Bharat Electronics Ltd:Annual Report 2023-24 Analysis

Bharat Electronics Ltd. (BEL): A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History:

Established in 1954 by the Government of India under the Ministry of Defence, with the aim of fulfilling the electronic needs of the country.

Headquarters Location and Global Presence:

• Headquarters: Bengaluru, India
• Global Presence: Exporting products and providing services to several countries in Asia, Africa, Europe, and the Americas. Has international marketing offices in Singapore, Vietnam, Myanmar, Sri Lanka, and Oman.

Company Vision and Mission:

• Vision: To be a world-class electronics company providing innovative solutions, driven by research and technology, for strategic sectors.
• Mission:
  • To be a customer-centric organization.
  • To continually enhance value to the stakeholders.
  • To nurture talent through continuous learning and development.
  • To be a responsible corporate citizen committed to environmental protection.

Key Milestones in their Growth Journey:

• 1956: Production of radio communication equipment began.
• 1961: Started manufacturing transmitting tubes.
• 1966: Introduced radar equipment.
• 1970s: Diversified into integrated circuits and other components.
• 1980s: Increased focus on R&D and technology absorption.
• 1992: Achieved the status of a Public Sector Undertaking (PSU).
• 2007: Awarded the status of ‘Navratna’ company.
• Continued expansion into various segments like electronic warfare, avionics, and homeland security.

Stock Exchange Listing Details and Market Capitalization:

• Listed on: National Stock Exchange (NSE) and Bombay Stock Exchange (BSE)
• Market Capitalization: (Data needs to be updated based on current market data) - Please insert updated Market Cap here.

Recent Financial Performance Highlights:

• (Data needs to be updated based on current financial reports) - Please insert updated Financial performance highlights here. Include key metrics like revenue, profit, and growth percentages.

Management Team and Leadership Structure:

• Chairman & Managing Director (CMD): (Insert current CMD name here)
• Board of Directors includes functional directors responsible for various departments like R&D, Marketing, Finance, and Human Resources.

Notable Awards or Recognitions:

• (Data needs to be updated based on recent awards) - Please insert updated Awards or Recognitions here. Examples may include awards for R&D, export performance, corporate governance, or sustainability.

Their Products #

Complete Product Portfolio with Categories:

• Defence:
  • Radars (Surveillance, Weapon Locating, Fire Control, Naval)
  • Communication Systems (HF, VHF, UHF, Satellite)
  • Electronic Warfare Systems (Airborne, Naval, Land-based)
  • Weapon Systems (Gun Upgrades, Missile Systems)
  • Electro-Optics (Thermal Imagers, Laser Rangefinders)
  • Avionics (Flight Displays, Navigation Systems)
  • Unmanned Systems (Drones, Robots)
  • Naval Systems (Sonars, Combat Management Systems)
• Non-Defence:
  • Homeland Security (Surveillance, Access Control, Traffic Management)
  • e-Governance Solutions (Smart Cards, Voting Machines)
  • Strategic Components (Semiconductors, Microwave Tubes)
  • Civil Aviation (Airport Surveillance Radar)
  • Renewable Energy (Solar Power Systems)
  • Railway Signaling and Communication Systems
  • Medical Electronics (X-Ray Machines, Ventilators)

Flagship or Signature Product Lines:

• Radars: Considered a leader in radar technology, with a wide range of surveillance and fire control radars.
• Electronic Warfare Systems: Providing comprehensive EW solutions for various platforms.
• Communication Systems: Robust and secure communication solutions for defence and civilian applications.

Key Technological Innovations or Patents:

• Development of indigenous radar technologies.
• Advanced Electronic Warfare solutions.
• Secure communication protocols and systems.
• Development of advanced weapon systems.

Manufacturing Facilities and Production Capacity:

BEL has multiple manufacturing units located across India. (Provide list of major locations).

• Bangalore
• Pune
• Machilipatnam
• Panchkula
• Kotdwara
• Ghaziabad
• Navi Mumbai
• Chennai
• Hyderabad

Quality Certifications and Standards:

• ISO 9001, ISO 14001, AS9100D
• Compliance with various defence quality standards.

Unique Selling Propositions or Technological Advantages:

• Indigenous technology development, reducing dependence on imports.
• Customization of solutions to meet specific customer requirements.
• Strong R&D capabilities, driving innovation.
• Reliable and robust products designed for harsh environments.

Recent Product Launches or R&D Initiatives:

• (Data needs to be updated based on recent launches) - Please insert updated Product Launches or R&D initiatives here. Examples may include new radar variants, EW systems, or communication platforms. Focus on AI, ML and other disruptive technologies

Primary Customers #

Target Industries and Sectors:

• Defence (Army, Navy, Air Force)
• Government (Homeland Security, e-Governance)
• Civil Aviation
• Railways
• Healthcare
• Renewable Energy

Geographic Markets (Domestic vs. International):

• Primarily focused on the domestic market.
• Increasing focus on exports to countries in Asia, Africa, Europe, and the Americas.

