Thread by @alphaspotcap

Bharat Electronics Ltd Analysis! 🇮🇳

A detailed thread 🧵👇🏻
#investing #Stocks

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About:

BEL, a Navratna defence public sector undertaking, was established in 1954 under the Ministry of Defence, the GOI, to
cater to the electronic equipment requirements of the defence sector. The GOI remains BEL's largest shareholder with the
shareholding of 51.14%.

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BEL is the dominant supplier of radar, communication & electronic warfare equipment to the Indian armed forces. It has 9 manufacturing units & 2 research units. The Bangalore unit is BEL's largest unit, contributing the largest share to it’s total revenue & profits.

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Products:

• Radar
• Missile systems
• Electronic warfare & avionics
• Anti-submarine warfare
• Electro-optics
• Homeland security
• Civilian products, etc

BEL’s order book was at ₹57,570cr as of March 2022.

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Key strengths:

• A dominant supplier :

BELs status as the largest domestic electronics manufacturer leads to benefits associated with the economies of scale. In addition, Govt ownership leads to a sizeable inflow of orders, providing a steady earnings stream to BEL.

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• Revenue visibility:

The company's unexecuted order book as on March 31,
2022 stood at ₹57,570 crore. The order book stands at 3.9 times of the FY2021 operating income, which provides adequate
revenue visibility in the medium term.

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• Financial Profile:

BEL's financial profile remains strong because of healthy
profitability and return indicators, nil borrowings, superior liquidity and strong debt coverage metrics.

The company reported an operating profit of ₹3,158cr for FY22, up from ₹2,935cr

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• High entry barrier:

BEL continues to enjoy advantage over its competitors due to its dominant market position, proven track record and association with the armed forces, established infrastructure and manufacturing
facilities, along with strong R&D capabilities.

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Liquidity:

The liquidity profile of BEL is superior, supported by comfortable cash flow from operations, which are expected to be
adequate to meet the capital expenditure outlay and dividend outflows.

The company spent ₹465 cr as capex in FY22 focusing on modernisation

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Weakness:

• Dependence on Defence:

The Indian defence sector is BEL's major customer, accounting for ~80% of the turnover. In case of any changes in the procurement policy of the defence forces, the company's revenue and order book position can be adversely impacted

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• Working capital intensive:

BEL's working capital intensity had remained high due to high receivables and unbilled revenues on account of long periods for the orders executed. Nonetheless, the company has been able to manage its WC through its internal cash accruals.

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Company’s focus:

• Focus on diversifying into non defence sector and improve exports and services. Currently defence sector generates 88% of the total revenue for BEL, they are targeting to cut it down to 80% in the coming 3 fiscals by FY25

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Numbers YOY basis (in ₹Cr)

• Revenue : 15,314 vs 14,064
• EBITDA : 3,309 vs 3,181
• EBITDA Margin : 21.6% vs 22.6%
• PAT : 2,349 vs 2,065

Ratios:

• RoCE: 26.2% vs 27.2%
• RoE: 19.6% vs 19.1%
• EPS(₹) : 9.6 vs 8.5
• Debt/Equity : 0.00
• ROIC: 27.1% vs 36.1%

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The company should continue to focus on double digit growth and improving its technology to continue to bag foreign orders as that has taken some hit in FY22 (down 36% YoY)

@caniravkaria @kuttrapali26 @Anshi_________ @aparanjape