Stocks To Buy: Defence Stock That Can Give Upto 20% Returns In The Short-term

Broking firm Prabhudas Lilladher has a buy call on the country's top defence player, Bharat Electronics Systems (BEL), with a price target of Rs 125 on the stock. The company has a good healthy order book position.

BEL Financials: Decent growth

According to Prabhudas Lilladher, the standalone revenue grew 7.8% YoY to Rs 39.5 billion (PLe and consensus estimate of Rs 40.5 billion and Rs 37.2 billion) led by healthy order book execution. H1FY23 revenue grew 33.3% YoY to Rs70.6 billion.

Bharat Electronics's gross margin declined marginally by 20 basis points YoY to 43.3% in Q1FY23, while the EBITDA came in at Rs 8.6 billion (flat YoY) (PLe/consensus estimate ~Rs8.5bn/Rs8.3bn), while EBITDA margins declined 171bps YoY to 21.7% in Q2FY23, owing to higher employee cost (up 11.8% YoY) and other expenses (up 25.2% YoY). H1FY23 EBITDA grew ~48.9% YoY to Rs13.7bn, while EBITDA margin expanded 204bps YoY to 17.4%.

The net profit came in at Rs 6.1 billion, flat YoY (PLe and consensus estimate of Rs 6.2 billion). H1FY23 PAT grew 67.1% YoY to Rs10.4bn. Order book stands healthy at Rs527.95bn, 3.1x TTM revenue (down 3.4% YoY).

Valuations and target price

At the current market price, the stock is trading at 26.8x/22.4/19.3x FY23/FY24/25E. "We have Buy rating on the stock with a target price of Rs 125," Prabhudas Lilladher has said in its report.

BEL is the leading player in defence communication systems, land based radars, naval systems, electronic warfare systems, avionics, weapon systems, tank and armoured vehicle fighting electronic systems, shelter and masts, simulators, batteries etc.

In the non defence segment the company caters to products related to cyber security, railways, homeland security, civilian radars etc. The shares of the company have hit a 52-week high of Rs 115 and a 52-week low of Rs 61.

 

BEL: A Navratna company with strong presence in defence

The company is a Navratna Public Sector Undertaking under the Ministry of Defence (MoD), Government of India (GoI), BEL is a globally recognised electronics engineering company. Driven by its expertise in electronics and software and a deep passion for innovation, it has been at the forefront of empowering the Indian Defence Forces and our Nation with breakthrough solutions. The company has also leveraged this expertise to diversify into developing multi-disciplinary solutions for civilian and export customers.

Continued investment in R&D

The company has been continuously investing in R&D and collaborating with globally leading firms to incubate new-age technologies. "We are expanding our manufacturing capacities to meet the growing development and contract manufacturing demand. We are setting-up global offices and increasing engagements with global governments and OEMs. We are strengthening our human capital with robust capability building programs. At BEL, we are all set to play a greater role as a strategic defence and offset partner (and enable Make in India), scale globally, and create value for all stakeholders," the annual report of BEL says.