Bharat Electronics Limited (BEL) - Investment & Warfare

To be able to understand what a company like Bharat Electronics Ltd. (BEL) does, we need to understand how wars are fought . Modern day warfare is almost entirely different from how some of the most destructive wars like WW2 were fought. Traditional warfare is considered to be platform-centric while modern day warfare is considered to be network-centric . The key difference between the two is the role technology plays in the linkage between decision-makers, sensors and shooters . Information about the current status of war used to get relayed to the command centre thousands of miles away from the battlefield remarkably slowly. This drawback of the platform-centric warfare caused what is known as “fog of war” for key decision makers as situational awareness considerably deteriorated when the battle was underway.

But in the 90s communication technology significantly improved and a new method called network-centric warfare came about in the US. The Indian army is rapidly adopting this now. Today, an entire group of people working for the Indian army called Signals corps handle military communications. What do they do? They work to achieve information superiority over the enemy so that the forces can function effectively . Within 45 minutes, they can set up an entire private communication network at any location in order to facilitate information transfer between the radars, sensors, shooters and command centre. There’s more! They can interject and jam the enemy’s communication network. The electronic warfare unit of the Signals corps can also use this network to generate killer microwaves at specific frequencies to disable electronics on the enemy’s electronic weapons & monitoring devices – like drones! And the best part of it all - None of this is science fiction!

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More and more technology, software and electronic systems are being deployed in modern day wars. And Bharat Electronics Ltd., is at the forefront of developing and manufacturing such systems for the Indian armed forces and friends of India . They work together with the Defence research and development organisation (DRDO) and the others in this field like Hindustan Aeronautics Ltd. (HAL), to develop state of the art weaponry. Over 82% of their revenue came from the ministry of defence in FY2020.

But thanks to their expertise in electronics, they are called in to help with some other stuff too like helping out ISRO with their space gadgets, smart cities with their command & control centres, the police service to modernise their kit, metro train operators with automatic payment tills, election commission with the voting machines and best of all, by ministry of health to make ventilators! All of this put together however was only 18% of their revenue in the last FY.

What is their total addressable market size? Is it going to grow?

Warfare is expensive. Consider this for a moment – A staggering sum of Rs.4.7 Lakhs Crore (About $63B) was allocated to the ministry of defence in the FY21 budget. To put that into perspective, the ministry of housing and urban poverty alleviation received LESS than 10% of that amount. This infographic below shows you a back-of-the-envelop calculation on how big this business is today in 2020 and how big it can really be in 10 years from now.

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Now that we know what they do, how well do they do it?

Turns out, they do it quite well! BEL has consistently ranked as one of the top 100 defence companies worldwide. The only other defence company from India which finds mention in this list is Hindustan Aeronautics Ltd. (HAL).

Here is how their revenue and net profits grew over the last 10 years.

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They have ZERO debt in their books , and they have consistently paid dividends. Look at their dividend yield over the last 10 years.

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The issue with most PSUs is that they are generally less well-run, and less efficient compared to the private sector. So, I calculated a few efficiency indicators from their financial statements for FY20 and compared it with Escorts Ltd., another business I was looking at last week

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All of the efficiency metrics are indicating that BEL is an extremely well-run business in today’s context. But why does the stock sell at a much lower PE in the stock market compared to the others? What are we missing?

Before we answer that, let’s answer another question. Who owns BEL?

BEL is one of the 14 Navratna public sector enterprises and is a public sector undertaking (PSU). The government of India owns 51% of the business while mutual funds and retail investors hold the rest of the 49%. But it wasn’t always like this. Only 10 years ago, the government owned a meaty 76% of the company while the public owned the rest. Over the years since then, the government kept selling stocks in the company to outside investors to raise money. Now, why would the government dump stocks of a business that is both strategically important and quite profitable?

Why would they kill the goose that lays golden eggs?

The answer to that question lies in this chart below.