Major Client Segments (agricultural, industrial, residential, etc.):

Primarily focused on government and defence clients, rather than direct consumer/residential markets.

Notable Government Contracts or Institutional Clients:

• Ministry of Defence, Government of India
• Indian Armed Forces
• Various state governments for e-Governance projects
• DRDO (Defence Research and Development Organisation)

Distribution Network and Sales Channels:

Direct sales to government and defence clients. Network of authorized dealers for certain product lines.

Major Competitors #

Direct Competitors in India and Globally:

• India: Hindustan Aeronautics Limited (HAL), Larsen & Toubro (L&T), Astra Microwave Products Limited, Data Patterns (India) Limited.
• Globally: Thales, Lockheed Martin, Raytheon Technologies, BAE Systems

Competitive Advantages and Disadvantages:

• Advantages: Strong government support, established relationships with defence clients, indigenous technology capabilities, lower labor costs compared to global competitors.
• Disadvantages: Bureaucratic processes, slower decision-making compared to private companies, dependence on government contracts.

How they differentiate from competitors:

• Focus on indigenous technology development.
• Customized solutions to meet specific needs.
• Strong after-sales service and support.

Industry Challenges and Opportunities:

• Challenges: Increasing competition, evolving technology landscape, import restrictions, cybersecurity threats.
• Opportunities: Growing defence budgets, “Make in India” initiative, export potential, diversification into new sectors.

Market Positioning Strategy:

Positioning themselves as a reliable and trusted supplier of indigenous defence electronics solutions. Aiming to become a major player in the global defence market.

Future Outlook #

Expansion Plans or Growth Strategy:

• Increasing investment in R&D to develop new technologies.
• Expanding manufacturing capacity to meet growing demand.
• Strengthening export capabilities and targeting new markets.
• Forming strategic partnerships with global technology leaders.
• Diversifying into new sectors like renewable energy and healthcare.

Upcoming Products or Innovations:

• (Data needs to be updated based on future product pipelines) - Please insert updated future product pipelines here. Examples include AI-powered systems, advanced sensors, and secure communication networks.

Sustainability Initiatives or ESG Commitments:

• Commitment to environmental protection through waste management and energy conservation.
• Promoting employee welfare and community development.
• Adhering to ethical business practices.

Industry Trends Affecting their Business:

• Increasing demand for indigenous defence equipment.
• Growing adoption of artificial intelligence and machine learning.
• Rising cybersecurity threats.
• Focus on sustainable and environmentally friendly technologies.

Long-Term Vision and Strategic Goals:

• To be a world-class electronics company providing innovative solutions for strategic sectors.
• To increase its market share in the global defence market.
• To become a leading player in emerging technologies like AI and cybersecurity.

Comprehensive Performance Overview #

3-Year Trend Analysis of Key Financial Metrics: #

• Turnover witnessed a 3-year Compound Annual Growth Rate (CAGR) of 7.02%, increasing from ₹17,333.37 crore in FY 2022-23 to ₹19,819.93 crore in FY 2023-24, and ₹20,16,939 for FY 2023-24 in Consolidated statement.
• Profit After Tax (PAT) grew, with a reported ₹4,020 crore in FY 2023-24, compared to ₹3,007 crore in FY 2022-23, indicating a growth of 33.7%, and for consolidated, PAT is 3,98,524 for 2023-24.
• Earnings Per Share (EPS) increased from ₹4.11 in FY 2022-23 to ₹5.50 in FY 2023-24.
• The order book stood at ₹75,934 crore as of April 1, 2024.
• Net worth improved to ₹16,082 crore in FY 2023-24 from ₹13,582 crore in the previous year.
• Market capitalization reached ₹1,47,292 crore on March 31, 2024, showing a year-on-year growth of 107%.
• Dividend payout was ₹1,608 crore in FY 2023-24, compared to ₹1,316 crore in FY 2022-23.
• Value of Production has increased from 1773082 Lakhs to 20,38,050 Lakhs.
• A total of 262 IPRs were granted (Patents: 161, Copyrights: 88, Industrial Designs: 7, SICLD: 5, TM: 01).

Business Segment Performance: #

• Defence segment contributed 80.70% of the total turnover in FY 2023-24, compared to 87% in FY 2022-23.
• Non-defence segment contributed to 13.32% for the year of total turnover, as against 19%
• Export sales saw a growth of 92%, reaching USD 92.98 million.
• The export order book stood at USD 407.01 million as of April 1, 2024.
• Four new Strategic Business Units (SBUs) were formed, focusing on Network & Cyber Security, Unmanned Systems, Seekers, and Arms & Ammunition.

