Stock Update

Bharat Electronics Ltd

Guidance achievement wards off near-term growth concerns
Powered by the Sharekhan 3R Research Philosophy Capital Goods Sharekhan code: BEL
Reco/View: Buy  CMP: Rs. 97 Price Target: Rs. 120 

Company Update
3R MATRIX + = -
Right Sector (RS) ü
á Upgrade  Maintain â Downgrade

Right Quality (RQ) ü Summary

Š FY23 performance on revenue (up 15% y-o-y) and order inflow (Rs. 20,000 crore) front as per the provisional
Right Valuation (RV) ü numbers has been in line with guidance. Gross margins and OPM are also expected to achieve the guidance
of 40%/~22-24% in FY23.
+ Positive = Neutral – Negative Š Order backlog stands strong at ~Rs. 60,500 crore (~3.5x FY23 sales). Near to medium-term order pipeline is
healthy at Rs. 60,000-70,000 crore.
What has changed in 3R MATRIX Š Bharat Electronics Ltd (BEL) is expediting efforts to increase non-defence revenue to diversify its business.
Further, any breakthrough on export front (currently ~2% of sales) would provide a fillip to its growth.
Old New Š BEL has a promising order inflow pipeline, large order book and healthy balance sheet. We retain a Buy on BEL
with an unchanged PT of Rs. 120, valuing it on FY2025E EPS.
RS 
Provisional revenue numbers and order inflow for FY23 were in-line with its guidance. This allayed concerns on
RQ  tepid order inflow for FY23. The company registered sales growth of ~15% y-o-y to Rs. 17,300 crore. Its export
revenue for FY23 stood at $ 46.5 million, which was up 40% y-o-y, but lower than its guidance of US$ 70 mn.
Currently, exports comprise of merely ~2% of its total revenues. Based on FY23 provisional numbers, Q4FY23
RV  revenue are expected to be flat at ~Rs. 6,240 crore (+0.5% y-o-y). Order inflow for FY23 was Rs. 20,200 crore, in
line with company’s guidance. BEL has acquired export orders worth US$ 75.66 mn during FY23. As the company
received bulk orders towards the end of FY23, its order book has jumped to Rs. 60,500 crore (3.5x FY23 sales),
growing by 5% y-o-y. Hence, growing order book indicates strong revenue and earnings growth growing forward.
ESG Disclosure Score NEW We believe BEL is a formidable play on India’s defence story, given its indigenisation capabilities, healthy order
book, promising order inflow pipeline of Rs. 60,000- 70,000 crore in the medium term and strong execution
capabilities.
ESG RISK RATING
Updated Mar 08, 2023
34.56 Provisional revenue numbers meet guidance
BEL’s provisional revenue numbers were in-line with its guidance of ~15% y-o-y growth to Rs. 17,300 crore. Its export
High Risk revenue for FY23 stood at US$ 46.5 million which was up 40% y-o-y, but lower than its guidance of US$ 70 mn.
Currently, exports comprise of merely ~2% of its total revenue. Some major projects executed during FY23 were
long-range surface-to-air missile (LRSAM) systems, Akash missile systems, SATCOM network, command & control
NEGL LOW MED HIGH SEVERE systems, various radars, electronic warfare systems, communication equipment, coastal surveillance system,
electro-optic systems, fire control systems, home land security systems, Smart City projects etc. Major products
0-10 10-20 20-30 30-40 40+
exported include transmit & receive (TR) modules, radar warning receiver (RWR), control cards, Link-II systems,
Source: Morningstar compact multi-purpose advanced stabilization system (CoMPASS), low band receivers (LBREC) and medical
electronics. The company targets ~20% y-o-y sales growth in FY24/FY25. BEL has also been focusing on exploring
