Order backlog and pipeline offer strong revenue visibility for BEL
The stock of Bharat Electronics (BEL) hit its all-time high after the company announced last week that it has won orders worth Rs 3,915 crore. The company received an order of Rs 580 crore from the Indian Army related to the annual maintenance contract (AMC) of radars. It indicated that the project will have the participation of Indian electronics and associated industries, including medium and small enterprises, which are sub-vendors of BEL.
The company has also received additional orders worth Rs 3,335 crore related to AMC for airborne early warning & control, software-defined radios, passive night vision binoculars, among others. With the latest orders, the total order book for the company on a cumulative basis for FY 2024 is Rs 18,298 crore.
Brokerages believe that the existing orders and incremental orders to follow should help the company exceed its annual targets. Say analysts led by Amit Dixit of ICICI Securities, “We expect additional orders worth Rs 6,800 crore in the remaining part of FY 2024 pertaining to the fuses for the Indian Army (estimated at Rs 4,000 crore) and subsystems for naval platforms (estimated at Rs 2,800 crore). This is likely to result in FY 2024 order inflow of Rs 25,000 crore compared to the current guidance of Rs 20,000 crore.”
In the medium term, brokerages point to a strong pipeline opportunity for the public sector unit. The robust ordering pipeline includes large ticket contracts such as the Rs 20,000 crore quick reaction surface to air missile (QRSAM) order, Rs 15,000 plus order for medium-range SAM, long-range radars and electronic warfare system. This would ensure annual orders of Rs 20,000 or more for BEL.
The order backlog at the end of the first half of FY 2024 stood at Rs 68,700, up 30 per cent year-on-year which translates to 3.8 times the trailing twelve months’ revenue. With the incremental orders and the medium-term opportunity/pipeline, revenue visibility is expected to be strong over the next three to four years.
The pace of execution will also be tracked by brokerages and any improvement here could lead to further upsides. Its revenues in the September quarter missed estimates due to spillover of execution to the second half of FY 2024. The results were a mixed bag with revenues coming in flat over the year-ago quarter while operating performance was robust. Its gross margins expanded by 550 basis points over the year-ago quarter and operating profit margins were up 350 basis points. The company reported a 33 per cent growth in net profit which came in line with street estimates.
Geojit Research is positive on the company given a robust order backlog, enhanced order inflow visibility, a healthy margin profile of 23 per cent, and strong earning visibility of 15 per cent annually over the FY 2023-25 period. It has a hold rating and believes that premium valuations for the company are justified.
ICICI Securities, which has maintained a buy rating, increased its valuation multiple to 28 times from the earlier 27 times to factor in the strong order inflow and steady execution.