Major Strategic Initiatives and Their Progress: #

• Investments in advanced technologies, with 6.24% of turnover invested in R&D during the year.
• 77% of turnover achieved from indigenous products.
• Infrastructure modernization, including the establishment of new facilities for critical defence equipment, with a capex spending of ₹650 crore in FY 2023-24.
• Diversification into areas like Network & Cyber Security, Unmanned Systems, Arms & Ammunition, and expansion into civilian markets.

Risk Landscape Changes: #

• Increased competition from private sector participation in the defence industry, influenced by government policies promoting indigenous development.
• Technology risks, arising from the necessity to constantly align with customer preferences and rapidly evolving technology trends.
• Input Raw material/components risk for potential delays.
• Cyber security threats.

ESG Initiatives and Metrics: #

• Green energy capacity expanded to 7.4 MWp of solar power and 13.9 MW of wind power.
• Renewable energy facilities generated 261 lakh units of power, reducing CO2 emissions by 18,540 metric tonnes annually.
• Wastewater recycling, rainwater harvesting, and waste reduction initiatives are in place.
• Overall green energy consumption for FY 2023-24 is 42.20%
• CSR budget of ₹66 crore, with interventions in healthcare, education, skill development, rural development, and environmental sustainability.
• 77 process standards are revised to include safety and environmental guidelines.

Management Outlook: #

• Order acquisition for FY 2024-25 is expected to be in the range of ₹25,000 crore.
• Targeting revenue growth of 15-17% in FY 2024-25, driven by both defence and non-defence businesses.
• Focus on the timely execution of the existing order book.
• Continued strategic leadership in electronics, with investments in infrastructure and technology enhancement.

Detailed Analysis #

Bharat Electronics Limited (BEL) Financial Analysis #

Balance Sheet Analysis (3-Year Comparative) #

( in Lakhs)

Significant Changes in Major Line Items (>10% YoY) #

• Capital Work-in-Progress: Increased by 26.21% from FY23 to FY24, indicating ongoing investment in expanding production capacity.
• Investment in Associate: Decrease by 24.49% which means investment amount reduced.
• Other Non-Current Financial Assets: Decreased by 25.32%, primarily due to changes in bank deposits with long maturities or other long-term financial assets.
• Inventories (Current): Increased by 15.49%, from FY23 to FY24.
• Cash and Cash Equivalents: Decreased significantly by 69.75% from FY23 to FY24, it suggests use of cash on investing, financing, or operational activities.
• Other Bank Balances: Increased significantly by 136.61%, suggesting improved liquidity management.
• Other Current Financial Assets: Increased by 44.63%.
• Other Current Assets: Decreased by 5.55%.
• Other Equity: Increased by 18.77%.
• Other Non-Current Liabilities : Decreased by 100%.
• Current financial liabilities : Increased by 10.78%.
• Provisions Increased by 10.33%

Working Capital Trends #

( in Lakhs)

Asset Quality Metrics #

• Trade Receivables: The absolute amount of undisputed trade receivables considered good is very high, which is a positive sign.
• Provisions: Provisions for doubtful debts and advances are made, indicating a proactive approach to potential credit risk.
• Inventory: No significant concerns are evident from the provided inventory breakdown.

Off-Balance Sheet Items #

• Contingent Liabilities: The major items include claims not acknowledged as debts (including statutory dues) and outstanding letters of credit. The nature of these liabilities indicates potential future obligations depending on certain events.

• Company’s total contingent liabilities has increased form 233,343 Lakhs to 355,914 Lakhs in 2024.

Operating Performance of Bharat Electronics Limited (BEL) #

Revenue Breakdown #

• Defence Segment: FY 2023-24 revenue was ₹15,996 Crore, contributing 80.70% of total turnover. Orders received for Defence business for FY 2023-2024 amounts to ‘30,579 crore.
• Non-Defence Segment: FY 2023-24 contributed 19% or ‘2640 Crore of revenue. Orders received for non-defence business in FY2023-24 is ‘4,019 crore.
• Exports: FY 2023-24 export sales were USD 92.98 Million, a growth of 92% from the previous year’s USD 48.33 Million. The export order book as of April 1, 2024, stood at USD 407.01 Million. Products were exported to France, the USA, Spain, Israel, and other countries.
• Services: During FY 2023-24,’ 1997 Crore out of ’ 19,820 Crore of total revenue.

Cost Structure Analysis #

• Materials: Constituted 55% of the value of production in FY 2023-24, amounting to ₹11,12,648 Lakhs.
• Employee Benefits Expense: Accounted for 12% of the value of production, totaling ₹2,46,670 Lakhs.
• Other expenses (net) 5% of value of production, totaling ‘1,04,033 Lakhs.
• Depreciation & Amortisation 2% of value of production, totalling ‘41,243 Lakhs.
• Provision for Tax: Constituted 6% of the value of production, at ₹1,31,456 Lakhs.