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Each year the ministry of defence signs a number of contracts for delivery of weapons over the next years. When the deliveries are made, payments become due. These are called committed liabilities . Any other contracts they sign for weapons delivery are called new schemes. The finance ministry over the last 4 years has not even allocated enough money to meet the committed liabilities of the defence ministry. The standing committee of Defence in 2019 wrote in their report that there is a very real risk that the ministry might end up defaulting on their payment obligations to the vendors.

The finance ministry is like a parent to a number of children (ministries). It has only finite amount of money and all the children want more than what they can have.

But the defence ministry has already committed to its suppliers to buy these weapons. When it is time to pay, what could the defence ministry do without actually defaulting on its payment? – Really simple, ask the vendors to come back after some time. And that’s what has been happening.

In the case of BEL, receivables from the ministry went up from Rs.3800 crores in 2015 to Rs.11,000 crores in 2020! (This includes something called ‘contract assets’ on their balance sheet, which is also payment due from the customers - possibly performance-linked, but it’s not clear from the AR) An increase of 190% in a period when revenues only went up 80%. Is it just with BEL? Nope! Take the case of HAL – Receivables from the government went up from Rs.5,000 crores in March 2016 to an astonishing Rs.19,000 crores in March 2020(this figure also includes contract assets). But the government anyway owns these companies. The left pocket owes money to the right pocket. What is the big deal with it? – That argument is only partially true. Mutual funds, LIC and the public own 49% of BEL and 10% of HAL. In effect, the money that would otherwise have been distributed to the shareholders as dividends is now being used to extend credit.

Here is my reading of the situation

The government is hitting the exit button on these defence stocks to raise the cash it desperately needs (Mazagon dock, another defence company went out public earlier this month). The downside of this is that any dividend paid in the future by these companies has to be shared with the new minority shareholders. But the government needs this dividend from its best performing PSUs. So how does it come around it? By extending massive amounts of credit to itself from these PSUs! In a roundabout way, shareholders in these companies are funding a portion of the excess spending of the ministry of defence.


The defence industry in India is going to do quite well over the next decade. Make-in-India push is going to positively influence the development of this industry. There is no denying that. Save for some small corruption cases here & there and the RTI activists giving it a hard time now & again, BEL is a well-managed business at the leading edge of its industry. It is efficient, profitable and keeps innovating through R&D & industry partnerships. It is a good business to own, on any day. For someone looking to build a portfolio of value stocks, with stable names that offer reasonable dividends, capital protection and maybe even some upside from growth, this could be considered a good addition at current prices.

But for someone like me who is twitchy about the idea of indirectly funding the government of India or is looking to build a portfolio of the next FANG (Facebook/Amazon/Netflix/Google) stocks of India, or perhaps even against weapon manufacturing, there are other opportunities.

Disclaimer - I do not hold any position in BEL’s stocks. I am not a SEBI registered advisor and this is not a buy or sell recommendation for the stock. Please consult with your financial advisor before investing.


anyone has any update on the above news.

Earlier there was this news about
The Indian Space Research Organisation has short list few companies including BEL for transfer of its Lithium-ion cell technology.

Looks like BHARAT ELECTRONICS is gearing up for EV batteries.

Members may Please update on this matter further.

From Reliance securities report

What We Heard – Conference Call - Key Takeaways:

  1. Guidance for FY22E: The management is very conf i dent of the company’s prospects in FY22E and has guided for 15-17% topline growth. While EBITDA margin is expected to be in the range of 20-22%, order inf l ow is estimated to be ~Rs170bn.

  2. Guidance for FY23E: The company is looking for order inf l ow to the tune of Rs200bn in FY23E.

  3. Strong Order Pipeline in Key Areas Over the Next 3 Years:
    • Electronic Warfare: The management expects orders worth Rs150bn to come over the next 3 years in this category, with a large portion coming in FY22E.