exports (primarily non-defence currently) potential of defence electronics products and systems, which bodes well
Company details for revenue diversification. The company targets 10-15% revenue contribution from exports in the long term.
Order inflow guidance achieved towards FY23 end; strong order book
Market cap: Rs. 70,905 cr
BEL achieved its order inflow guidance by bagging orders worth Rs. 20,200 crore in FY23 which was primarily driven
52-week high/low: Rs. 115/69 by several large order awards by ministry of defence (MoD) towards the end of FY23. Some of the major orders
acquired during the year were Himashakti, Medium Power Radar (Arudhra) for Rs. 2,800 crore, Air Defence Control
& Reporting System (Akashteer) for Rs. 2,000 crore, Lynx U2 systems, EW Suite for MLH Upgrade, DR118 for Su-30,
NSE volume: Weapon Locating Radar (WLR), SARANG ESM etc. BEL has acquired export orders worth $75.66 million during FY23.
157.1 lakh
(No of shares) BEL’s order book now stands at Rs. 60,500 crore; providing revenue visibility of ~3.5 years. Going forward, the order
pipeline in the near to medium term is Rs. 60,000-70,000 crore, which bodes well for its growth.
BSE code: 500049 Margin guidance likely to be achieved, WCC to be stable
BEL has guided for gross margins at 40% levels for FY23 and EBITDA margin could be between 22-24% for FY23.
NSE code: BEL BEL has been focused on cost-control measures and extensive indigenisation efforts to improve profitability and that
shall lead to the company achieving its margin guidance as well. We expect BEL to meet its entire working capital
Free float: needs through internal accruals. Cash flow from operations has grown significantly in the last five years and we
357.2 cr expect growth in FY23 as well. Further, despite significant topline growth, its inventory and receivables days are
(No of shares) also expected to be stable in FY23.
Revision in estimates – We have broadly maintained our estimates as per the company’s guidance for FY2023-
Shareholding (%) FY2025E.
Our Call
Promoters 51.1 Valuation – Maintain Buy with an unchanged PT of Rs. 120: BEL’s achievement of order inflow guidance towards
the end of FY23 allays concerns over the company missing its mark in terms of order inflows. Further, meeting
FII 17.3 its revenue guidance despite supply-side constraints is also positive. Based on provisional revenue figures, we
expect strong operating performance in Q4FY23 as operating leverage would also kick in; as the company typically
DII 25.1 achieves highest revenue in its 4th quarter. On the broader perspective, BEL would play a significant role in the
successful implementation of the government’s Make in India and AtmaNirbhar Bharat initiatives as it is one of
Others 6.5 the key defence and aerospace players. Further, global defence companies are tying up with indigenous players,
as there is a tremendous export potential for engineering services and components sourcing from India, which
bodes well for BEL. BEL has strong manufacturing and R&D base, a robust order book, healthy order prospects,
Price chart diversifying revenue stream, and strong balance sheet with improving return ratios. We retain a Buy on the stock with
120 an unchanged price target (PT) of Rs. 120, valuing it on FY2025E EPS.
110 Key Risks
100 Š Delayed order execution and slower pace of fresh orders can affect revenue growth.
90 Š Higher raw-material prices and shortage of some key components could affect margins going forward.
80
70
60 Valuation (Consolidated) Rs cr
50 Particulars FY22 FY23E FY24E FY25E
Apr-22

