PL Stock Report: Bharat Electronics (BHE IN) - Q2FY24 Result Update – Medium term outlook remains intact - Accumulate

Bharat Electronics (BHE IN) - Amit Anwani - Research Analyst, Prabhudas Lilladher Pvt Ltd.

Rating: ACCUMULATE | CMP: Rs133 | TP: Rs143

Q2FY24 Result Update – Medium term outlook remains intact

Quick Pointers:

§ Revenues ~Rs4bn were impacted due to spillover of execution to H2FY24, however management is confident of 15-17% revenue growth for FY24.

§ Key large orders prospects for next 10-12 months stands at ~Rs70-75bn from Electronic warfare, equipment for shipbuilding, tanks upgrade etc.

Bharat Electronics (BEL) reported mixed quarterly performance with revenue growth of 1.2% YoY and EBITDA margins expanding 346bps YoY to 25.2%. Revenues were partly impacted due to spillover of executions worth Rs4bn to H2FY24. H1FY24 order inflows came in strong at ~Rs154bn, giving confidence to achieve its FY24 inflow guidance of Rs200bn+. Tender Pipeline for next 12 months comprises of 1) equipment’s for shipbuilding programs with CSL & GRSE (Rs25bn) 2) Electronic warfare system (Rs20bn) and 3) tank upgrade programme (Rs30bn). H1FY24 exports revenue stood at US$27mn, management targets for US$90mn for FY24. Management maintained its FY24 revenue growth guidance of 15-17% and EBITDA margin of 21-23%.

We remain positive on long-term growth story of BEL given 1) strong order backlog & order pipeline 2) diversification in newer business verticals like, hydrogen fuel cell, EV batteries etc., 3) focus on export markets (Egypt, Malaysia etc.) and 4) govt’s focus on product indigenization. The stock is currently trading at PE of 28.8x/24.2x/20.9 FY24/25E26E. We roll forward to Sep’25 number and maintain Accumulate rating on stock with TP of Rs143 (Rs140 earlier), valuing it at PE on 24x Sep’25E (25x FY25 earlier).

Gross margin expansion and higher other income drives PAT growth: Standalone revenue grew ~1.2% YoY to Rs~40bn (PLe ~Rs45.3bn) led by healthy order book execution. H1FY24, revenue grew by 6.3% YoY to Rs70.6bn. EBITDA grew 17.4% YoY to Rs10bn (PLe ~Rs10bn), with EBITDA margins expanding 346bps YoY to 25.2% (PLe 22.3%), mainly due to gross margin expansion (48.8% vs 43.3% in Q2FY23). H1FY24 EBITDA grew 21.9% YoY to Rs13.6bn, with EBITDA margin expanding by 284bps YoY to 19.4%. PAT grew 32.9% YoY to Rs8.1bn (PLe Rs7.5bn), owing to strong operational performance and higher other income up 127% YoY to Rs1.7bn in Q2FY24.

Order backlog stands strong at Rs687.3bn: H1FY24 order inflow came in at ~Rs154bn, comprising of order wins such as 2 Regiments of Improved Akash Weapon System (AWS), Shakti EW & Sanket MK III (Naval Systems) supply of Long Range Guidance Kit with Warhead, Airborne etc. Order book stands strong at Rs687.3bn (3.9x TTM revenue). Split between products and services order book stands at 90%/10% respectively.

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