Bharat Electronics: Capex plans, focus on non-defence segment and new orders to ramp up strength

Established in 1954 under the Ministry of Defence. R&D / Technology driven Company operating in Strategic Electronics in Defence & Non-Defence segments. 56th among top 100 Companies Worldwide in Defence Revenue (Defence News Top 100, Year 2021). 8853 employees, of which 5712 are Engineers. Close to 50% in R&D (March 2022).

Nine Manufacturing Units all over India having 24 Strategic Business Units. Two Central Research Laboratories at Bengaluru and Ghaziabad. One Product Development and Innovation Centre at Bengaluru. Seven Waterfront Support Centers (WFSC).

Company with multi-product, multi-technology, and multiunit company with over six decades of experience. They have capabilities in designing, developing, manufacturing, and supplying a wide range of strategic electronic products/systems, including those involving emerging technologies, to meet the evolving needs of global customers in diverse fields.

Company is the key player in the Indian Defence segment and has a growing presence in the civilian and export segments. We hold a strong reputation led by our technology and quality excellence and ability to develop innovative solutions that deliver superior performance.

Bharat Electronics (BEL) management announced sound prospects for the company. Bharat Electronics (BEL) reported strong 2QFY23 results broadly in line estimates. Revenue came in at ₹3946 cr, +7.8% YoY/+26.8% QoQ with EBITDA margin of 21.7% (vs 23.4% YoY and 16.5% QoQ). 2QFY23 margin is slightly lower than to margins profile in 2Q’s of pre-pandemic (for e.g. 24% in 2QFY18, 25.3% in 2QFY19 and 19.9% in 2QFY20.

Order book at the end of 1QFY23 is ₹52,795 Cr, implying that new order intake in the quarter was quite weak at Rs1,370 Cr (slightly better than 1QFY23 order intake).

Lower end of EBITDA guidance raised to 22-23% from 21-23% earlier. Order inflow guided at Rs200bn in FY23. Capex of Rs30bn has been approved, of which ~Rs12bn-13bn has already been incurred and ~Rs7.5bn-10bn to be invested in the rest of FY23. Going ahead, the robust order funnel aids BEL’s performance. Besides, in the longer run, opportunities from indigenisation and non-defence sectors are the likely sweeteners.

Order book to drive revenue growth

Addition of ₹8,060 cr order from Triton Electric BEL has a strong order book position of ₹52,795 Cr. In Oct2022, BEL signed an ₹8,060 cr contract with Triton Electric vehicle for supply of battery packs for electric trucks. This contract is not reflected in the order book and adjusting for it the order book would be ₹60,855 cr. The Triton contract is executable over CY23 & CY24.

Healthy pipeline

Management indicated order pipeline remains healthy for next couple of year comprising of Akash Prime (Rs40bn), HIMSHAKTI EW (Rs30bn), Rudra radar (Rs250bn), AMC order for Akash (Rs5-6bn), BMP upgrade (~Rs19.5bn), Automated Air Defence Control & Reporting System (ADC&RS) (Rs17bn) and EW suits for SU-30 & MLH.

While on Civil side orders are expected for the Air Traffic Management System (Rs6.5bn), Homeland security, Batteries and E-Mobility segment.

Company’s robust capex plans

The Board of BEL has approved a capex of ~Rs30bn, out of which ~Rs12bn has already been incurred. Capex for FY23 likely to be ~Rs10bn and ~Rs15bn for FY24. BEL has purchased a land parcel in Nagpur for an ammunition-based factory (Rs1.5bn capex), Ibrahimpatnam- expansion for land-based systems. Nimmaluru- night vision factory is near completion and for LRSAM projects ~Rs3.5bn. Additionally capex is likely to be incurred on solar modules and panel manufacturing to the tune of ~Rs25- 30bn.

Strengthening focus on battery business

BEL has been focusing on enhancing the non-defence segment of its business. In the recently, concluded Def-Expo-22, BEL has been issued LoI from Triton Electric Vehicle India Pvt Ltd, a part of Triton Electric Vehicle LLC (US), for procurement of 300 KW Li-Ion battery packs for its semi-truck project in India at an estimated value of Rs80.6bn (3.7mn packs).

The battery packs are to be delivered in 24 months commencing Jan’23. That said, they will undergo the testing and approval process of ARIA, hence the actual supply might take some time. Besides, the company has also signed an MoU with the same company for manufacture of hydrogen fuel cells by BEL. The technology for the same has been developed by DRDO. BEL has already put up the plant (350MW capacity) at an investment of Rs400mn. Once the orders are firmed up, the capacity could be scaled further up.

On the non-defence front

BEL received a letter of intent from Triton Electric Vehicle India Pvt Ltd. worth Rs80bn for Li-Ion Battery Packs which is to be executed over next 2 years once 1st model gets approval in all aspects. The company has got full advance for 1st order of Rs3.7mn. Margins are yet to be negotiated for this order. BEL has also signed a MoU with NHPC for manufacturing of solar cells, modules, and panels.

Company’s prestigious orders

Largest export order worth USD 93.15 Million from Airbus Defence and Space for the manufacture and supply of Radar Warning Receiver (RWR) and Missile Approach Warning System (MAWS) under the prestigious C295 aircraft programme.

Largest Avionics order worth 2,400 Crore from HAL for manufacture and supply of 20 types of critical airborne electronic systems for the LCA Tejas Fighter Aircraft programme.

Orders from MoD, GoI for Indian Air Force. 1,109 Crore order for Instrumented Electronic Warfare Range (IEWR). 1,993 Crore order for supply of Advanced Electronic Warfare (EW) suite for Fighter aircraft.

Shuchi Nahar is a Certified Research Analyst. She can be found on Twitter at @shuchi_nahar

Note: This article is for informational purposes only. Please speak to a SEBI-registered investment advisor before making any investment related investment-related decision.