Bharat Electronics Ltd Q3 FY2023 Concall Summary

Key Takeaways

• Order inflow on track for ~₹20,000 Cr target: Despite booking only ~₹3,600 Cr through Q3, management is confident of reaching close to the full-year target, with ₹10,000–12,000 Cr of contracts where PNC/CNC is already concluded and expected before March.
• Revenue growth ambition raised: Management targets "closer to 20%" growth for FY24 and FY25, a step up from the current year's 15%+ guidance, driven by defence market expansion, civilian diversification, and exports.
• Margins steady on a 9M basis: Gross margins held at ~40% for the April–December period, and management expects the full year to land around the same level, absorbing normal employee cost increases.
• Defence remains the dominant mix: Management sees the defence-to-civil ratio holding at 75:25 to 80:20 for the next 4–5 years, with civil never exceeding 20–25% of revenue.
• What to watch next quarter: Whether the ~₹10,000–12,000 Cr pipeline converts into signed contracts by March, the final FY23 order inflow number, and the precise FY24/FY25 growth guidance promised after full-year results.

Order Inflow & Pipeline

• Q3 inflow subdued, Q4 expected to surge: Only ~₹3,600 Cr booked through Q3 because the defence procurement process is lengthy and back-end loaded; management retained the "close to ₹20,000 Cr" guidance and pointed to a large pipeline of concluded negotiations awaiting contract signing.
• ₹10,000–12,000 Cr near-final pipeline: Contracts where PNC/CNC is already concluded and formal orders are expected before March; additional quotes have been submitted, providing further cushion.
• Key programmes in the pipeline: QRSAM trials are complete and the order is expected to fructify in FY24, with a second package in FY25; Akash Prime is with the Cabinet Committee on Security, and BEL is ready to negotiate with BDL once CCS concludes.
• Add-on EVM order received: A ~₹150 Cr EVM/VVPAT order was booked on February 1, 2023; major orders for the 2024 elections are already placed on BEL and ECIL, with remaining inflow continuing every year.
• Hyperion Global order on hold: Management stated the order is "probably on hold" and not progressing well, removing it from near-term expectations.

Srivastava: "Close to that it should happen we are working on that."

Revenue Growth & Outlook

• Growth target raised for FY24–FY25: Management stated the next two years will be "much better than 15% plus," with a target "somewhere closer to 20%"; precise guidance will be given after FY23 results are finalised.
• Long-term growth anchored to defence budgets: Management envisages 15% to 20% growth in the long term, linked to defence budget increases, with 15–20% annual order inflow growth visible beyond FY24.
• Services revenue stable at ~10% share: Currently ~10% of turnover, expected to remain at 10–12% on a growing base; absolute growth driven by spares, tech support, repairs, and AMC for installed equipment.
• Navy business a material contributor: BEL supplies 20–25% of weapon and sensor systems on new naval ships and submarines; equipment per ship can total ₹800–900 Cr, with further additions if LRSAM or similar systems are included.
• Exports progressing slowly, G2G-led: The US order and Triton EV order are both going slow and not factored into revenue projections; export push is G2G-oriented with offices opened in Mauritius, Malaysia, and Egypt, and business delegations participating alongside government.

Srivastava: "This year we have given a guidance of 15% plus and next two years definitely it will be much better than 15% plus, our target is somewhere closer to 20%."

Margins & Costs

• Gross margins stable on a comparable basis: For the 9M April–December period, gross margins remained around the same level YoY (~40%); full-year gross margins are expected around the same 40% level because of the mixture of many different projects across different units.
• Employee costs rose on normal factors: Employee benefit expenditure increased by ₹70 Cr due to DA increase, recruitment of contract labour, and actuarial valuation, described as normal increases rather than one-off shocks.
• Pricing regime absorbed into margins: The new pricing regime was introduced 3–4 years ago; management pointed to 3–4 years of performance as evidence that cost efficiencies are built into margins, and expects to maintain current margins going forward.
• Segment-wise margins not disclosed: Management declined to provide defence vs civil or individual non-defence segment margins, citing exemption from segment-wise reporting and stating each has different margins.
• Outsourcing share stable: Domestic procurement and outsourcing to the private sector remained at almost the same level as FY22 (~31%).

Diversification & New Business

• Civilian market expansion underway: MoUs signed with Airport Authority of India for civilian airport equipment (one system installed at Bhubaneswar for testing) and with Delhi Metro for indigenising imported metro equipment.
• Defence-to-civil mix to hold steady: Management expects the ratio to remain 75:25 or 80:20 over the next 4–5 years; defence will always be the mainstay, with civil not exceeding 20–25%.
• Airbus C295 programme entry: BEL received an order from Airbus for supplying the Missile Approach Warning System and related items, marking a new export-linked manufacturing opportunity.
• ONGC security systems: After completing inland assets security earlier, BEL received an order for ONGC's offshore assets security system.

Bhattad: "We feel that ratio of defence to civil in the next four, five years continued to be in the range of 75:25 or 80:20 like that defence would be always in the main sum and 20 to 25 maximum will be civil not more than that in the coming four, five years."

Capacity & Infrastructure Build-Out

• Nimmaluru night vision factory: Advanced night vision equipment factory under construction at Nimmaluru, 15 km from Machilipatnam; expected to start working from May–June next year.
• Multiple new facilities in progress: D29 manufacturing facility in Bengaluru; EW ground-based equipment facility in Ibrahimpatnam, Hyderabad; defence system integration complex at Anantapur; land taken in Nagpur (~200 acres) for arms and ammunition expansion; super component facility in Hyderabad with ~₹100 Cr investment.
• Annual capex run-rate: Expected in the ₹600–800 Cr range for the next few years to build infrastructure for growth.
• R&D intensity sustained: BEL spends 7%+ of turnover on R&D, which management credits for maintaining growth and profitability as a technology-driven company.

Srivastava: "I can only say that BEL is a technology driven company and we are very few company in the country where we invest heavily on research and development. If you see our results 7% plus of our turnover we spend on R&D. We have a very strong R&D base and that is how we are able to maintain our growth and profitability."

Programme Status & Competitive Landscape

• Multiple CNCs concluded: Himshakti, Arudhra radar, EW suite for Mi-17 upgrade, and FCS all had CNCs concluded over the past month or earlier, clearing the path for contract signing.
• HPR radar lost to competitor: A competitor's radar has been selected for the HPR programme; MOD is processing the decision.
• MRSAM and QRSAM induction timeline: Government is working on these; expected induction "maybe next year or next to next year"; BEL's electronic portion is already included.
• Swathi radar leak addressed: Management stated that if specific details were leaked, it would not impact the radar because the underlying technology, software, and design parameters are never shared outside the company.
• Air force budget under-utilisation not a concern: Management stated the air force has broad procurement areas and BEL's supplies are on track; payments due are being received.

Srivastava: "If some specific detail is leaked out I do not think it will have any impact on that because the technology behind the radar which is more important and what is the software, how you have addressed that, what is that, that I do not think anybody will be able to give or that information we provide to anybody, design parameters or design details based on which this radar is manufactured it is never shared to anybody outside."

Guidance & Commitments

Key Metrics