Bharat Electronics Limited (500049) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '27 Earnings Conference Call of Bharat Electronics Limited, hosted by Motilal Oswal Financial Services. [Operator Instructions] Please note that this conference is being recorded. This conference may contain certain forward-looking statements of the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements do not guarantee the future performance of the company and may involve risks and uncertainties that are difficult to predict. I now hand the conference over to Ms. Tina Virmani from Motilal Oswal Financial Services for the opening remarks. Thank you, and over to you, ma'am.

Thank you, Andre. Good evening, everyone. On behalf of Motilal Oswal Financial Services, I welcome you all for Bharat Electronics Quarter 1 FY '27 results con call. I would like to thank the management for giving us the opportunity to host the call. And from the management side, we have with us Mr. Manoj Jain, Chairman and Managing Director; Mr. Damodar Bhatta, Director, Finance and CFO; and Mr. Srinivas, company secretary. Without taking much time, I hand it over to Mr. Manoj for his opening remarks. And after that, we will open the floor for Q&A. Over to you, sir.

Thank you, madam. Good afternoon, all. So financial results for quarter 1 are just uploaded. Actually, our Board meeting ended at 3:45. So after that, we have just uploaded and you might not have seen till now. So I will just brief the major highlights of the quarter 1 of financial year '26, '27. So the revenue from operations has increased to INR 5,533 crore up to Q1 as compared to INR 4,417 crores in the previous year Q1. So with a growth of 25.7%. The profit before tax increased to INR 1,403 crores as compared to INR 1,289 crores in the previous year at the same quarter, with a growth of 8.8%. The profit after tax has increased to INR 1,048 crores up to Q1 as compared to INR 969 crores up to Q1 previous year with a growth of 8. 17%. The EBITDA margin up to Q1 is 25.83%. The earnings per share increased to INR 1.43 up to Q1 as compared to INR 1.33 previous year at the same time. The order book position as on 1 July 2026 is INR 72,258 crores. And orders acquired in this quarter is INR 3,754 crores. This is a brief financial highlight of Q1 '26 '27 from my side. So now the floor is open for Q&A.

[Operator Instructions] The first question comes from the line of Amit Dikshit with Goldman Sachs

A couple of questions from my side. The first 1 is with respect to order inflow that we have witnessed in this -- in this quarter. If I compare it with Q1 FY '26 and Q1 FY '25, the order inflow has been pretty lean. Just wanted to understand the reasons for that, whether you see a more structural component to it or it is just the timing of the orders just wanted to get a little bit more understanding on that. And also QRS order, which seems to have been delayed. That is my first question, sir.

Yes. So let me tell you last year, you will be knowing that we were supposed to get orders by 31st March, but 1 or 2 orders we got in the week of April, so that's why we could not meet our actually previous year target, but our first quarter orders were very good, but actually, there was more of a spillover of the January to March quarter. This year, it was more structured. So that's where we were going to get by January to March, actually, we got actually 2,000 to 3,000 more I can tell you, because we thought around 25, 000, but we finally landed in around 30 plus. So that's why there was no backlog per se, actually, 1 or 2 orders were taken from this year first quarter also. So this year, also, we have received INR 3,700 plus crores. It is what was we planned that only. So as such, there is nothing to worry. We are definitely going to meet the guidance given about the order inflow for this year. And QRSM, we told we were highly optimistic to get it by March -- but procedural delays, we knew that's why we told it may go to Q1/Q2. Maximum by September, we will get, and I am still sticking to that. Just CCS only is waiting for all of us. And hopefully, when CCS meets, I think they will clear to ourself. Our side, all inputs every activity is over from all of our side. So we are just waiting for the CCS approval at that time, we will get the good news about QR.

Great, sir. The second question is around Project Cush. We have seen that they have been testing of interest there has been some movement around RFP of M2 also. So just wanted to get your thoughts on when can -- when will the testing be complete, when do we expect to get the order? And what could be our portion in that?

