Buy This Debt Free Navratna Stock For Good Upside; Bonus Shares Issue On The Cards

HDFC Securities in its research report dated August 16, 2022 has recommended to buy the Navratna PSU stock Bharat Electronics. On the scrip, the brokerage has set a target of Rs. 342.5 and the buy has been recommended for 2 quarters or 6 months. Considering the current or last traded price of Rs. 288.75, this translates into a potential return of 18.61%.

Notably, the recommendation on the scrip is provided based on the fundamental analysis of the stock.

Brokerage's take on BEL:

The brokerage mentions that "Bharat Electronics Ltd. (BEL) is a defence public sector undertaking engaged in the business of Defence Electronics empowering the Nation's Defence Forces and in other chosen areas of Professional Electronics. The company supplies radar, communication and electronic warfare equipment to the Indian armed forces.

Government ownership leads to consistent and large order inflow:

 As BEL is government owned, the company enjoys the benefit of consistent as well as sizable order inflows that offers a steady earnings stream.

BEL's Q1Fy23 Performance:

BEL reported Q1FY23 numbers that were above expectations, revenue grew 91% YoY to Rs 3,141 crore supported by strong executions during the quarter, Q1FYY22 was largely impacted by second wave of COVID and shortage of chip supply. EBITDA stood at
Rs 522 crore, vs. Rs 70 crore in Q1FY22. Adjusted PAT came in at Rs 356 crore, vs. Rs 24 crore in Q1FY22.

Order backlog stood at Rs 55,333 crore as of June 30, 2022, which is ~3.3x TTM revenue. Orders inflow during the year is expected at Rs 18,000-20,000 crore.

 

 

Brokerage expects better revenue growth and margin in Fy23E

The company has maintained its revenue growth guidance of 15% and EBITDA margin guidance of 21-23% for FY23E. The chips supply situation is better now than previous year. Therefore, we expect better FY23E revenue growth and margin than given guidance, notes the brokerage house.

Valuation & Recommendation:

"We expect that BEL could play an important role in India's defence theme, given its indigenization capabilities, healthy order book, promising order inflow pipeline, and strong execution capabilities. BEL continues to enjoy advantage over its competitors due to its dominant market position, proven track record and association with the armed forces, established infrastructure and manufacturing facilities, along with strong R&D capabilities. Bharat Electronics (BEL) has reported an impressive Q1FY23 earnings, and has started FY23 on a strong note.

State of the art internal processes/systems and thrust on R&D / localization gives unique competitive strength to BEL. We feel investor can buy the stock in the Rs 288-294 band and add more on dips to Rs. 261.50 band (22.5x FY24E EPS) for the base target of Rs. 319.50 (27.5x FY24E EPS) and bull case target of Rs. 342.5 (29.5x FY24E EPS) over the next two quarters. The stock is currently trading at 25.1x FY24E
EPS.

 

About BEL:

This is a large cap scrip with a market valuation of Rs. 70,356 crore. The company is engaged in design, manufacture and supply of electronics products/systems for defense as well as for nondefense markets. The Company's principal products include weapon systems, radar and fire control systems etc. The company on a recent basis has approved bonus share issue in the ratio of 2:1.

Disclaimer:

The stock recommendation is taken from the brokerage report of HDFC Securities. Readers should not take the article as an investment advice into the stock and instead should seek an experts advice or do their own due diligence before taking any market-linked bets.

GoodReturns.in