Stocks to buy: Bharat Electronics Ltd | A healthy order pipeline for FY23–24E

5paisa expert research team recommends to buy Bharat Electronics Ltd stock.

About the stock:

Bharat Electronics (BEL) is a leading aerospace and defence electronics company. It primarily manufactures advance electronics products. 
a) Multi-product, multi-technology- diverse product range including radar, missile systems, electronic warfare & avionics, anti-submarine warfare, electro-optics, homeland security, civilian products, etc.
b) Focus to increase the non-defence share to ~20% over two to three years.

Important catalysts influencing future price behavior:

1) Long-term growth and business risk reduction would be aided by a strategy to diversify into non-defence sectors and concentrate on boosting exports and services share.
2) A healthy order pipeline for FY23–24E.

Q2FY23 Results:-

1) Revenue increased 7.8% YoY (up 26.8% QoQ) to INR 3,945.8 crore; largely inline with estimates. The growth was primarily driven by better execution.

2) EBITDA margin contracted 171 bps YoY (+519 bps QoQ) to 21.7%; lower than our estimate of 23.6%. This was primarily on account of higher than expected others cost, which increased 25.2% YoY.

3) PAT also remained flattish on a YoY basis at INR 611.1 crore against our estimate of INR 659.4 crore; primarily due to lower-than-expected OPM.

4) Order backlog was at INR 52,795 crore as of September 2022 end (~3.1x TTM revenues).
Implied order inflows were at INR 1408 crore during Q2FY23 and INR 2,284 during H1FY23.

Key takeaways from earning calls:-

1) For FY23E, the company is continuing to project a 15% revenue growth rate and a 22-23% EBITDA margin. The predicted rate of revenue increase for FY24 was 15-20%.

2) Orders are anticipated to come in around $20,000 crore over the year. Additionally, order inflows are anticipated to be at Approximately 20000 annually for the following three to four years.

3) Akash Prime ($4,000 crore), Himshakti ($3,000 crore), Arudhra ($3,000 crore), and electronic warfare systems for Su-30 aircraft, ships, helicopters, and weapon detecting radars are among the major orders now in the pipeline. After the final one or two tests, a quick reaction surface-to-air missile (QRSAM) contract is anticipated for FY24E.

4) The civil air traffic controlling system, metros, e-mobility, and other non-defence-related entities are expected to place the bulk of the orders. Recently, the business and Chennai Metro reached an agreement for platform screening doors.

5) TEV India, a subsidiary of Triton Electric Vehicle LLC in the US, recently sent a letter of intent (LoI) to BEL for the delivery of 300 KW Li-Ion battery packs for their semi-truck project in India. The LoI is for Rs. 8060 crore. In order to address the needs of the Indian market and mutually agreed-upon export markets, BEL also signed an MoU with the business to manufacture hydrogen fuel cells using TEV's technology. as soon as these goods. Final orders won't be fulfilled until final permission has been achieved following use in electric trucks the following two years.