Stock of the day report

1. 19 SEPTEMBER
BHARAT ELECTRONICS

2. 1
Key Points -
•12-15% revenue growth in FY20: With strong order backlog of Rs576 bn, management has guided for
revenue growth of 12-15% for FY20. Management has guided for execution of first batch of LRSAM during
the year. Services business grew at 21% CAGR over FY15-19 and is 10% of revenues, which is likely to grow
to 25% of revenues over the next 4-5 years. BEL achieved export sale of 21.6 mn USD in FY19 and further
efforts are being taken to increase exports revenue.
•New areas of growth: BEL believes diversification in non-defence segment would drive future growth.
Segments like Space Electronics, Solar, Homeland Security, Smart Cards, Telecom, Railways, Civil Aviation,
Software as a Service, Fuel Cells, Li-ion Batteries are major focus areas in non-defence segment. Company is
also focusing on Artificial Intelligence based projects and Indigenization going ahead.
•Robust order pipeline: Order inflow for FY20 is expected to be Rs130-150 bn, YTD order inflow of Rs90 bn
(includes Akash Missile Order of Rs54 bn). Order pipeline remain robust with visibility of Rs150-200bn per
year for the next few years. Near term large orders expected to be finalized are QRSAM (Phase I ~Rs80-
90bn), MRSAM, Akash missile upgrades, etc.
Bharat Electronic
19 September
Highlights-
• Well placed to tackle margin pressure under new policy: A key concern on BEL’s stock performance has
been the extent of margin erosion under the new pricing policy for nomination projects finalized by the
Ministry of Defence (7.5% PBT margin v/s 12.5% earlier). We note that the Akash order is the only one to be
impacted by the new pricing policy, while the remaining order book of ~INR520b stands insulated. However,
management expects a limited 50- 200bp impact on margins for nomination orders starting FY22 from the
new policy change.
• Working capital cycle may stretch slightly: Pressure on customer budgets is visible and may impact the
working capital cycle. However, BEL has not seen any deterioration of receivables till now. It never used to
model financing cost in nomination-based projects.

3. 2
Important Points
• BEL believes diversification in non-defence segment would drive future growth. Segments like Space
Electronics, Solar, Homeland Security, Smart Cards, Telecom, Railways, Civil Aviation, Software as a Service,
Fuel Cells, Li-ion Batteries are major focus areas in non-defence segment.
• Company is also focusing on Artificial Intelligence based projects and Indigenization going ahead.
• Order inflow for FY20 is expected to be Rs130-150 bn, YTD order inflow of Rs90 bn (includes Akash Missile
Order of Rs54 bn).
• Management guided for Rs20-25bn of order inflow per year. Current order backlog stands at Rs576 bn (~5x
FY19 revenue) which includes Service orders of Rs23 bn.
• Two key big-ticket orders are LRSAM (INR150b) and Akash (INR53.6b). While LRSAM order is scheduled for
completion by FY26, the Akash order will likely be completed in three years starting FY21.
• Management appeared confident of clocking substantially higher margin in the Akash order than 7.5%, as it
has strong control over the entire supply chain.
Bharat Electronic
19 September
Financial Summary

4. 3
Bharat Electronic
19 September

5. 4
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