Bharat Electronics is a buy for target price of Rs 290 (24% gain): ICICI Direct

Better-than-expected performance…

About the stock: Bharat Electronics (BEL) is a leading aerospace and defence electronics company. It primarily manufactures advance electronics products.

► Multi-product, multi-technology- diverse product range including radar, missile systems, electronic warfare & avionics, anti-submarine warfare, electro-optics, homeland security, civilian products, etc

► Focus to increase the non-defence share to ~20% over two to three years

Q4FY22 Results: BEL reported a better-than-expected performance.

► Revenue declined 8.4% YoY to Rs 6324.9 crore (I-direct estimate: Rs 6320.5 crore). FY22 revenues were at Rs 15313.7 crore, up 8.9% YoY

► EBITDA margin declined 374 bps YoY to 24.8%; better than estimate of 22.4%, mainly due to lower other cost. EBITDA declined 20.4% YoY to Rs 1567.8 crore (I-direct estimate: Rs 1417.9 crore)

► PAT declined 15.6% YoY to Rs 1141.8 crore; better than estimate of Rs 1003 crore, primarily due to better-than-expected margins

► BEL’s order book was at Rs 57570 crore as of March 2022 end

What should investors do?

Overall, expected double digit revenue, order inflow growth, sustained margins and strong order book to ensure better performance.

► We remain long term positive and retain our BUY rating on the stock

Target Price and Valuation: We value BEL at Rs 290 i.e. 24x P/E on FY24E EPS.

Key triggers for future price performance:

► Strategy to diversify into non-defence areas, focus on increasing exports and services share would aid long term growth and help de-risk its business

► Strong order pipeline in FY23-24E

► We expect revenue, EBITDA to grow at a CAGR of ~16.8%, 14.4%, respectively, in FY22-FY24E aided by sustained margins in range of 20-22%

► Strong balance sheet, double digit returns ratios