etc. BEL achieved export sales of ~$50 mn during FY21.
Near-term order opportunities: BEL has already accounted for execution of avionics related to LCA Mk 2 as HAL has received LoI for the same. Also, LUH and LCH (helicopters) may allow sensors and weapons to significantly augment BEL’s avionics revenue.
BEL targets (i) civilian segment (including medical equipment) to increase from 7% of topline to 15% in the next 2-3 years; (ii) to increase the current 10% revenue contribution from service sector (including AMCs); (iii) capture a pie of the revenue expenditure budget of the Armed Forces via entry into electronic fuses and RF seekers (new complex in Machilipatnam to be commissioned soon); and (iv) gain share in the base business, i.e. integration of missile complex (Palasamudram; another separate SBU for QRSAM in Bengaluru), entry into ammunitions, etc.