Target: ₹185
CMP: ₹167.25
Bharat Electronics (BHE) has received several order inflows aggregating ₹8,790 crore in Q3-FY24 to date. Until FY24 YTD, cumulative order inflows stood at ₹23,170 crore vs guidance of ₹20000 crore in FY24, 16 per cent ahead of the target.
Considering the past year’s order inflows, we believe there has been a sizeable rise in short-cycle orders toward radars, avionics, electronics warfare system, annual maintenance contracts for radars & other equipment, and spares & services.
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We lower our FY24E EPS by 0.5% on a cut in revenue growth but raise FY25 EPS by 6 per cent and FY26E EPS by 8 per cent on strong inflows and higher other income.
We raise our TP by 19 per cent to ₹185 on 27x (from 25x) FY25E P/E, as we roll forward to December. During FY16-18, BHE saw inflow momentum at a 20 per cent CAGR; consequently, revenue growth momentum too jumped to 15% from 12 per cent.
We believe there has been a significant rise in inflow momentum, thereby resulting in stronger earnings growth. We expect an earnings CAGR of 31 per cent during FY23-26 with an ROE and ROCE of 25 per cent each during FY24-26.