• Weapons: The management estimates order inf l ows of Rs250-300bn over the next 3 years in this category. It targets to deliver 3 more Akash squadrons to the Indian Army in FY22E and is conf i dent of delivering at least 2. The trials for Quick Reaction Surface-to-Air Missile (QRSAM) are expected to be completed by Mar’22 and order inf l ows will only come from FY23E onwards.

• Naval Equipment: The management expects order inf l ows of Rs150-200bn over the next 3 years in this category.

  1. Non-Defence Business: The company expects to increase the share of non-defence revenue to 25% in the revenue-mix over the next 2-3 years. Opportunities are being seen in the following areas:

• Healthcare Equipment: After supplying 30,000 ventilators in the beginning of the fiscal, the company received order for supply of 25,000 oxygen concentrators. The management expects more orders due to the current pandemic situation. The company has also started producing dialysis machines.

• Metro: The company has signed an MoU with Delhi Metro Corporation for supply of various automation coach products and traff i c control equipment. The company is developing the products like signaling, traffic management and door technology etc.

• Homeland Security & Smart Cities: The company has Rs50bn order backlog in this business and expects good prospects, going forward.

• The company is participating in tender for rockets for ISRO and working closely with HAL for sensors for helicopters and is in talks with Airport Authority of India for radars which it currently imports.

• EV Business: The company has an MoU in place with HPCL for electric chargers. It plans to start in-house production of lithium batteries. Capex requirement is seen at Rs50-100bn and the company is looking for partners, who can provide technical and investment support. The investment is likely to happen in phased manner, we expect, the prof i tability of this business to remain muted for few years, which is likely to impact overall margin of the company.

  1. Capex: The company spent Rs4.6bn capex in FY21 (vs. target of Rs5bn). It plans to start 4 new plants in Hyderabad, Nagpur, Numaligarh and Anantpur. Each plant would require an investment of around Rs2bn and should be completed within 12-18 months.

  2. Employee Cost: The number of employees, which has been declining over the past decade, is expected to remain low, as the company is shifting more towards technology and skill of manufacturing. Technical manpower, as a percentage of revenue, is coming down, as product outsourcing is increasing steadily.


Bharat Electronics - Notes from AR 2020-21 -

  1. Last 5 yrs Sales, PAT,R&D and Dividend data -

Sales - 8825, 10085, 11789,12608, 13818 cr
R&D spends - 777, 988, 1077,947, 873 cr
PAT - 1548,1399,1927,1794,2065 cr
Dividend - 503,491,828,682,975 cr

  1. Sales in FY 20-21 were up 9 pc over previous FY. BEL achieved an export sales of $ 52 million ( aprox 390 cr ). Company has 09 manufacturing sites. PAT growth of 15 pc was achieved. Current order book stands at 53433 cr ( that’s like 4 yrs of current revenues ). Expected to receive good orders in next 2-3 yrs. Total R&D expenditure as a percentage of revenues was 6.3 pc.
  2. Sale of Indegenously developed products at 79 pc of total sales vs 21 pc products manufactured through ToT with foreign OEMs. Sales from defence equipment at 82 pc vs 18 pc from non defence equipment.
  3. Orders received during the year include - AFNET performance and security enhancement, SATCOM network, Naval fire control systems, Software defined radios, Advanced torpedo defence systems, DMRRs. Total value of orders received was 15278 cr. Total patents granted during the year were 3. With this, company now has 13 patents.
  4. Company strives to diversify into various other fields in order to de-risk. At the same time, Atma
    Nirbhar Bharat offers immense opportunities for the company.
  5. Segments like - radar and missile systems, comm and network centric systems, anti submarine warfare and sonar systems, tank electronics, gun upgrades, electro optic systems, EW and avionics will continue to drive company’s growth in coming years. Non defence areas of growth include- homeland security, EVMs and smart cities. Company strives to achieve leadership position in strategic electronics by continuing to invest in R&D. Company is also working on developing efficient Li-Ion batteries.
  6. In non-defence sector, company is working on ATC radars, smart meters, anti drone systems, range of medical and healthcare solutions, network and cyber security, space grade solar cells, satellite electronics etc.
  7. Execution pipeline for 2021-22 includes - LRSAMs, IACCS, CSS ( Costal surveillance system ) phase-2,Kerala finer optic network,Weapon locating radar,Integrated perimeter locating system EVMs, HUMSA UG ( a sonar system ) systems etc. Export order book for FY 22 stands at $ 125 million.

