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BEL — earnings call

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Prepared remarks

LIMITED · MR. SREENIVAS – COMPANY SECRETARY – BHARAT

MR. SREENIVAS – COMPANY SECRETARY – BHARAT

Moderator · Conference Operator

MR. HARSHIT KAPADIA – ELARA SECURITIES PRIVATE

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ÿ < Bharat Electronics Limited July 28, 2023

Moderator · Conference Operator

Ladies and gentlemen, good day and welcome to the Bharat Electronics Q1 FY24 earnings conference call hosted by Elara Securities Private Limited.

As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes.

Should you need assistance during the conference call, please signal an operator by pressing star then zero on a touchtone phone.

Please note that this conference is being recorded.

I now hand the conference over to Mr. Harshit Kapadia from Elara Securities Private Limited.

Thank you and over to you sir.

Harshit Patel: · No problem, sir. So my second question is just from the question of the earlier participant. If

Thank you Zico.

Good morning, everyone.

On behalf of Elaria Securities, we welcome you all for the Q1 FY24 conference call of Bharat Electronics Limited.

I take this opportunity to welcome the management of Bharat Electronics, represented by Shri Bhanu Prakash Srivastava, Chairman and Managing Director, Shri Damodar Bhattad, Director Finance and CFO, Mr. Sreenivas, Company Secretary, along with their team members.

We will begin the call with a brief overview by the management, followed by Q&A session.

I'll now hand the call to Sreenivas, sir, for his opening remarks.

Over to you, sir.

It looks like. · Sumit Kishore:

Okay so any ideas of when we will be getting this long-term fuse order from Indian Army and some if you can just let us know that for apart from the fuse order, you know, other Swathi, Radar and all, when these orders will come.

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It looks like. · Sumit Kishore:

So six months from now or I mean it would be like a

Okay, okay sir.

I have other questions, I'll come back in the queue.

Thank you and all the best.

Moderator · Conference Operator

Thank you.

Our next question is from the line of Harshit Patel from Equirus Securities.

Please go ahead with your questions.

Harshit Patel: · No problem, sir. So my second question is just from the question of the earlier participant. If

Thank you very much for the opportunity, sir.

My first question is on our content that we provide in light utility helicopter and light combat helicopters, because I think these two platforms are going to be produced in bulk, and therefore will be a recurring revenue stream for us.

So what are the systems that we provide to HAL for these platforms, and what would we share in the overall value of a helicopter?

Sure sir but then in ALH group I think we would be supplying quite a lot of avionics products.

So if you can elaborate, so we can take a cue from that as to what we will be providing.

No problem, sir.

So my second question is just from the question of the earlier participant.

If you can highlight four or five large orders, those are in the pipeline where the CNC process is going on, where the EON process is going on, and these orders will be realized probably next one year's time.

So if you can give that pipeline it will be very helpful.

Moderator · Conference Operator

Thank you.

Our next question is from the line of Sumit Kishore from Axis Capital.

Please go

Sumit Kishore: · Yes and anything separately on MRSAM?

Can you give us a sense on what are the… what is the status on big ticket prospects like QRSAM and MRSAM, which you mentioned could get awarded over a FY ‘25 time frame.

What is the progress around these two large contracts?

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Sumit Kishore: · Yes and anything separately on MRSAM?

Okay.

So is it reasonable to expect that this can come over a FY ‘25 time frame.

And this will be like a INR15,000 crores kind of a contract in terms of ticket size?

Yes and anything separately on MRSAM?

Okay, so QRSAM is much ahead of MRSAM in terms of progress?

Okay, and then the second question is on the receivable position and cash and cash equivalents as of June 2023, if you could give us an update?

Okay, finally, sir, last year you had mentioned that there was some spill over of revenue from fourth quarter of FY ‘22 to first quarter of FY ’23, because of some semiconductor shortage related issues, which had impeded revenue booking in fourth quarter of FY ‘22.

Despite that, we see that there has been a 13% top-line growth on the Q1 base of last year.

So that's a very strong execution, I would think.

So you would say you are well on track to achieve your 17% growth guidance for the year?

Moderator · Conference Operator

Sorry to interrupt.

Mr. Sumit Kishore, may we request you to rejoin the question queue for follow-up questions, as there are several participants waiting for their turn.

Thank you.

Our next question is from the line of Charanjit Singh from DSP.

Please go ahead.

It looks like. · Sumit Kishore:

Hello, sir.

Thanks for the opportunity and congratulations on good set of numbers.

So, sir, my first question is regarding the non-defense sector or the, civilian sector.

So, what are the kind

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INNOVATION Bharat Electronics Limited July 28, 2023 of opportunities you are seeing there?

And we had done a lot of work in terms of airport security control and metro-related work.