Apr-23
Aug-22

Dec-22

Net Sales 15,368 17,629 20,653 23,586

OPM (%) 21.7 21.8 22.5 22.8
Price performance PAT 2,399 2,778 3,267 3,793
YoY growth 14.3 15.8 17.6 16.1
(%) 1m 3m 6m 12m
EPS (Rs.) 3.3 3.8 4.5 5.2
Absolute 3.1 -2.4 -3.4 38.8 P/E (x) 29.6 25.5 21.7 18.7
Relative to EV/EBITDA (x) 22.5 19.5 16.4 14.1
3.0 0.6 -6.1 38.1 RoCE (%) 17.8 19.1 19.9 20.1
Sensex
Sharekhan Research, Bloomberg RoE (%) 20.6 21.2 21.8 22.0
Source: Company; Sharekhan estimates

April 03, 2023 1

 Stock Update
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Provisional revenue numbers in-line with guidance despite supply side challenges
BEL’s provisional revenue numbers were in-line with its guidance of ~15% y-o-y growth to Rs. 17,300 crore. Its
export revenue for FY23 stood at US$ 46.5 million which was up 40% y-o-y, but lower than its guidance of
US$ 70 mn. Currently, exports comprise of merely ~2% of its total revenue. Some major projects executed
during FY23 were long-range surface-to-air missile (LRSAM) systems, Akash missile systems, SATCOM
network, command & control systems, various radars, electronic warfare systems, communication equipment,
coastal surveillance system, electro-optic systems, fire control systems, home land security systems, Smart
City projects etc. Major products exported include transmit & receive (TR) modules, radar warning receiver
(RWR), control cards, Link-II systems, compact multi-purpose advanced stabilization system (CoMPASS), low
band receivers (LBREC) and medical electronics. The company targets a ~20% y-o-y sales growth in FY24/
FY25. BEL has also been focusing on exploring exports (primarily non-defence currently) potential of defence
electronics products and systems, which bodes well for revenue diversification. The company targets 10-15%
revenue contribution from exports (currently ~2%) in the long term. Moreover, the company aims to increase
share of non-defence verticals like civil, railways and metro rail in total revenues. BEL is trying to get a
breakthrough in the exports with countries like Egypt, Malaysia; etc and is hopeful of increasing its export
share in total revenue.
Order inflow of Rs. 20,000 crore takes order book to Rs. 60,500 crore
BEL achieved its order inflow guidance by bagging orders worth Rs. 20,200 crore in FY23 which was driven
by several large order awards by MoD towards the end of FY23. Some major orders acquired during the year
were Himashakti, Medium Power Radar (Arudhra) for Rs. 2,800 crore, Air Defence Control & Reporting System
(Akashteer) for Rs. 2,000 crore, Lynx U2 systems, EW Suite for MLH Upgrade, DR118 for Su-30, Weapon
Locating Radar (WLR), SARANG ESM, etc. BEL has acquired export orders worth US$ 75.66 mn. BEL’s order
book now stands at Rs. 60,500 crore. This provides revenue visibility of 3.5 years. Going forward, the order
pipeline in the near to medium term is Rs. 60,000-70,000 crore which bodes well for its growth.
Margin guidance likely to be achieved, WCC to be stable
BEL has guided for gross margin at 40% levels for FY23 and EBITDA margin could be between 22-24%
for FY23. BEL has been focused on cost-control measures and extensive indigenization efforts to improve
profitability and that shall lead to the company achieving its margin guidance as well. We expect BEL to meet
its working capital needs wholly through internal accruals. Cash flow from operations has grown significantly
in the last five years and we expect strong growth in FY23 as well. Further, despite significant topline growth,
its inventory and receivables days are also expected to be stable in FY23.
Capex guidance of Rs. 600-800 crore for the next two years
BEL is likely to incur a capex of Rs 600-800 crore in FY2023/FY2024. Apart from regular capex, the company
is developing a defence system integration complex in Nagpur. It is building an arms & ammunition facility for
Rs. 200 crore in Hyderabad. It is also building advanced night vision factory at Nimmaluru, Andhra Pradesh
for ~ Rs. 340 crore.

April 03, 2023 2

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Financials in charts

Order book growth trend Revenue growth trend

80,000 9.2 9.5 10.0 25,000 20.0
70,000 17.2
7.7 8.0 20,000 14.7
60,000 15.0
14.2
50,000 6.0 15,000
40,000 5.1 8.8 10.0
10,000 8.9
30,000 4.0
2.8 6.6 5.0
20,000 5,000
2.0
10,000
- 0.3 - - -
FY20 FY21 FY22 FY23 FY24E FY25E FY20 FY21 FY22 FY23E FY24E FY25E
Order Book (Rs cr) Growth (%) Total Revenue from operations (Rs cr) Growth (%)
Source: Company, Sharekhan Research Source: Company, Sharekhan Research

