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ICICI Securities
Bharat Electronics (Buy)
Target: ₹153
CMP: ₹131.35
Bharat Electronics (BEL) reported higher than expected FY21 provisional revenues (in line with guidance) at ₹135 billion. This highlights i) buoyancy in defence budget seen over CY20 ii) BELs’ ability to keep diversifying its revenue stream as indicated by the execution mix and iii) BEL’s ability to execute in an accelerated manner 30,000 ICU ventilators. We believe the risks to a constrained defence budget have largely reduced over the events of the past year, especially for defence primes like BEL.
Management has earlier guided towards higher capex run rate to achieve double-digit revenue growth (10-15 per cent y-o-y capex growth from the likely ₹550 crore in FY21).
We have adjusted for FY21 earnings. Higher base for FY21 allows for higher FY22/23 revenues and earnings as well. We have kept the capex low for FY21E as we are not sure of the final spend possible in FY21.
We upgrade BEL to ‘Buy’ from ‘Reduce’ with a revised target price of ₹153/share (from ₹121) based on FY23E PE of 15x.
Continued strength in order inflows from the base business (Indian defence) can help future execution and reduce the necessity for diversification.
A cause of concern is the extent of cash flow pressures – part of which was observed from H1FY21 consolidated cash flows.
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