When can we see the ordering starting from that particular segment?

That's my first question.

It looks like. · Sumit Kishore:

Okay.

Sir, in terms of the exports, are we seeing any further incremental opportunities coming for us?

And we understand that there have been targets given for the defense PSUs to scale up exports in next two years significantly.

If you can touch upon that part and how is this pipeline building up?

Okay but what sort of opportunities are we are seeing?

If you can you know give any further details

Okay.

And so just lastly, in the past, you also shared about our area of focus in terms of SAS, and we're trying to scale up in that segment.

So any further update?

Software service, so any update on that?

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It looks like. · Sumit Kishore:

All right, sir.

So thanks a lot for taking our questions.

All the best for the future.

Thank you.

Moderator · Conference Operator

Thank you.

Our next question is from the line of Sarjeet Yadav from Mount Intra Finance.

Please go ahead with your question.

Sarjeet Yadav

Good morning, sir.

Congratulations for the good numbers.

I want to know about the execution which you're looking at for during this financial year.

We had an order book of INR60,690 crores as on 31, March, and about INR20,000 crores orders are expected during -- how much of these orders will we be able to execute?

This is first question.

And second question is, we signed a large number of MOUs during last one year.

Any of these MOUs you see converting into orders or any opportunity size?

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Moderator · Conference Operator

Thank you.

Our next question is from the line of Dipen Vakil from InCred Equities Please go

Dipen Vakil

Thank you so much for the opportunity and congratulations on a great set up number.

So my first question is on the non-defense segment of our revenue.

So how much is the contribution from the non-defense and specifically from the EVM and VVPAT machines that are expected this year?

And what kind of margin do we have in a non-defend segment?

Moderator · Conference Operator

Mr. Dipen, may we request you to use your handset?

Thank you.

Dipen Vakil

So, and the second thing is on the, we ended FY ‘23 on a strong cash balance.

So, any capex or any capex guidance for this year?

Moderator · Conference Operator

Thank you.

Our next question is from the line of Jonas Bhutta from Birla Mutual Funds.

Please go ahead.

Jonas Bhutta

Good morning, sir.

Thank you for the opportunity.

A couple of questions.

Firstly, can you talk about the employee cost?

Yes, so on the employee cost, even on a Q-on-Q basis, there's some jump in the employee cost.

So, if you can explain that?

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INNOVATION Bharat Electronics Limited July 28, 2023 The second question was on, we made some large provisions in the last two quarters of FY ‘23, is there an element of write-back that is expected in the current year?

And or do we expect further more provisions, pertaining to that one or two projects that sort of like that?

And the last question was on other income, again that's seen a spike so does this also quarter include dividend from subsidiary, if you can quantify that.

Moderator · Conference Operator

Our next question is from the line of Amit Mahawar from UBS, please go ahead.

It looks like. · Sumit Kishore:

First is on the expansion that we are doing on six to seven locations across Pune, Mangalore, Nagpur, etcetera, if you see the capacity expansion, also we are maybe adding a lot of tests in a line so it has been a restraint for us in revenue building, etcetera.

And do you think FY25, next two, three years, the revenue run rate can increase because of this?

Because I think this year you're going to execute LRSAM completely and voting machines, etcetera.

So does that call for much better revenue building in the next two, three years?

That's my first question.

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It looks like. · Sumit Kishore:

Fair, fair.

And second and last question is on the prospect pipeline and the impact on order book.

The last two, three years, we're building visibly the orders that we're getting.

Do you think in next two years, it is possible for us to reach an order, closing order book position of 780 billion, 800 billion?

And you can tell us on the conservative estimate of QINRI know it's too early, immature to understand how, what value will come for QRSAM next year.

But in a fair conservative assessment, do you think in March 26, you can be 800 billion order book?

That's my final question, sir.

Thank you.

Okay.

Okay.

Thank you, sir.

And good luck.

Moderator · Conference Operator

Thank you.

Our next question is from the line of Mr. Ankur from HDFC Life.

Please go ahead with the question.

Ankur

Yes.

Hi, sir, good morning.

Thanks for your time as always.

And just continuing with Amit's question, when I look at our order book between ‘20 to ‘23, you know, so we were at about INR52,000 crores in ‘20, went up to about INR60,000 crores in ‘23.

This year also assuming we do INR20,000 crores of orders and other revenues, we'd probably be flat, right, in terms of the order book on a YoY basis around that INR60,000 crores number.

Plus, you know, even the orders we get this year, for example, if fuses is more like a 10 year order, the [inaudible 0:28:15] is more like a four, five year order.

So, you know, I'm just struggling to understand, you know, how do we really, I mean, with our order books kind of flattening out, top line obviously between 20 to 23 – FY23 when he went up from INR22,000 crores to now we are at INR20,000 crores top line.

