Partner With Us NRI
Bharat Electronics Ltd>
  • CMP : 153.6 Chg : 6.15 (4.17%)
  • Target : 130.0 (38.30%)
  • Target Period : 12-18 Month

28 Jan 2023

Execution in line; higher costs impact margins…

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

Revenue came in line with estimates; higher than expected raw material costs impacted margins.

  • Revenue increased 11.8% YoY (up 4.7% QoQ) to ₹ 4131.0 crore; largely in line with estimates. The growth was primarily driven by better execution


  • EBITDA margin contracted 160 bps YoY (-103 bps QoQ) to 20.7%; lower than our estimate of 22.2%. This was primarily on account of higher than expected raw material cost


  •                 PAT increased 2.6% YoY to ₹ 598.8 crore against our estimate of ₹ 653.1 crore; primarily due to lower-than-expected OPM


Order backlog was at ₹ 50116 crore as of December 2022 end (2.9x TTM revenues). Implied order inflows were at ₹ 1452 crore during Q3FY23 and
₹ 3736 during 9MFY23

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 ₹ 130 i.e. 28x 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 18.5%, 20.1%, respectively, in FY22-FY24E aided by sustained margins at ~22%
  • Strong balance sheet, double digit returns ratios
Larsen & Toubro
  • Focus on monetisation of non-core assets, improving RoEs and reducing debt make it an attractive bet to ride the infrastructure revival theme


  • BUY with target price of ₹ 2355

Key Financial Summary

Particulars FY19 FY20 FY21 5 Year CAGR (FY17-22) FY22 FY23E FY24E 2 Year CAGR (FY22-24E)
Revenues 12,084.6 12,921.1 14,063.8 4.9 15,313.7 18,137.8 21,511.5 18.5
EBITDA 2,862.1 2,730.1 3,181.2 2.9 3,309.2 4,008.8 4,775.6 20.1
EBITDA margin (%) 23.7 21.1 22.6 - 21.6 22.1 22.2 -
Net Profit 1,927.3 1,793.8 2,065.5 4.0 2,348.9 2,750.6 3,279.0 18.2
EPS (|) 2.6 2.5 2.8 - 3.2 3.8 4.5 -
P/E (x) 35.7 38.3 33.3 - 29.3 25.0 21.0 -
EV/EBITDA (x) 24.1 24.7 20.5 - 19.6 16.2 13.3 -
RoCE (%) 33.0 27.4 35.5 - 43.2 43.4 43.1 -
RoE (%) 23.5 19.9 24.9 - 32.1 32.3 32.1 -
Source: Company, ICICI Direct Research

Variance Analysis

  Q3FY23 Q3FY23E Q3FY22 YoY (%) Q2FY23 QoQ (%) Comments
Operating Income 4,131.0 4,081.0 3,693.7 11.8 3,946 4.7 Revenue came in-line with estimates
Other income 57.5 75.0 59.3 -3.1 75 -23.4  
Total Revenue 4,188.5 4,156.0 3,753.0 11.6 4,020.8 4.2  
Raw materials costs 2,415.7 2,314.9 2,200.2 9.8 2,238 7.9  
Employees Expenses 567.4 558.8 503.9 12.6 596 -4.7  
Other Expenses 294.4 299.3 167.5 75.8 256 14.9  
Total Expenditure 3,277.5 3,173.0 2,871.6 14.1 3,090 6.1  
EBITDA 853.5 908.0 822.1 3.8 855.8 -0.3  
EBITDA margins (%) 20.7 22.2 22.3 -160 bps 21.7 -103 bps Higher costs impacted margins
Interest 9.7 1.3 0.2   1.7    
Depreciation 100.8 105.0 92.9 8.5 104.2 -3.3  
Tax 201.7 223.6 205.0 -1.6 213.8 -5.7  
PAT 598.8 653.1 583.4 2.6 611.1 -2.0  
  • Revenue from operations for the quarter increased by 11.8% YoY to
    | 4131.0 crore; largely in line with our estimate of | 4081.0 crore. Sequentially, revenue grew 4.7%. The YoY growth was primarily driven by better execution. The 9MFY23 revenue growth was at 24.5% YoY as revenues grew significantly by 33.3% YoY in H1FY23 on a lower base (as H1FY22 revenues were impacted by supply chain issues)


  • Gross margin was at 41.5% during the quarter; improved 109 bps YoY but lower than our estimate of 43.3%. Total raw material cost has increased 9.8% YoY


  • EBITDA margin contracted by 160 bps YoY to 21.7%; lower than our estimate of 22.2%. This was primarily on account of lower-than-expected gross margin. Employee cost and others costs increased 12.6% and 75.8% YoY, respectively and came in-line with our estimates. Sequentially also, the EBITDA margin contracted by 103 bps


  • EBITDA increased by 3.8% YoY basis at | 853.5 crore (vs. I-direct estimate of | 908.0 crore) as the revenue growth of 11.8% has been negated by contraction in margins. Sequentially, EBITDA remained largely flattish. The 9MFY23 EBITDA was up 27.6% YoY as the revenue growth & margins during H1FY23 were better on a YoY basis (9MFY23 EBITDA margin was at 19.9%, up marginally by 49 bps YoY


  • PAT increased 2.6% YoY (-2.1% QoQ) to | 598.8 crore against our estimate of | 653.1 crore on account of a muted operational performance on both YoY & QoQ basis. Other income was at | 57.5 crore (-3.1% YoY). Sequentially, PAT declined 2.0%. The 9MFY23 PAT was up 36% YoY


  • The order book position of the company was at | 50116 crore as of December 2022 end (~2.9x TTM revenues). Implied order inflows were at
    | 1452 crore during Q2FY23 and | 3736 during 9MFY23



I/We, Chirag Shah, PGDBM, Vijay Goel, PGDBM, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.  


Terms & conditions and other disclosures:

ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products.

ICICI Securities is Sebi registered stock broker, merchant banker, investment adviser, portfolio manager and Research Analyst. ICICI Securities is registered with Insurance Regulatory Development Authority of India Limited (IRDAI) as a composite corporate agent and with PFRDA as a Point of Presence. ICICI Securities Limited Research Analyst SEBI Registration Number – INH000000990. ICICI Securities Limited SEBI Registration is INZ000183631 for stock broker. ICICI Securities is a subsidiary of ICICI Bank which is India’s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com.


ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities and its analysts, persons reporting to analysts and their relatives are generally prohibited from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.


Recommendation in reports based on technical and derivative analysis centre on studying charts of a stocks price movement, outstanding positions, trading volume etc as opposed to focusing on a companys fundamentals and, as such, may not match with the recommendation in fundamental reports. Investors may visit icicidirect.com to view the Fundamental and Technical Research Reports.


Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein.


ICICI Securities Limited has two independent equity research groups: Institutional Research and Retail Research. This report has been prepared by the Retail Research. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, and target price of the Institutional Research.


The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavor to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances.


This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice.


ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months.


ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction.


ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months.



ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts and their relatives have any material conflict of interest at the time of publication of this report.


Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.


ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report.


Since associates of ICICI Securities and ICICI Securities as a entity are engaged in various financial service businesses, they might have financial interests or actual/ beneficial ownership of one percent or more or other material conflict of interest various companies including the subject company/companies mentioned in this report.


ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.


Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report.


We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities.


This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.







Read More