On Tuesday, CLSA maintained its Outperform rating on Bharat Electronics Ltd (BHE:IN) stock with a steady price target of INR294.00. The firm's second quarter fiscal year 2025 results indicated a slowdown in its order backlog, with a year-over-year increase of 9%. Despite the decline from previous highs, the company's earnings before interest, taxes, depreciation, and amortization (EBITDA) margin saw a significant rise, up 514 basis points from the previous year, surpassing Bharat Electronics' own guidance of 23-25%.
The management of Bharat Electronics confirmed their financial forecasts during the earnings call, reiterating their revenue, EBITDA margins, and capital expenditure guidance for the fiscal year 2025. This comes after the company's shares experienced a 20% decrease from their recent peak. The analyst highlighted that while order inflows are expected to remain subdued in the second half of the fiscal year, the company's specialty defense electronics segment boasts a robust three-year backlog worth approximately $8.9 billion.
Looking ahead, Bharat Electronics is anticipated to secure significant orders between fiscal years 2025-2027 from a pipeline valued at around $13 billion. Despite the recent stock correction and a tempered order inflow, CLSA believes there are potential catalysts on the horizon for the latter half of fiscal year 2025 that could influence the company's performance.
In summary, CLSA's analysis of Bharat Electronics' financial results and market position supports the continuation of an Outperform rating. The firm's confidence in the company is backed by a solid backlog in the defense electronics segment and expected future orders, which may drive Bharat Electronics' growth in the coming years.
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