So you know, with

iON/cs · QUALITY. TECHNOLOGY. INNOVATION

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INNOVATION Bharat Electronics Limited July 28, 2023 more growth in order book, I'm just struggling, how do we kind of get that confidence of 15% growth?

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Moderator · Conference Operator

Thank you.

Our next question is from the line of Renu Baid from IIFL Securities.

Please go ahead with your question.

Renu Baid

Good morning and thank you for the opportunity, sir.

My first question is, can you update on what was the mix of exports during the current quarter?

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Moderator · Conference Operator

Thank you.

Our next question is from the line of Aditya Mongia from Kotak Securities.

Please go ahead.

It looks like. · Sumit Kishore:

Hello everyone and thank you for the opportunity.

My first question was on gross margins, which for this quarter have been higher than the 40% to 42% range that you've guided for the full year.

I wanted to check, whether the stance on the full year guidance has in any manner changed and if not, so is it more linked to this quarter having a higher EVM and VVPAT kind of contribution that gross margins are higher?

The second question that I had was more on the aspect of indigenization.

From your last con call, I understand that, it may more be a volume impact rather than a margin impact.

I wanted to check with you, how to kind of think through the growth impact and volumes that can happen for you over time.

For instance, when you are planning your next two years, three years of capex, how much proportion of that may be going towards products that will get indigenized over time?

Just some sense from the growth perspective would be useful over here.

Thank you.

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It looks like. · Sumit Kishore:

Could this be a meaningful growth boost on an annual basis for you next three years- four years, if you could give us some more colour?

Absolutely sir.

Sure, sir.

Just a last question from my side.

The other income boost you kind of clarified for the quarter.

So, would it be fair to kind of analyse the 1Q number for now?

Yes.

Got that.

Those are my questions.

Thanks a lot for your response.

Moderator · Conference Operator

Thank you.

Our next question is from the line of Aman Vij from Astute Investment Management.

Please go ahead.

Aman Vij

Good morning, sir.

My question is on the fuse complex, the Nagpur fuse complex, which we are setting up.

If you can talk about the timelines and the capacities, what will be the capacities for the year, after this expansion?

What is it currently?

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Aman Vij

I'm sorry, what will be the capacity like?

Will it be like 2 lakhs, 5 lakhs fuses per year, after this capacity?

Moderator · Conference Operator

Mr. Aman, may we request you to rejoin the question queue for follow up questions.

Aman Vij

I had only one question.

Let me complete the second question and then I will come back in the queue, if that's okay.

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Moderator · Conference Operator

Please go ahead.

Aman Vij

Yes.

My second and final question is, last time you talked about that PMC was almost over and we had one small issue, which needs to be resolved and it will be resolved in the next one month related to fuse?

So is that

Moderator · Conference Operator

Thank you.

Our next question is from the line of Amit Anwani from Prabhudha Lillladher.

Please go ahead.

It looks like. · Sumit Kishore:

Hi, sir.

Thanks for taking my question.

My question pertains to export. you highlighted that, this year, we are targeting USD19 billion export.

So that roughly comes about 3% to 4% of the guidance, which you are giving for the full year.

Just wanted to understand, earlier we used to talk about, raising exports to some 10% odd.

So what are our targets for upcoming years on export and what exactly, we are exporting, which geographies, we are exporting, if you could highlight that and are we targeting any non-defense export also?

Yes, that is my first question?

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It looks like. · Sumit Kishore:

Sir, any target in next three four years?

All right, sir.

And for one JV which we used to talk about with Triton for a battery for I think MHCV or some I think for buses.

So, I think that was about 8000 crores order, any update on that?

Moderator · Conference Operator

Sorry to interrupt Mr.Amit Anwani, may we request you to rejoin the question queue for follow-up questions.

Ladies and gentlemen, in the interest of time and fairness to all participants, may we request you to limit your questions to one or two per participant.

Should we have a follow-up question, we would request you to rejoin the queue.

Thank you.

Our next question is from the line of Vijay Goel from ICICI Securities.

Please go ahead with your question, sir.

Vijay Goel

Yes, sir, I have a couple of questions.

The first is on Uttam AESA radar.

So, can you highlight the status of these radars because we understand that these radars will be installed on Tejas MK1A or upgraded Sukhoi.

And since Tejas MK1A deliveries will start from this year end, so just wanted to understand by when we are expecting orders for Uttam radar and what could be the size of this order?

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Moderator · Conference Operator

Thank you.

Our next question is from the line of Prabir from Ratnabali.

Please go ahead.

Prabir

Thank you sir for the opportunity.

I have two questions.

First of all, I would like you to help us understanding the AEW and AWACS opportunity.