Margin Analysis #

• EBITDA Margin: Improved to 25.22% in FY 2023-24, up from 23.35% in FY 2022-23.
• Net Profit Margin: Increased from 17.35% in FY 2022-23 to 20.28% in FY 2023-24.

EPS Analysis #

• Basic EPS: Increased from ₹4.11 in FY 2022-23 to ₹5.50 in FY 2023-24.
• Diluted EPS: Increased from ‘4.11 in 2022-23 to ‘5.50 in 2023-24

Cash Flow and Liquidity Analysis #

Operating Cash Flow (OCF) #

OCF increased significantly to 4,65,949 Lakhs in FY 2023-24 from 1,19,926 Lakhs in FY 2022-23, driven primarily by higher profit before tax and improved working capital management.

Investing Cash Flow (ICF) #

FY 2023-24 saw a net outflow of 5,92,385 Lakhs in ICF, a significant increase in investments, mainly in “term deposits & other bank balances”.

Working Capital Management Efficiency (Parent Company) #

• Turnover days of trade receivables decreased to 136 days from 148 the previous year.
• During FY 23-24, inventory number of days of value of production has remained at 133 days as against 132 days in the previous year.

Dividend and Share Buyback Trends #

• Dividend: The total dividend for FY 2023-24 is 2.20/- per equity share (220%), amounting to 1,60,815 Lakhs. The dividend payout ratio is 20.28% for FY 2023-24, showing an increase compared to the previous years.
• Share Buyback: No share buybacks occurred during FY 2023-24 or the previous year.

Debt Service Coverage #

The consolidated debt service coverage ratio was very high, at 632.40 times for FY 2023-24, increasing from 231.87 times in the previous year. This is based on provided EBIT and excludes any lease payments treated as interest/finance costs under new standards.

Liquidity Position #

• Current Ratio (Consolidated): Increased to 1.54 in FY 2023-24 from 1.46 in FY 2022-23, indicating improved short-term liquidity.

Bharat Electronics Limited (BEL) Financial Analysis: Key Performance Indicators #

Profitability Ratios (3-Year Trends) #

• Return on Equity (ROE): FY24: 25.00%, FY23: 22.14%, FY22: 20.60%. A consistent upward trend indicates increasing profitability relative to shareholder investment.
• EBITDA Margin: FY24: 24.78%, FY23: 22.94%, FY22: 23.35%. Improvement observed from the previous year.
• Net Profit Margin: FY24: 20.28%, FY23: 17.35%, FY22 :15.61%. Steady increase, representing increased operational efficiency.

Liquidity Metrics #

• Current Ratio: FY24: 1.54, FY23: 1.46. Indicates good short-term financial health, improving year-on-year.

Efficiency Ratios #

• Inventory Turnover: FY24: 2.87, FY23: 2.89. Slight decrease; can imply reduced operational efficiency.
• Receivables Turnover: FY24: 2.76, FY23: 2.64. Increased, signifying improved efficiency in collecting receivables.

Leverage Metrics #

• Debt/Equity Ratio: FY24: 0, FY23: 0, FY22: 0. The company operated with no debt.
• Interest Coverage Ratio: FY24: 632.40, FY23: 231.87. A very high ratio indicating strong ability to meet interest obligations; significant increase observed.

Working Capital Ratios #

• Number of Days of Inventory: FY24: 133, FY23: 132. Indicates inventory is being held for a relatively long duration, with marginal change.
• Number of Days of Trade Receivables: FY24: 136 days, FY23 : 148 days, improvement in customer payment cycles.
• Number of days of account payables: FY24: 111, FY23: 110, Almost constant

Key Highlights #

The high profitability increase, absence of debt, and improving liquidity are notable, as is the slightly elevated inventory turnover period.

Financial Performance Analysis: FY 2023-24 #

Revenue and Profitability Metrics with Growth Rates #

• Overall:
  • Turnover for FY 2023-24: ₹19,820 crore (14.35% growth from FY 2022-23’s ₹17,333 crore)
  • Profit After Tax (PAT) for FY 2023-24: ₹4,020 crore (33.68% growth over FY 2022-23’s ₹3,007 crore)
  • EBITDA margin improved from 23.35% in FY 2022-23 to 25.22% in FY 2023-24
  • Turnover per employee increased from ₹1.96 crore in FY 2022-23 to ₹2.22 crore in FY 2023-24
  • Earnings Per Share (EPS) increased from ₹4.11 in 2022-23 to ₹5.50 in 2023-24
• Defence Segment: Contributed 80.70% of the turnover in FY 2023-24 (₹15,996 crore), decreasing from 87% in FY 2022-23.
• Non-Defence Segment: Generated 13.32% of revenue, with orders received amounting to ₹4,019 crore.
• Exports: Grew by 92% year on year, with total turn-over of ₹764 crore.

