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Bharat Electronics Q1FY23 review: Excellent performance led by better-than-expected execution

ICICIdirect Research 19 Jul 2022 DISCLAIMER

What's Buzzing:

Bharat Electronics (BEL) reported significantly better-than-expected numbers in Q1FY23 driven by higher-than-expected revenues on better execution.

Context:

BEL’s revenue from operations increased significantly by 90.4% YoY to Rs 3,112.8 crore, primarily led by lower base (as Q1FY22 revenues declined 2.2% YoY due to supply disruptions). Moreover, some revenues, which were expected in Q4FY22, are likely to have been executed in Q1FY23 (as Q4FY22 revenue declined 8.4% YoY). EBITDA margin increased 1265 bps YoY to 16.5%, leading to a sharp increase in EBITDA by 8.2x YoY to Rs 513.5 crore. PAT increased substantially by 39x YoY to Rs 431.5 crore, driven by better revenue growth and improvement in EBITDA margin.

Our Perspective:

Overall Q1FY23 performance was better than our expectations led by better-than-expected execution during the quarter. Though the EBITDA margin came in largely as per expectations, significant YoY growth in revenues led to a sharp beat in profitability also. With an implied order inflow at ~Rs 876 crore during Q1FY23, total order backlog was healthy at Rs 55,333 crore as of June 2022 end (~3.3x TTM revenues). The order pipeline remains strong for the next two to three years. Moreover, the strategy to diversify into non-defence areas, focus on increasing exports would aid long term growth and help de-risk its business. Revenue, EBITDA & PAT are expected to grow 16.8%, 14.4% and 12.3% CAGR, respectively, in FY22-24E aided by better execution and sustained margins.

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