Buy This Defence Stock, Order Book At 501 billion, Gains Of 33% Likely

Broking firm Prabhudas Lilladher has suggested buying the stock of Defence stock BEL for solid gains of 33%. The brokerage sees a potential price target of Rs 125 on the stock from the current levels of Rs 93.

Strong outlook continues; order inflows on track

Prabhudas Lilladher analysts recently attended Q3FY23 analyst call scheduled by Bharat Electronics (BEL), wherein the management sounded confident in meeting its FY23 order inflow guidance of Rs 180-200 bn (despite lower order inflows of Rs 36 billion in 9MFY23), factoring in orders worth Rs 110-120 billion already being finalized. "BEL's order pipeline remains healthy for next two years with large orders expected in defence segment such as QRSAM, LRSAM, naval systems etc. and in non-defence segment such as Air Traffic Management System-ATMS, Homeland security, Batteries etc. For FY23 management guided revenue growth of ~15% with EBITDA margin of 20-22," the brokerage has said.

Buy the stock of BEL with a price target of Rs 125

Prabhudas Lilladher has said it remains 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, ATMS etc., 3) focus on export markets (Egypt, Malaysia etc.) and 4) government emphasis towards product indigenization. "The stock is currently trading at PE of 23.8x/19.9x/17.1x FY23/24/25E. Maintain 'BUY' with target price of Rs 125 (same as earlier) valuing it at 23x FY25E EPS," the brokerage has said in its report.

Healthy order book

The order book of BEL stands healthy at Rs 501bn. Of the total order book, defence accounts for 80%. It is expected to remain at ~75-80% from defence for next 4-5 years. EVM current order book stands at Rs 14 bn including Rs1.4bn order bagged recently.

"Management is confident to achieve 15-20% revenue growth for next couple of years, given 1) strong order pipeline, 2) growth in defence segment, 3) diversification in non-defence segment and 4) strong focus on exports market (Egypt, Malaysia etc)," the brokerage has said.

MoU signed within non-defence segment

The company recently signed an MoU in non- defence segment which includes 1) Airport authority of India for ATMS and airport surveillance radar and 2) Delhi Metro for indigenization of imported equipment. On exports front, BEL plans to foray into markets such as Egypt and Malaysia etc.