Market Share and Competitive Position #

• Holds a prominent position in the Indian defence sector, expanding into international defence and civilian markets.
• Increased competition from the private sector due to government policies promoting domestic defence manufacturing, impacting market position in certain segments.

Key Products/Services Performance #

• Major Products/Systems Introduced: Sight and Gimbal for BMP Upgrade, Indigenous ASR-MSSR for AAI, Voice Communication & Control System (IACCS B-III), Compact Gun Fire Control System.
• Major Products/Systems Executed: Long-Range Surface-to-Air Missile (LRSAM) Systems, Akash Missile Systems, SATCOM Network, Command & Control Systems, various Radars, Electronic Warfare Systems.
• Indigenous Products: 77% of turnover from indigenously developed products.
• Major Products / Systems exported: Transmit & Receive (TR) Modules, Data Link II, RWRs, MAWS, LRSAM main equipment.

Geographic Distribution and Market Penetration #

• Domestic Presence: Extensive presence across India with 9 manufacturing units, several offices, and support centers.
• International Presence: Expanding internationally with overseas offices in the USA, Oman, Sri Lanka, and ASEAN countries, exploring export markets.
• Export Sales: Grew to USD 92.98 Million in FY 2023-24, with increased acceptance in multiple countries, including France, the USA, Spain, and Israel.
• Export Order Book: Stood at USD 407.01 Million as of April 1, 2024.

CAPEX and ROIC #

• Capex Spending: ₹650 crore spent on the modernization of plant and machinery, test instruments, R&D, and infrastructure upgrades.
• Five new factories are in various stages of implementation.

Operational Efficiency Metrics #

• Value of Production: Increased by 14.94%, from ₹17,731 crore in FY 2022-23 to ₹20,381 crore in FY 2023-24.
• Inventory: Inventory as a number of days of Value of Production was 133 days in FY 2023-24, relatively flat compared to 132 days the previous year.
• Trade Receivables: Number of days of turnover decreased from 148 days in FY 2022-23 to 136 days in FY 2023-24.
• Green Energy: 42.20% of total energy consumption came from renewable sources.

Growth Initiatives and Challenges #

• Growth Initiatives:

  • Focus on indigenous solution development for MoD’s Make-I, Make-II, and Make-III projects.
  • Enhancing collaborations with DRDO labs, research institutions, and technology players.
  • Diversification into non-defence businesses like metro, civil aviation, and cyber security.
  • Formation of four new Strategic Business Units (SBUs) in Network & Cyber Security, Unmanned Systems, Seekers, and Arms & Ammunition.
  • Expansion of customer base in existing and new geographies.
  • Targeting a revenue growth of 15-17% in FY 2024-25.
  • Increase in green energy sources, water conservation.

• Challenges:

  • Geopolitical situations.
  • Emerging technologies.
  • Regulatory changes.
  • Evolving customer expectations.
  • Supply chain discontinuities.
  • Increased competition from the private sector.

Sustainability #

• Expanded green energy capacity.
• Wastewater recycling and rainwater harvesting.
• 18,540 mt of CO2 emission prevented.

Risk Assessment #

Strategic Risks #

• Severity: High. Dependence on the defense sector (80.70% of FY 2023-24 turnover).
• Likelihood: Medium. Influenced by government policies and budgetary allocations.
• Trend: Increasing competition from the private sector, affecting market position, especially for Non-defense with 13.32% contribution.
• Mitigation Strategies:
  • Forming strategic partnerships with domestic private defense entities.
  • Focusing on the development of high-value, high-technology, and strategic systems.
  • Exploring product and market diversification, including the export market.
• Control Effectiveness: Partially effective. Active participation in Make-I, Make-II, and Make-III projects, but the competitive landscape is intensifying.
• Potential Financial Impact: Reduced market share and profitability in certain segments if mitigation is unsuccessful.

Operational Risks #

• Severity: Medium to High. Supply chain discontinuities, long lead times, and vendor defaults due to increased raw material prices.
• Likelihood: Medium. Impacted by global geopolitical situations and economic factors.
• Trend: Increasing, given supply chain challenges and rising raw material costs.
• Mitigation Strategies:
  • Expanding sourcing channels for critical components.
  • Identifying alternate vendors.
  • Exploring alternative logistics and freight channels.
  • Pre-ordering essential stock of long-lead-time components.
  • Engaging in advance procurements.
• Control Effectiveness: Partially effective. Expanding sourcing and pre-ordering stock show proactive management, but reliance on external vendors remains a factor.
• Potential Financial Impact: Project delays and increased costs due to material shortages and price increases.

