Bharat Electronics Ltd’s strong order execution in the June quarter (Q1FY23) has set the tone for the rest of the fiscal year. The company should have no trouble meeting its FY23 sales growth estimate of 15% year-over-year (y-o-y).
In Q1, standalone revenue surpassed expectations and surged by up to 90.4 percent year over year to 3,112.8 crore. Aside from solid execution, the low base of last year’s Q1 and revenue overflow from FY22 boosted revenue increase this time. The first quarter’s three-year sales compound annual growth rate is 14%.
Following a bottom in Q3FY22, the gross profit margin is already recovering. At 41.8 percent in Q4FY22 and 41.9 percent in Q1FY23, the measure stayed unchanged from quarter to quarter. Gross margin increased year over year by 30 basis points. Ebitdaās margin increased by a stunning 12.6 percentage points year on year to 16.5%, aided by a reduced base.
Investors have no complaints. On Monday, the NSE saw a 52-week high for Bharat Electronics shares, reaching 260.80 per share. Additionally, analysts anticipate further gains due to the substantial order backlog and optimism that the order inflow would continue steady. The order book to sales ratio of 3.3 times trailing twelve-month revenue is encouraging. With the order book at 55,333 crore as of June close, falling from 57,570 crore at the end of March, the order inflow remained muted in Q1. Analysts, though, are not yet up at night worrying about this.
“Given the underlying trend in defence spending and the projects in the pipeline to be ordered, we do not see risks for Bharat Electronics garnering roughly 1.1 trillion in military contracts over the next five years,” analysts at ICICI Securities wrote in a note on July 17.
Nonetheless, one of the concerns for the stock is that the defence sector is monopolistic, with the government of India being the sole buyer of defence equipment, putting providers such as Bharat Electronics at a disadvantage, according to analysts at Edelweiss Securities. Delays in massive system implementation, supply chain concerns, and the government of India’s liquidity are all significant risks to monitor, according to the analysts.
Against this environment, the company’s development into non-defense industries such as electric vehicle batteries and healthcare bodes well. This, along with an emphasis on export markets, would promote growth.
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