Bharat Electronics' Target Price Hiked By Jefferies As Q2 Ebitda Beats Estimates

Bharat Electronics Ltd.'s second quarter Ebitda beat Jefferies' expectation. The brokerage has raised its target price on the stock to Rs 370 per share and sees a 36% upside. It maintained its 'buy' rating.

BEL's Ebitda was 36% above Jefferies' estimates, on the back of margin expansion. Margins rose 700 bps to 30.3%, compared to an estimate of 23.3%. The company tends to see quarterly volatility in margins. This margin strength provides confidence in BEL's ability to sustain profitability, Jefferies said.

"Company is the market leader in domestic defence electronics and benefits from spend across the army, navy and airforce," the brokerage said.

Bharat Electronics currently boasts of an order book worth Rs 74,600 crore, up 9% year-on-year, which enhances revenue visibility through fiscals 2024 to 2027. The company secured multiple significant orders, including LRSAM and Electronic Warfare missile systems, contributing to a robust pipeline.

Management has indicated no signs of a slowdown and confirmed that the government's focus on indigenisation is on track. The medium-term outlook suggests a sustainable annual order flow of Rs 20,000-25,000 crore, excluding larger orders, which compares favourably to an average of Rs 17,000-17,500 crore from financial year 2018 to financial year 2023.

BEL's revenue grew 15% YoY, in line with expectations, Jefferies noted. In the first half of the fiscal, it grew 17%. FY24 saw a revenue miss due to supply chain issues from Russia and Israel. The brokerage expected a spillover of this in the first half of this fiscal. It maintains its 15-16% revenue guidance for FY25E.

The guidance for fiscal 2024's margins, maintained at 23-25%, suggests the potential for an upside risk in earnings per share estimates, if current margins are sustained.

Additionally, BEL has a promising Rs 56,500 pipeline of export orders, which Jefferies noted as a surprise element. Exports could rise to 10% of sales by fiscal 2026, up from the current 3-4% in FY24, further enhancing growth prospects, the brokerage said.