Moderator · Conference Operator

Yes sir, please go ahead.

Prabir

Yes, I'm asking about the AEW and AWACS opportunity, as there's a significant gap between India and its advisories.

The government has been planning for upgrading the AEW and AWACS program.

But then around 5,000 crores, 6,000 crores of program, which is still pending for, I think, five, six platform based on A330 aircraft.

So, I just want to understand what is the status and if I consider per aircraft thousand crores orders, then what is our contribution?

Moderator · Conference Operator

Thank you.

Our next question is from the line of Amit Bhinde from Morgan Stanley.

Please go

It looks like. · Sumit Kishore:

Hello, sir.

Hello, can you hear me?

Moderator · Conference Operator

Yes sir please go ahead.

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It looks like. · Sumit Kishore:

So, Yes, sir, I wanted to understand what is the split of products and services in our order book one, and within that, if you can also tell us how are we based on nomination-based contract, I mean, the share of nomination-based contract in the order book?

Okay and going forward as well this new order that we are expecting most of them would be in the same category?

And how about the split of production services?

90-10.

Sure.

Thanks.

That was helpful.

Those were my questions.

Thanks.

Moderator · Conference Operator

Thank you.

Going forward, we would request participants that we are restricting to one question per participant.

Thank you.

Our next question is from the line of Amit Dixit from ICICI Securities.

Please go ahead.

It looks like. · Sumit Kishore:

Yes, hi.

Thanks for the opportunity again.

I have, my question is actually around Tejas program.

So, Tejas Mark 1A, Mark II, etcetera.

Now this goes beyond your range that you have mentioned.

So, I just wanted to understand what kind of value of production we can expect from these programs, our share.

Just a ballpark number would do, sir, at this stage?

No, sir, I was asking what's on the potential Mark 1A, Mark 2, AMCA, where the requirement would be [inaudible 0:54:58]?

Okay, sir that's helpful.

Thanks and all the best.

Moderator · Conference Operator

Thank you.

Our next question is from the line of Amit Mahawar from UBS.

Please go ahead, sir.

It looks like. · Sumit Kishore:

Yes, sir.

Thank you again.

Just two quick questions.

In the fuse manufacturing facility, will we do the course correction fuses?

I'm saying in the fuse manufacturing facility, will we also do the course correction fuses?

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It looks like. · Sumit Kishore:

I am saying in the new facility, will we also do manufacturing of course correction fuses, which basically enhance the capability of the equipment itself, on which we use the fuse?

Sure, and thank you.

And second and last is, to your response to Jonas's question on provisions, will that in any way impact FY’24, EBITDA margin guidance that you've given or there is no major impact?

Thank you, sir, and good luck.

Moderator · Conference Operator

Thank you.

Our next question is from the line of Aman Vij from Astute Investment Management.

Please go ahead, sir.

Aman Vij

Thank you for the opportunity again sir.

My question is regarding our recent tie-up with the HFCL and you have earlier alluded that currently the requirement for indigenization of fuses is like 20%, which we have to take to maybe 50%, 60% over the years and I believe they are also into the same category.

So, will there be a contract manufacturer for us?

Can we take the supplies for them to help in indigenization?

Your thoughts regarding that JV as well as specific to this fuse portion which I believe is common between the two companies?

Moderator · Conference Operator

That was the last question of our question-and-answer session.

I now hand the conference over to Mr. Harshit Kapadia for closing comments.

Harshit Patel: · No problem, sir. So my second question is just from the question of the earlier participant. If

Thank you.

We would like to thank Mr. Bhanu Prakash Srivastava, Chairman and Managing Director, Shri.

Damodar Bhattad, Director of Finance and CFO, S Sreenivas sir, Company Secretary for giving us an opportunity to host this call.

We would like to thank all investors and analysts for joining us on this call.

Any closing remarks, sir?

Moderator · Conference Operator

Thank you.

Thank you.

On behalf of Elara Securities Private Limited that concludes the conference call.

Thank you for joining us and you may now disconnect your lines.

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Questions and answers

“Bharat Electronics Limited

Moderator · Conference Operator

Thank you very much.

Our first question is from the line of Amit Dixit from ICICI Securities.

Please go ahead with your question.

It looks like. · Sumit Kishore:

Yes, hi.

Good morning, everyone, and congratulations for a great set of numbers, sir.

I have a couple of questions.

The first one is essentially on the order in flow that we can expect during the year.

Now the year started with a bank for you with the order in flow of roughly 8,090 crores in Q1 FY24. Going ahead I believe there are orders for you know a few bits for Indian Army 4,500 crores apart from some other platform.

So if you can just highlight you know whether the number that you guided last time to 3,000 crores that is still remains or there is a chance that it will be exceeded?