Buy This Defense Sector Navratna Stock For Strong 12% Growth, Reported Healthy 1QFY23 Results

Prabhudas Lilladher, a well know n and leading broekrage firm in its report on Bharat Electronics Limited has recommended 'buy' the stocks of te company for a target price of Rs 285 per share. Bharat Electronics is a Navratna PSU company under the Ministry of Defense. It is a large-cap company Aerospace & Defense sector company with a market capitalization of Rs 61,999 crore. Brokerage in its report has stated that the company's EBITDA margin came in healthy at 16.5% in Q1FY23, owing to better operating leverage. Order book to sales ratio stands healthy at 3.3xTTM revenue, providing revenue visibility for a couple of years.

Stock Outlook

The current market price of Bharat Electronics Limited stock is Rs 254.45 per share, it was opened at Rs 249.75, while the previous close was Rs 245.50 per share. The shares of the company hit the 52-week low on 09 August 2021 at Rs 162.35 per share, and 52 week high on 18 July 2022 at Rs 260 per share. Currently, the share of the company is trading at Rs 92.1 above the 52-week low levels and Rs 5.55 below the 52-week high levels, respectively.

 
 On equity returns, the stocks have performed well. In the last 1 week, its shares moved up nearly 8.39% and in 1 month 8.42%, respectively. In the last 1 year, the shares have gained 41.64% and 61.14% in the last 5 years, respectively. In the last 3 years, it has given multibagger returns of 163.54%.

 The stock of the company has a huge potential of 12% upside in the next 12 months, taking into account the CMP of the stock and the estimated target price of Rs 285 per share.

1QFY23 Results

Bharat Electronics reported healthy Q1FY23 performance above our and consensus estimate. Gross margin expanded ~30bps YoY to 41.9% in Q1FY23. EBITDA margin came in healthy at 16.5%, owing to strong revenue growth and better absorption of fixed cost. Order book stands at Rs553.3bn, 3.3x TTM revenue providing revenue visibility going forward. Order pipeline stands strong from Akash weapon system, QRSAM, LRSAM and Naval equipment's like surveillance system, radars, navigation systems etc. Company has also been focusing on diversifying in non-defense verticals such as EV, metros, electronic warfare, healthcare, homeland security etc. Given healthy order book position and order pipeline, management had guided for revenue growth of ~15% and order inflow of ~Rs200bn with EBITDA margin in the range of 20-22% for FY23. Exports to be ~US$70mn in FY23 vs US$33mn in FY22 (some delays in dispatches were witnessed in FY22, due to geopolitical tension) and capex to be ~Rs5-6bn.

Healthy execution drives profitability

Standalone revenue grew ~90% YoY to Rs~31.1bn (PLe ~Rs20.9bn) on low base and healthy order book execution. EBITDA came in at Rs5.1bn vs Rs629mn in Q1FY22 (PLe ~Rs2.3bn) and EBITDA margins coming in at 16.5% in Q1FY23 vs 3.8% in Q1FY22 (low base), owing to better operating leverage. PAT came in at Rs4.3bn (PLe ~Rs1.2bn), led by healthy operational performance and higher other income (up ~258% YoY).

Healthy order book

Order book stands at Rs553.3bn (3.3x TTM revenue), providing revenue visibility for next couple of years. Given heathy tender pipeline, management had guided for order inflow of ~R200bn in FY23.

Prabhudas Lilladher Suggests Buy for a target price of Rs 285 per share

The brokerage said, "We remain positive on the long-term growth story of Bharat Electronics given its strong order backlog, tender pipeline, diversification in newer business verticals like EV battery, Medical equipments, Metro, focus on exports market, government focus on product indigenization etc. We expect revenue and PAT CAGR of 17.5%/18.7% between FY22-24E. The stock is currently trading at 21.3x/18.1x FY23/24E. Maintain 'Buy' rating on stock with revise Target Price of Rs 285 (Rs 265 earlier) valuing it at PE of 21x FY24E (19.5x earlier), revised upwards due to healthy performance during the quarter."

Bharat Electronics Limited

Bharat Electronics Limited (BEL) is a Navratna PSU under the Ministry of Defence, Government of India. It manufactures state-of-the-art electronic products and systems for the Army, Navy and the Air Force. BEL has also diversified into various areas like homeland security solutions, smart cities, e-governance solutions, space electronics including satellite integration, energy storage products including e-vehicle charging stations, solar, network & cyber security, railways & metro solutions, airport solutions, Electronic Voting Machines, telecom products, passive night vision devices, medical electronics, composites and software solutions.

Disclaimer

The stock has been picked from the brokerage report of Prabhudas Lilladher. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.