Healthy order pipeline to draw investors’ interest in BEL


ET Intelligence group: The robust prospective order pipeline from defence and pick-up in the deliveries of ventilators orders has rekindled investors’ interest in the stock of the Bharat Electronics. The shares of Bangalore headquartered public sector company rose 33% in the last three months and outperformed the Nifty 50 index by 14% in the same period. The Navratna PSU company is one of the largest makers of electronic warfare equipment in India, and the government of India holds 51.14% stake at the end of June 2020.

The coronavirus pandemic has boosted the non-defence orders for the company after it bagged orders to manufacture ventilators. Consequently, the share of non-defence orders contributed to the quarter of the total execution in the first quarter of the current fiscal compared with the historical share of around 10%. The company will further execute orders of Rs 1200 crore of ventilators in the second quarter. This is likely to support the execution rate for the current fiscal. The rise in the non-defence order execution has helped the company to expand its gross margin by 300 basis points on the sequential basis despite the 21% YoY fall in the revenues.

So, what has attracted investors attention to the stock of Bharat Electronics? The company is one of few companies in the current environment which has shared order inflow guidance for the current fiscal when corporates either have shunned its practice of future outlook or withdrawn their earlier stated guidance.

BEL expects order inflow of Rs 15,000 crore for the current year. This appears to reasonable target thanks to a host of new large orders is expected to open for bidding in the later part of the current fiscal. Some of the large-sized order to open for bidding this budgetary year includes electronic warfare upgrades (Rs 1000 crore), avionics package of light combat aircraft (Rs 1500 crore), order for Akash missile from the army (Rs 4000 crore) and up-gradation of avionics and electronic warfare suite of MI-17 helicopters. In addition to orders mentioned above, the company likely to bag orders lead integrator for long-range cruise missile on nomination basis and Astra missile orders on a competitive basis. The company had order inflow of Rs 12,000 crore in FY20.

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BEL bagged an order worth Rs 3419 crore in the first quarter of FY21. This significant order includes supply of ventilators, advance torpedo defence system and smart city projects. The order backlog at the end of June 2020 stood at Rs 53,752 crore, which is equivalent of the four times of the last fiscal year revenue. This provides adequate revenue visibility for the long-term. The company can achieve the order inflows guidance for the current year if the company maintains the June quarter order inflow run-rate for the remaining quarters.

The union government has released draft defence production policy where it plans to achieve a turnover of Rs 1.75 lakh crore of indigenous products and export by 2025. This would augur well for the company as the rising domestic content would translate into superior margins and stable revenue growth in the long-term.

The stock gained 3.5% at Rs 100.2 on Tuesday on the BSE and trading at 15.6 times of its projected current year earnings.





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