BEL: Diversification – a strategic move

BEL: Diversification – a strategic move

Shares of Bharat Electronics (BEL) were up 5% to Rs 108.35 apiece on NSE, and have rallied 12% in the past two trading days as management commentary helped rejuvenate investor confidence. The state-owned defence equipment maker has guided for double-digit growth, sustainable margins and better order inflows suggest strong performance in the medium-term. The stock of BEL hit a 52-week high of Rs 118.45 on August 14, 2020.
For April-September period (H1FY21), BEL had reported 18% year-on-year (YoY) decline in its consolidated net profit at Rs 443 crore, while total revenue from operations remained flat at Rs 4,871 crore over the previous year quarter. The order book stood at Rs 52,148 crore as on October 1, 2020.

BEL is zero debt company and is able to maintain working capital without borrowing.
BEL is aiming at order inflows of around Rs 15,000 crore for FY21E (vs. Rs 13,000 crore in FY20). It expects orders from avionics package for LCA, Akash weapon system, LRSAM, smart city business, Electronic warfare systems, etc.
BEL, in its virtual analyst meet, highlighted that it expects double digit (10-15%) topline growth over the medium-term and is likely to be able to maintain EBITDA (earnings before interest, taxes, depreciation, and amortization) margins in the range of 20-21% during this period.

It’s strategy to diversify into non-defence areas, focus on increasing exports and services would aid long term growth and help de-risk its business model.  However, working capital and cash flow situation would be key monitorables in the medium term.

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