Order Book to Revenue ratio Operating profit and margin trend

4.5 4.0 6,000 24.0
4.0 3.8 3.7
3.4 5,000 22.8 22.5
3.5 3.2 3.1 22.8
4,000 21.7 22.0
3.0
21.8
2.5 3,000 21.2
2.0 2,000 20.0
1.5
1,000
1.0
0.5 - 18.0
0.0 FY20 FY21 FY22 FY23E FY24E FY25E
FY20 FY21 FY22 FY23E FY24E FY25E Operating Profit (Rs cr) Margin (%)
Source: Company, Sharekhan Research Source: Company, Sharekhan Research

Net profit growth trend Return ratios trend (%)

4,000 17.6 20.0 23.0
21.8
15.1 21.2 22.0
16.1 15.0
3,000 15.8 21.0 20.6
14.3 19.9
10.0 20.1
18.9 19.9
2,000 19.0 18.6 19.1
5.0
18.0 17.8
1,000 17.0
-
(3.3)
- (5.0) 15.0
FY20 FY21 FY22 FY23E FY24E FY25E FY20 FY21 FY22 FY23E FY24E FY25E
Adjusted Net Profit (Rs cr) Growth (%) ROE (%) ROCE (%)
Source: Company, Sharekhan Research Source: Company, Sharekhan Research

April 03, 2023 3

 Stock Update
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Outlook and Valuation

n Sector view - AatmaNirbhar Bharat initiative to boost defence manufacturing in India
The government is emphasising on creating an environment to boost the AatmaNirbhar Bharat programme
in the defence sector and create a level-playing field for private players, including MSMEs. Completion of
defence projects takes longer than envisaged earlier and, hence, the government is planning to incorporate
cost-escalation clauses and provide incentives to vendors based on enhanced productivity and performance.
Further, hike in foreign direct investment (FDI) to 74% through the automatic route would boost investments
in the sector. This is likely to boost investments in the space, as foreign players in the defence sector would
look at setting up joint ventures to establish defence manufacturing bases in India, considering the large
opportunity with the opening up of the defence sector. The government has also established defence corridors
in Tamil Nadu and Uttar Pradesh, which have helped in reducing the dependency on imports.
n Company outlook - diversification and strong order pipeline would boost growth
BEL has been continuously focusing on sustainable growth plans and has taken various initiatives such
as i) Focusing on enhancing its R&D capability; ii) Enhancing manufacturing capabilities through timely
modernisation and expansion of facilities; and iii) Entering into joint ventures in existing and emerging
businesses to enhance business visibility. Order pipeline includes orders for Medium Range Surface - To -
Air Missile (MRSAM)- Rs. 20,000 crore, Quick Reaction Surface-to-Air Missile (QRSAM) – Rs. 20,000 crore,
Akash Prime Rs. 4,000 crore; etc. In addition, BEL has been focusing on exploring the export (primarily non-
defence currently) potential of defence electronics products and systems, which bodes well for revenue
diversification. The company targets 10-15% revenue contribution from exports (currently ~2%).
n Valuation - Maintain Buy with an unchanged PT of Rs. 120
BEL’s achievement of order inflow guidance towards the end of FY23 allays concerns over the company missing
its mark in terms of order inflows. Further, meeting its revenue guidance despite supply-side constraints is
also positive. Based on provisional revenue figures, we expect strong operating performance in Q4FY23 as
operating leverage would also kick in; as the company typically achieves highest revenue in its 4th quarter.
On the broader perspective, BEL would play a significant role in the successful implementation of the
government’s Make in India and AtmaNirbhar Bharat initiatives as it is one of the key defence and aerospace
players. Further, global defence companies are tying up with indigenous players, as there is a tremendous
export potential for engineering services and components sourcing from India, which bodes well for BEL. BEL
has strong manufacturing and R&D base, a robust order book, healthy order prospects, diversifying revenue
stream, and strong balance sheet with improving return ratios. We retain a Buy on the stock with an unchanged
price target (PT) of Rs. 120, valuing it on FY2025E EPS.

