Bharat Electronics: Execution catches up with robust inflows

2 Apr 2024 , 10:47 AM

Bharat Electronics (BHE) reported provisional revenue of Rs197bn for FY24, 14% YoY growth, broadly in line with the guidance of 15% YoY as execution on LRSAM catches up after the war situation in Israel during H2CY23. Further, BHE closed FY24 with impressive inflows of Rs350bn, +70% YoY, despite starting the year with a conservative guidance of Rs200bn+ levels. Order book at Rs760bn, +25% YoY provides strong visibility for FY25-26 at 3.7x TTM sales, driven by healthy mix of mid-sized orders. Usually, actual results are 2-3% better than provisional results, implying high probability of BHE meeting its revenue guidance, thus delivering strong operating leverage led earnings growth of >25% for FY24. Analysts of IIFL Capital Services keep forecasts unchanged; reiterate BUY with revised TP of Rs252 (19% upside) given higher certainty on earnings and attractive relative valuations at 29xFY26 EPS.

Inflows beat estimates:

Order Inflows surprised positively at Rs350bn, +70% YoY (IIFLe: Rs309bn) with robust front ended order wins in Electronic Fuzes, EW Systems, Communication Systems, FCS, Akash Prime and other radars. Further, commencement of large projects like QRSAM towards the end of FY25 aids inflow pipeline for FY25-26, even as mid-sized orders ensure strong revenue visibility for FY25-26. Mgmt guides for minimum inflows of Rs500bn in FY25-26. Despite robust execution, export order book was at US$ 407 mn, +35% YoY (4.4x TTM sales).

Ease in supplies from Israel aids execution ramp-up:

Despite muted revenue in M9FY24 (4% YoY), BHE is on track to meet its annual guidance of 15% YoY, given provisional revenues (ex-OOI) of Rs197bn (1% lower than IIFLe). This implies 30% YoY jump in revenues for Q4FY24, at Rs82bn (3% lower than IIFLe). Export revenues doubled YoY at US$92.98m (~Rs7.7bn), driven by projects like medical electronics & communication equipment, compact multi-purpose advanced stabilization system, radar & EWS, and TR modules.

Reiterate Buy:

With strong execution expected in Q4FY24, operating leverage will support OPMs and should aid 27% growth in earnings despite 14-15% sales growth. Analysts of IIFL Capital Services reiterate the stock as a top pick in the sector.