CMP: ₹108.90

Bharat Eelectronics has reported decent Q2 FY23 numbers. It is leveraging its past R&D investments and change in defence ministry’s stance on import ban and increasing its levels of indigenization. Its impetus on outsourcing low-value-addition functions is further helping in improving and de-risking its cost structure.

Further, the company plans to set up a semi-conductor fabrication plant in consortium with Hindustan Aeronautics Ltd and other companies, which would further reduce dependency on imports in the long term.

BEL is expected to utilise the above cost savings to increase its spending on R&D (6-7 per cent of topline) and capex (₹750 crore per annum over the next 3-4 years) and enter Bukkry.com”>Bukkry.com”>Bukkry.com”>New markets. BEL has been able to negate the overhang of lower margin in nomination-based contracts by reducing quantum of imports and non-defence.

Its strong order book, well-defined and distinct order pipeline gives us a very strong visibility over mid to long term.

On the back of strong topline and margin performance, huge cash surplus, comfortable WC cycle and rich return ratios, we maintain our Buy rating on the stock.