Bharat Electronics

Why invest in it:

Preferred company for defense products – with high entry barriers
Defense demand to continue to grow –> India + exports
Diversifying into non defence electronics, software, and space
Focus of government to reduce defence imports and Make in India
Huge growth potential for its non defence segments

 

Established by Government of India under the Ministry of Defence in 1954 to meet the specialised electronic needs of the Indian defence services, Bharat Electronics is a multi-product, multi-technology and multi-unit company.

BEL offers products and services like radars, military communications, naval systems, electronic warfare systems, telecommunications, sound & vision broadcasting, opto-electronics, tank electronics, solar photovoltaic systems, embedded software and electronic components.

The company also provides turnkey systems solutions like command control communication & computer intelligence (C4I), covering requirements of all the 3 forces.

Strengths

  • Strategic position as a dominant supplier of electronic equipments to the Indian defence forces
  • Established track record,
  • Large manufacturing capacities (with adequate pool of trained manpower)
  • Joint ventures (JVs) and technology tie-ups
  • Zero debt, high margins, comfortable liquidity
  • Strong order book of Rs 54,959cr as on Q3FY20, about four times its annual sales, indicating adequate revenue visibility

Key Financial Data: as on 3-Feb-2019

Share Price

83.5

OPM

20%

Debt/Equity

0

ROE

20.9%

ROCE

30.5%

52 week H/L

122/73

P/E

15

EVEBIDTA

8.8

Dividend yield

4.07%

Promoter holding

55.3%

Sales growth 3 years

18%

P/BV

2.2

Why the Company’s Business will Continue to Grow

Long Term Growth Drivers

The offset clause (30% of an order must be subcontracted domestically).

Despite the entry of private players, the company as a defence PSU is poised to grow based on its wide array of projects and proven expertise.

BEL is expected to receive a significant number of orders over the next five to seven year.

Company is diversifying in non defence areas of solar, homeland security, smart city elements, space electronics, satellite integration, software and AI, unmanned systems including robotics, energy storage products, and cyber security.

Solar: BEL is setting up utility scale solar power plants for captive consumption in the estates of ordnance factories at 17 locations across eight states for total capacity of 150 MW. BEL has upgraded its PV solar facilities to 10 MW Mono Crystalline solar cells and 10 MW automated Solar Module manufacturing. The new automated Module plant has capacity to manufacture solar modules up-to 320 watts in both 60 & 72 cells configuration. The modules are qualified for IEC certification as per guidelines of MNRE for application in roof top and utility scale solar power plants. In year 2018-19, BEL manufactured 4 MW mono-crystalline based Cells and Modules which were used for setting up power plants for internal and external customers.

BEL has explored huge export business opportunities in the field of Solar Power Projects in few of the sunshine nations. The business discussion with various foreign Ministries of the sunshine nations has been slow but steady and now the solar leads are in final stage of contract signature. With huge expertise within BEL, these programs are proposed to be delivered in very short time and will cover more than 80 cities in one of the sunshine African Nations.

The total capacity of power plants installed by BEL in 2018-19 is about 75 MW for OFs, Cochin Shipyard, Airport Authority of India, etc. In near future this sector is expected to contribute to BEL’s business on a continuous basis. BEL has also been shortlisted by ISRO for manufacturing of Multi Junction Solar Cells for space application. The plant with a capacity of about 60,000 multi junction Cells per annum will be setup by ISRO and complete manufacturing will be operated by BEL.

Space: BEL is exploring a collaboration with Indian Space Research Organisation (Isro) leveraging their technological capabilities in design and development of various products/systems for possible use in defence applications.

ISRO has opened up opportunities for manufacturing of small ‘Polar Space Launch Vehicles’ (PSLVs) and Small & Micro Satellites for the Indian Industry. The small satellite requirement is expected to touch around 500 numbers per annum in international arena. ISRO has ambitious plans to increase the number of satellite launches at an average of about 18 satellites per annum from year 2019-20 onwards. BEL has established itself as a major player in ground segment of Satellite Communication and desires to enter into Space Electronic Products, Small & Micro Satellite manufacturing and jointly addressing Launch Vehicle segment with Indian private industry. BEL has long term objective of becoming a prominent player in Space Based Assets and Payloads.

BEL has qualified as an industry partner of ISRO for assembly, integration and testing of satellites. BEL has collaborated with ISRO and has come out with new products like next generation Indigenous Receivers for Positioning and Navigation (IRNSS), GSAT Terminals, LTTC based Substrates and High power TWTs, which have usage in Defence, Government Services and Paramilitary Applications. BEL is jointly working with ISRO for supply and commissioning of various types of HUBs for SatCom Applications.

Exports – BEL has been exporting various products andsystems to various friendly Countries. Having established a Coastal Surveillance System (CSS) for few neighbouring Countries, BEL is interacting with Ministry of External Affairs on a regular basis for supply of CSS to other friendly Countries of India. BEL is also exploring civil market in developing & third world Countries with product like smart cities, solar power generation, etc.

Smart cities – Major opportunities for BEL in this segment include Smart Security, Smart Governance, Smart Mobility, Smart Energy, Smart Healthcare, Smart Infrastructures & Buildings etc.

Network and Cyber Security: With the advancement of digital technologies and their use in almost all areas, businesses like e-Governance, defence, banking, etc have become vulnerable from cyber attacks. To address the above issues, Cyber Security solution requirements range from Cyber Warfare, Espionage, National Defence, Protection of Intellectual Property, Data Security for employee /  customer / personal information are being developed.

The global Cyber Security market is expected to reach about USD 190 billion by year 2025 and Cyber Security market in India is estimated to be about ` 30,000 Crores for next 3 years. BEL has formed a new business vertical in year 2017-18 to address Network & Cyber Security business opportunities in the domain area of Network Elements, Computing Elements, Encryption, Security Management, Data Analytics and Services. The Network & Cyber Security vertical has won a few orders during the year, which are under execution.

Immediate Growth Drivers

BEL has already set up marketing offices in Vietnam, Sri Lanka, Myanmar, and is planning in Oman, Singapore, and New York.

The net profits declined 56% in Q3FY20 but that was only due to realization in receipts, which is going to be reflected in now next quarter.

 

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