Due to recent order wins from the Ministry of Defense, defense companies Bharat Electronics Ltd (BEL) and Bharat Dynamics Ltd (BDL) have been under the spotlight (MoD).
The two businesses have benefited greatly from recent orders from the ministry. This resulted in BEL and BDL shares increasing by 6.5 and 3.5 percent, respectively, on Friday, the final day of the fiscal year 2023. (FY23).
Moreover, BEL released tentative revenue statistics for FY23 on Saturday that largely matched forecasts. The business’s FY23 revenue was $17,300 crore, up 15% from the previous year. BDL anticipated a 10-12% increase in income for FY23.
Since 23 March, BEL signed a series of contracts with MoD, totalling almost ₹16,300 crore. In addition, the company received export orders worth $52 million ( ₹427 crore). These developments alleviate a key investor concern of BEL potentially missing its FY23 order inflow target of ₹20,000 crore. Recall that BEL’s order book was at a multi-quarter low in the December quarter. This was on the back of muted order inflow of about ₹3,700 crore in the nine months ended December.
The fresh orders from MoD is expected to be the key enabler in BEL maintaining its annual revenue growth guidance of 15% over the next few years, said analysts at ICICI Securities in a report on 31 March.
In the case of BDL, there was a key overhang due to the delay in the awarding of the Akash Weapon System. With the company receiving this order, its FY23 order inflow guidance has been met.
BEL and BDL’s order book as on FY23-end provide revenue visibility of 3.5 times and 7.5 times (based on estimated revenue from Bloomberg), respectively, on a trailing 12-month basis. What’s more, analysts expect the two companies to see robust order inflow in FY24 as well owing to a strong order pipeline. Further, the country’s thrust towards indigenization is a plus. Analysts at Jefferies India note that in the past 12 to 24 months, more than 300 items have been added to the defence import embargo list.
Meanwhile, investors seem to have taken note of the brighter picture adequately. In the past one year, shares of BEL and BDL have surged by around 39% and 80%, respectively. This could cap large near-term upsides.
To be sure, execution remains key hereon. Note that there have been concerns on BDL’s execution due to supply chain challenges. Any disappointment on this front would dent investor sentiments.