One-year forward P/E (x) band

30.0

25.0

20.0

15.0

10.0

5.0

-
Apr-19 Oct-19 Apr-20 Oct-20 Apr-21 Oct-21 Apr-22 Oct-22 Apr-23

1yr Fwd PE(x) Avg 1yr fwd PE Peak Trough

Source: Sharekhan Research

April 03, 2023 4

 Stock Update
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About company
BEL is a PSU with strong manufacturing and R&D capabilities and robust cost-control measures. The company
manufactures electronics, communication, and defence equipment and stands to benefit from enhanced
budgetary outlay for strengthening and modernising India’s security.

Investment theme
The government’s Make in India and AatmaNirbhar Bharat initiatives along with rising spends for modernizing
defence equipment will support earnings growth in the coming years, as BEL is one of the key players with
strong research and manufacturing capabilities in the defence space in the country. A robust order book
provides strong revenue and earnings visibility. BEL is a good play on the defence sector on account of its
strong manufacturing and R&D base, good margin trajectory, cost efficiency, growing indigenisation, and
strong balance sheet.

Key Risks
Š Delayed order execution and slower pace of fresh orders can affect revenue growth.
Š Higher raw-material prices and shortage of some key components such as semi-conductors could affect
execution and earnings going forward.

Additional Data
Key management personnel
Mr. Bhanu Prakash Srivastava Executive Director-Chairperson-MD
Mr. Vinay Kumar Katyal Executive Director
Mr. Damodar S Bhattad Director (Finance) & Chief Financial Officer (CFO)
Source: Company

Top 10 shareholders
Sr. No. Holder Name Holding (%)
1 Nippon Asset Life India Management Ltd 4.04
2 Kotak Mahindra Asset Management Co Ltd 3.51
3 HDFC Asset Management Co Ltd 3.22
4 Vanguard Group Inc 1.74
5 Blackrock Inc 1.58
6 FMR LLC 1.31
7 Canara Robeco Asset Management Co Ltd 1.24
8 MIRAE Asset Global Investments Co Ltd 1.03
9 DSP Investment Managers Pvt Ltd 1.02
10 ICICI Prudential Asset Management Co Ltd 0.85
Source: Bloomberg

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

April 03, 2023 5

Understanding the Sharekhan 3R Matrix
Right Sector
Positive Strong industry fundamentals (favorable demand-supply scenario, consistent
industry growth), increasing investments, higher entry barrier, and favorable
government policies
Neutral Stagnancy in the industry growth due to macro factors and lower incremental
investments by Government/private companies
Negative Unable to recover from low in the stable economic environment, adverse
government policies affecting the business fundamentals and global challenges
(currency headwinds and unfavorable policies implemented by global industrial
institutions) and any significant increase in commodity prices affecting profitability.
Right Quality
Positive Sector leader, Strong management bandwidth, Strong financial track-record,
Healthy Balance sheet/cash flows, differentiated product/service portfolio and
Good corporate governance.
Neutral Macro slowdown affecting near term growth profile, Untoward events such as
natural calamities resulting in near term uncertainty, Company specific events
such as factory shutdown, lack of positive triggers/events in near term, raw
material price movement turning unfavourable
Negative Weakening growth trend led by led by external/internal factors, reshuffling of
key management personal, questionable corporate governance, high commodity
prices/weak realisation environment resulting in margin pressure and detoriating
balance sheet
Right Valuation
Positive Strong earnings growth expectation and improving return ratios but valuations
are trading at discount to industry leaders/historical average multiples, Expansion
in valuation multiple due to expected outperformance amongst its peers and
Industry up-cycle with conducive business environment.
Neutral Trading at par to historical valuations and having limited scope of expansion in
valuation multiples.
Negative Trading at premium valuations but earnings outlook are weak; Emergence of
roadblocks such as corporate governance issue, adverse government policies
and bleak global macro environment etc warranting for lower than historical
valuation multiple.
Source: Sharekhan Research
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