Financial Risks #

• Severity: Low to Medium. Risk is present due to dependence on single revenue stream.
• Likelihood: Low.
• Trend: Stable. Product diversification ongoing.
• Mitigation Strategies:
  • Expanding reach of products and services to new markets.
  • Collaboration.
  • R&D efforts.
• Control Effectiveness: PBT has grown to ’ 5,33,456 Lakhs in FY 2023-24 from ’ 3,98,488 Lakhs in FY 2022-23.
• Potential Financial Impact: Decreasing PBT.

Compliance/Regulatory Risks #

• Severity: Low.
• Likelihood: Low.
• Trend: Stable.
• Mitigation Strategies: * Established process supported by company-wide Enterprise Resources Planning system. * Compliance to sourcing requirements for transparency. * Proper internal control checks for payment. * Whistle-Blower Policy.
• Control Effectiveness: Effective.
• Potential Financial Impact: Financial penalties, and reputational damage.

Emerging Risks #

• Severity: Medium to High.
• Likelihood: Medium.
• Trend: Increasing.
• Mitigation Strategies:
  • Established four new Strategic Business Units (SBUs) in Network & Cyber Security, Unmanned Systems, Seekers and Arms & Ammunition at the Bengaluru complex.
  • Continuous investment in infrastructure to support product diversification.
• Control Effectiveness: Remains to be fully evaluated. These are newer initiatives.
• Potential Financial Impact: Investments of ‘650 Crore in CAPEX, ’ 1,236 Crore in R&D activities.

Strategic and Management Analysis #

Long-Term Strategic Goals and Progress #

• The Company aims for technological leadership in defense electronics through in-house R&D and partnerships. Progress is evident in the 77% turnover from indigenous products. Diversification into non-defense sectors like Homeland Security, Smart Cities, and Cyber Security is a strategic goal, reflected by 19% of income from non-defense.
• Increased focus on exports, evidenced by a 92% growth in export sales to USD 92.98 million.
• Striving for self-reliance via indigenization.

Competitive Advantages and Market Positioning #

• BEL is a dominant player in the Indian defense sector, benefiting from the government’s “Make in India” initiative and policies favoring indigenous defense production.
• Multi-technology and multi-product capabilities provide a competitive edge, evident across the 29 Strategic Business Units.
• Strong relationships with the Indian Armed Forces and government bodies (MoD, DRDO) offer a significant advantage.
• Continuous investment in R&D, including several centers of excellence and empanelled R&D partners.

Innovation Initiatives and R&D Effectiveness #

• 6.24% of turnover was invested in R&D during the year, underscoring a high commitment to innovation.
• 77% of turnover from indigenous products is a quantifiable measure of R&D effectiveness.
• 146 IPRs were filed, and 161 patents were granted in FY 2023-24, demonstrating R&D output.
• Focus areas include AI, big data analytics, IoT, 5G, robotics, and cybersecurity, showing alignment with emerging technologies.
• During FY 23-24, 40+ new products/technologies were developed.

Management’s Track Record in Execution #

• FY 2023-24 saw record turnover (‘19,820 crore) and PAT (‘4,020 crore), with significant growth year-on-year (14.35% and 33.7%, respectively).
• Order book growth to ‘75,934 crore as of April 1, 2024, indicates strong execution capability and future revenue visibility.
• The achievement of “Very Good” rating in the MoU with the Ministry of Defence.

Capital Allocation Strategy #

• Significant capital expenditure of ‘650 crore in FY 2023-24 focused on infrastructure upgrades, modernization, and new facilities.
• Creation of five new factories.
• A dividend payout of ‘1,608 crore, up from ‘1,316 crore, showing shareholder returns are a priority.
• Internal accruals were sufficient to meet CAPEX and working capital requirements.

Organizational Changes and Their Impact #

• Formation of four new Strategic Business Units (Network & Cyber Security, Unmanned Systems, Seekers, and Arms & Ammunition) at the Bengaluru complex to target new opportunities.
• Establishment of ‘Abhyudaya’, a centralized Centre for Learning to support continuous learning of employees.
• ISO 21001 Educational Organisations Management System (EOMS) Certification awarded.

Bharat Electronics Limited - ESG Analysis (2023-24) #

Environmental Metrics and Targets #

• Prevented 18,540 metric tonnes of CO2 emissions annually through green energy initiatives (7.4 MWp solar, 13.9 MW wind).
• Renewable energy generated: 261.13 Lakh units.
• Green energy consumption: 42.20% of overall energy.
• Invested ₹7.13 crore in sustainability initiatives.
• Planted 1,800 saplings.
• Maintains 879 RoHS compliant standards.
• Introduced 37 new RoHS compliant components.

