Shares of Bharat Electronics soared 6.2% in opening deals on Monday to hit a fresh 52-week high of Rs 260.80 apiece on the National Stock Exchange. The company’s June quarter (Q1FY23) performance surpassed expectations, earning the stock a thumbs up from investors. Standalone revenue jumped 90.4% year-on-year to Rs 3.12.8 billion in Q1, helped by the low base of last year when operations were hit because of the second wave of the coronavirus pandemic. Even so, robust execution was a key factor driving growth in the June quarter.
“Post three years of high single-digit growth, Bharat Electronics seems set to achieve double-digit top-line growth for FY23E as Q1’s beat, by a wide margin, adds to the comfort,” said analysts at Edelweiss Securities in a report on 17 July. On the profitability front, gross margin made a recovery after bottoming out in Q3FY22. The measure stood at 41.9% in Q1FY23, up from 41.8% in Q4FY22. Gross margin expanded 30 basis points year on year. One basis point is one-hundredth of a percentage point. Ebitda, earnings before interest, tax, depreciation and amortization – margin rose a whopping 12.6 percentage points year-on-year to 16.5%, helped by the lower base. However, sequentially, Ebitda’s margin declined 830 basis points on account of negative operating leverage.
Order inflow also remained subdued last quarter, with the order book as on 30 June at Rs 553.33 billion, down from Rs 575.70 billion as of March end.
“But 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 about ₹1.1 trillion of defence orders over the next 5 years,” said analysts at ICICI Securities in a report on 17 July.
Additionally, a lower-than-expected increase in the defence capital budget would pose a risk to Bharat Electronics operations. But analysts at ICICI Securities believe there is a low probability of that given the heightened external threat perception.
