Defence Companies Q2FY25 performance

Overall operational performance of Bharat Electronics, Mazagon Dock and Cochin Shipyard remained healthy during the quarter and came largely in-line with expectations

Bharat Electronics reported steady revenue growth of ~15% YoY led by robust execution. EBITDA margin also improved by 510 bps YoY to 30.4%. For H1FY25, revenue is up 17% YoY with EBITDA margin at 26.5% (vs 22.4% in H1FY24)

Guidance for FY25E was also maintained at 15% revenue growth with 23-25% EBITDA margin
Order backlog remains strong at ~Rs 75000 crore (3.6x TTM revenue). In terms of orders inflow, BEL has received orders worth ~Rs 7500 crore so far in FY25 and management maintained its full year order inflow guidance of ~Rs 25000 crore

Mazagon Dock reported significant revenue growth of ~51% YoY as the company is going through a phase of maximum revenue recognition in its contracts P-17A frigates & P-15B destroyers. EBITDA margin also improved by 886 bps to 18.5%

Order backlog stands strong at ~Rs 37000 crore (3.8x TTM revenues. Management’s guidance was bit conservative at 10-12% revenue growth for FY25E (vs ~28% in H1FY25)

Orders pipeline is robust considering the big-ticket orders (like 3 additional kalvari submarines, 6 P-75 India submarines, next generation destroyers etc) are expected to be placed with Mazagon in the coming years
 
Cochin Shipyard also reported steady revenue growth of ~13% YoY as the execution remains steady in both the segments (ship-building and ship-repair). For H1FY25, revenue growth stands at ~29% as the Q1FY25 revenue growth was significant on lower base (as company’s execution was impacted during the period FY23 and Q1FY24).
EBITDA margin stands at 19.6% in H1FY25 (vs management’s guidance of 17-19%). We also believe that margins to come down a bit in 2HFY25 as the growth would also normalise (2HFY25 revenue growth is expected at 14-15% YoY considering ~20% growth guidance for full year)

Order backlog is estimated to be at ~Rs 22000 crore (5.2x TTM revenues), giving healthy revenue visibility.
As per the management, the recent commissioning of new facility with a capex of ~Rs 2800 crore can generate additional revenue of Rs 5600 crore on full utilisation, which implies ~20% revenue CAGR over the next 5 years