Disc : Not invested.

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BEL into Drone with latest technology

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BEL 17 18 19 20 21 22
Order Book 40242 40115 51798 51800 53434 57000
Revenue 8,656 10,401 12,164 12,968 14,109 15000
Order Book To Sales Ratio 4.649029575 3.856840688 4.25830319 3.994447872 3.78722801 3.8

Disc- no holdings as of now


Below are some interesting observations made by @Tar


Bonus has been declared 2:1 in Aug 4 meeting.

22nd Sep I got an sms saying BEL shares credited waiting approval.
23rd Sep another sms saying transferred to main ISIN.
Now I could see in my broker (Sharekhan) account it is available for trading.

BEL plans to enter semiconductor and Lithium Ion cell manufacturing

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All of these years I am unable to understand even if our PSU’s get TOT for critical technologies still they are unable to research and make something of their own. Not sure how BEL would benefit from this MoU if we exclude monetary benefits.

BEL receives order worth Rs 8060 Crores from Triton EV towards Supply of Li-Ion Battery Pack to be supplied within 24 months.

BEL no longer is a stand alone Defence PSU, they are diversifying from Defence to Semi conductor to Lithium Ion Battery and Hydrogen Fuel Cell.

Though BEL carries a PSU Tag, but it’s business plans are highly Relevant to the nation…at a time when the Auto Industry is struggling to go Green with introduction of EV and Hydrogen.The industry is struggling with shortage of chips and technological challenges.
While the stock has run up quite a bit , but it has a good runway for growth if it is able to execute it’s plans and there is no Govt intervention.

Discl: Invested for long term… It is not an investment advice. Please do your own assessment before investing


BEL Management Interview: (CNBC TV-18)

  • FY23 Revenue Guidance of 15% growth
  • Guidance for order inflows has been 20000 crores, out of 3100 crores has been received. Lot of chunk is still left.
  • Targeting more on defence business.
  • FY23 EBITDA Margin Guidance of 23-25%.
  • Expecting two orders to finalize by this quarter end Q3.
  • Hydrogen Fuel Cells is a good opportunity. But the approval process is left by the customer. They will approve a batch and then final production will happen. Order finalization will happen after approval & commercial negotiations. No revenue expected from this segment until the next 2-3 years.


  • Higher RM cost has impacted margins.
  • Revenue increased due to better execution.
  • Order book of 50116 crore as of Dec, 2022. Order inflows were 1452 crore in Q3 FY23 & 3736 crore in 9MFY23. Order pipeline is strong in FY23-24. Order book likely to expand in the coming quarters as a lot of them are in the pipeline. Order book accretion of 15500 crores is expected in Q4 FY23. Order expected are Himshakti programme of Rs33bn, Atulya medium-power radar of Rs20bn-30bn, Rs100bn expected from naval shipyards for radars and SONAR.
  • Strategy to diversify into non-defence areas.
  • Employee costs and other costs have increased.
  • Revenue growth guided at 15% for FY23 and Gross Margins expected at similar levels of 42% for FY23.
  • Capex of 6-8 billion expected in FY24.
  • 15-20% growth in revenue expected in FY24.
  • Investing in new facilities at Nagpur, Ibrahimpatnam, Anantapur, Hyderabad & Nimmaluru.
  • Unwinding of receivables is expected in by March, 2023 end as government payments are coming in smoothly.

Catch is that they don’t get IP rights :slight_smile:

Tapas - UAV made in India by BEL & HAL, a new milestone