Social Responsibility Programs #

• CSR budget: ₹65.98 crore.
• CSR beneficiaries: 14 lakh individuals across India.
• Supported 2,538 MSMEs and start-ups.
• 37.28% of procurements from MSMEs.
• Focused on healthcare, education, skill development, rural development, and environmental sustainability.

Governance Structure and Effectiveness #

• Board of Directors includes Functional/Whole Time, Part-Time Non-Official/Independent, and Part-Time Official (Government Nominee) Directors.
• Complied with SEBI regulations (minor exceptions promptly addressed).
• Adhered to a Code of Business Conduct and Ethics.
• Operates a Whistle Blower Policy and vigilance mechanism.

Sustainability Investments and ROI #

• Invested ₹7.13 crore in sustainability initiatives.
• Expanded green energy capacity and wastewater recycling.
• Implemented green building concepts.

Regulatory Compliance and Future Preparations #

• Complied with the Companies Act of 2013, SEBI Regulations, and Secretarial Standards.
• ‘Very Good’ MoU performance rating with the Ministry of Defence for FY 2022-23.
• Received ‘Nil’ comments certificate from the C&AG for FY 2023-24.
• Adhered to SEBI (Prohibition of Insider Trading) Regulations, 2015.
• Maintained compliance with statutory dues and grievance redressal mechanisms.

Future Outlook #

Management Guidance and Assumptions #

• Management aims for a 15-17% revenue growth in FY 2024-25, driven by expansion in both defence and non-defence segments.
• Management expects order acquisitions in the range of ₹25,000 Crore for FY 2024-25.
• Management assumes a continued focus on indigenization and increased investments from the Indian government in the defence sector.
• Management prioritizes the timely execution of the existing order book.

Market Growth Forecasts #

• Defence: The Indian defence sector is projected to sustain a robust growth trajectory, supported by a continued capex cycle from the government and private sector.
• Non-Defence (Homeland Security): The Homeland Security market in India is expected to grow, driven by internal security concerns, data thefts, and increased security spending.
• Non-Defence (Energy Storage Products): The global battery energy storage system (BESS) market is projected to grow at a CAGR of 16.3% from 2022 to 2030.
• Non-Defence (Civil Aviation): The global domestic aviation market was valued at USD 966.01 Billion in 2022 and is expected to reach USD 1,204.31 Billion by 2029 at a CAGR of 3.2%.

Planned Strategic Initiatives #

• Defence:
  • Increased participation in Make-I, Make-II, and Make-III projects with an emphasis on indigenous solutions.
  • Enhanced collaborations with DRDO labs, research institutions, and technology players.
  • Building long-term relationships with defence industry participants.
  • Formed four new Strategic Business Units (SBUs) in Network & Cyber Security, Unmanned Systems, Seekers, and Arms & Ammunition.
  • Development of roadmaps for future products, technologies, IPR creation, and technology acquisition.
• Non-Defence:
  • Growth of the non-defence business, with a focus on metro, civil aviation, and cyber security.
  • Diversification into newer areas leveraging existing competencies.
  • Exploration of opportunities to expand the customer base in existing and new geographies.
  • Entered MoUs with AAI, Delhi Metro, IISC, and UAS to open opportunities for more civilian orders.

Capital Expenditure Plans #

• Investments in creating and upgrading infrastructure, modernizing equipment, and enhancing test instruments and facilities.
• Capex to create five new factories is in various stages of implementation.
• A new facility for Seekers, Night vision devices, and TI cameras in Nimmaluru, Andhra Pradesh, has been completed.
• Upgrading the existing processes and systems.

Efficiency Improvement Targets #

• Enhancement of speed, agility, and competitiveness in responding to customer requirements through infrastructure upgrades.
• Operational Efficiency improvements through 9 state-of-the-art manufacturing facilities.
• Cost reduction initiatives are prioritized across all business facets.

Potential Challenges and Opportunities #

• Challenges:

  • Geopolitical situations.
  • Emerging technologies.
  • Regulatory changes.
  • Evolving customer expectations.
  • Supply chain discontinuities.
  • Potential delays due to increased raw material prices.

• Opportunities:

  • The optimism in the Indian economy and the sustained momentum in the defence sector with increased investments in indigenization.
  • Growing non-defence business, especially in metro, civil aviation, and cyber security areas.
  • Expanding customer base in existing and new geographies.
  • Collaboration with DRDO labs, research institutions, niche technology players, global OEMs, and Indian companies/agencies.
  • Offset opportunities in the global market.

Scenario Analysis and Sensitivity to Key Assumptions #

• Revenue Growth Sensitivity: The 15-17% revenue growth target for FY 2024-25 is contingent upon successful and timely execution of the existing order book and the anticipated order inflow of ₹25,000 Crore. Delays in project execution or lower-than-expected order acquisition could negatively impact revenue growth.
• Capex Impact: The creation of five new factories and ongoing infrastructure upgrades are expected to enhance operational efficiency and production capacity. Delays or cost overruns in these projects could impact profitability.
• Indigenization Impact: BEL reports 77% of their turnover in indigenized products. Increased commitment to government’s Make In India initiative will grow capabilities.
• Market Condition Impact: Delays or cost overruns in capital expenditure projects and new strategic business units could impact future profitability and efficiency.
• Technological Disruption Sensitivity: Focus on R&D (6.24% of turnover invested) is crucial for maintaining competitiveness. Failure to keep pace with technological advancements could erode the market position, especially in emerging technology areas like network & cyber security and unmanned systems.
• Cost Reduction Initiatives: The success of cost reduction initiatives will be critical in maintaining profitability, especially in the context of rising competition and potential supply chain cost pressures.

Audit and Compliance Analysis #

Auditor’s Opinion and Qualifications #

• The auditors issued an unmodified opinion on the standalone and consolidated financial statements, indicating a true and fair view in conformity with generally accepted accounting principles in India.
• The audit reports of Branch Auditors were considered, and no modification to the opinion arose from those reports.
• There was a reported observation, from Secretarial Auditor’s report, where The Board did not have the requisite number of Independent Directors as required under SEBI regulations, from June 16, 2023, to July 31, 2023.
• The auditors did not report any fraud committed against the Company by its officers or employees.

Key Accounting Policies and Changes #

• The financial statements are prepared in accordance with Indian Accounting Standards (Ind AS) and the Companies Act, 2013.
• The Company has adopted Ind AS 116 using the modified retrospective approach, which did not have a material impact.
• Property, plant, and equipment are stated at historical cost less depreciation and impairment, with depreciation calculated on a straight-line basis over estimated useful lives. BEL uses different useful life than prescribed in Schedule II of the Companies Act, 2013.
• Revenue is recognized when (or as) performance obligations are satisfied by transferring promised goods or services. Revenue is measured at the transaction price. Input method is mainly used to recognise revenue over a period of time.
• Research and development expenditures are expensed as incurred, except for specific development contracts.
• Government grants are initially recognized as deferred income and transferred to the credit of the Statement of Profit and Loss over time.
• Inventory is valued at the lower of cost or net realizable value. Cost of materials is determined using the weighted average method.
• There were no new accounting standards or amendments notified by the MCA during FY 2023-24.
• Provisions for impairment has been made in line with Accounting Policy No. 13 of the company.

Internal Control Effectiveness #

• The auditors reported that the Company and its subsidiaries have adequate internal financial controls over financial reporting, and these controls were operating effectively as of March 31, 2024.
• The Company has documented policies and procedures for various functions, including purchasing, subcontracting, works contracts, accounting, HR, IT, and security.
• An internal audit department exists, and external firms perform vouching of vendor payments.

Regulatory Compliance Status #

• The Company has complied with the mandatory Secretarial Standards issued by the Institute of Company Secretaries of India.
• Compliance reports on all applicable laws are reviewed by the Board.
• The Company has received a ‘Nil’ comments certificate from the C&AG for FY 2023-24.
• The Board did not have requisite number of Independent Directors as required under 17(1)(b) of the SEBI (LODR) Regulations, 2015 from 16 June 2023 to 31 July 2023.

Legal Proceedings and Their Potential Impact #

• The Company has disclosed the impact of pending litigations on its financial position.
• There are no significant and material orders from regulators, courts, or tribunals that would impact the going concern status or future operations.
• Statutory dues under dispute are disclosed with the relevant amounts.

Related Party Transactions #

• Transactions with related parties were conducted on an arm’s length basis and in the ordinary course of business.
• Details of transactions and balances with subsidiaries, associates, and key managerial personnel are disclosed.
• There were no materially significant related party transactions with the Company’s promoters, directors, management, or their relatives that could have had a potential conflict of interest.
• The company has a policy on material subsidiaries which has been uploaded on its website.

Subsequent Events #

• There are no material changes or commitments affecting the financial position of the Company that occurred between March 31, 2024, and the date of the auditor’s report.
• A final dividend of `0.80 per equity share was recommended, subject to shareholder approval.

Accounting Quality and Regulatory Risk Assessment #

• The ‘Nil’ comments from the C&AG suggest a high degree of accounting quality and compliance.
• There is a history of late filling of regulatory requirements.
• The implementation of Ind AS and the adoption of consistent accounting policies enhance accounting quality.
• The reliance on internal controls and external audits suggests a strong control environment.
• Pending litigations represent a potential, but likely manageable, risk.
• The company has a vigilance organization to handle potential fraud and corruption.
• The non-compliance with respect to minimum number of Independent Directors for a small period, presents a moderate regulatory risk.