As I told earlier also, the Kusha program is spearheaded by DRDO, and we are their largest DCPP partner for various subsystems -- so right now, the trial wage of the sides. Then after that, they will do a different configuration of missiles, then configuration with Radar control center, the integrated fashion, et cetera, they will have their own structured way of testing. So that question, actually, you have to ask from DRDO. Let me assure you, from our side, there is no delay in whatever subsystem systems level support, which we have to extend to the ad for this very, very prestigious project. As already told, I think the order will be of the order of INR 40,000 plus crores we are expecting, but that will be minimum '28, '29, which we had indicated last time also. So after this series of testing, then there will be a lot many more different types of evaluations. After that only RFP will be issued for our commercial activities. So there's still a long way to go. So you have to wait and watch with this different different R&D level development, which is done by Dado, well supported by Bell.

The next question comes from the line of Mohit Pandey with Citi Research.

Okay. Yes. Sir, my first question is, again, on orders. So explanation on the Y-o-Y decline is quite clear, but I just wanted to get a sense of this year for the base orders are we expecting them to be back-ended? Or there will be likely evenly spread out through the course of the year? That was the question number one.

Okay. Let me tell you, the thing is, we don't publish quarter-by-quarter targets for this. That is our internal assessment only. What leads or what the P&C is concluded, not concluded. Based on that, we have our own internal follow-ups on any slippages, if at all. But quarter-to-quarter, we are not publishing. For us it is yearly target and which we have already given at the start of the year, the guidance. So that is INR 55, 000-plus crores including RSM. So we are sticking to that. And definitely, 2, 3 big programs are in the real pipeline of CCS or other type of approvals. So we are not forcing any problem in getting this order inflow for this year.

Understood, sir. Sir. And while we don't publish the balance sheet or cash flow with first quarter, any color you can give on the payments or receivables? Yes. Has there been an improvement versus fourth quarter? That would be one. And secondly, on margins, if you can give any color on -- so this quarter, there has been a Y-o-Y decline. Any particular thing that you would like to highlight here? Is this just product mix? Or are there any one-offs, et cetera?

Yes As far as the receivables are concerned, the number of days as on 30th June, it is around 140 days. It was 176 days as on 31st March. So it is at 140 days as on 30th June. So it has improved for March. So receivables are good. Cash flows are good. There is not much concern on those trends. As far as margins are concerned, -- as we have already told current year EBITDA margin guidance we have given of 28%, we remain that. Quarter-on-quarter, there could be variations because of the composition of product mix. So due to that, there are some variations but otherwise, the current year EBITDA guidance, whatever we have given, we maintain that. So there's no particular cost of concern for the margin on the quarterly basis, we don't have to go by that. Overall on a yearly basis, we maintained the EBITDA margin of 28%, which you have given already.

Understood, sir. Sir, so just to clarify, the margin mix, it's due to product mix and not due to input cost pressures. So just to clarify that. So you're saying this is due to product mix variation yes.

We are telling it is due to product mix variation not due to input costs.

The next question comes from the line of Kash Parikh with Capital.

Sir, regarding the order book that you're sitting on today, could you help us understand the broad spread across categories, same naval versus air versus say, land-based systems -- and incrementally, in terms of order inflows over the next few years, excluding QRSAM, which of these segments do you expect to be the key growth drivers?

Let me tell you, Army, Navy, Air Force, more or less, itis similar. So 30%, 30%, 30% out of the total 100%, which we are having to 90 is from defense -- so roughly 30%, 30%, 30% is arm in every Air Force. And order inflow alter or less in the same line only. QRSM actually is Army and Air Force combined order. But there are airports that as some big ticket, maybe also some big-ticket items will be there. So again, in year this 55,000 also, more or less, it will be evenly distributed across Army, Navy, Airforce. So as such, there is a priority, I should say, and our equal confidence of all the 3 forces in this. As on today, the major as per order book -- the main components are electronic fuse for Army, LRM for Navy, LCA LRUs for Air Force, DMP2 upgrade again for Army, Aswini Radar for Air Force and EWS M7 V5 again for Air Force, MP Rudra Air Force. So like that, these are major order book again, treated across all the 3 services.

Understood. And as a follow-up to that, would the margin profile differ meaningfully across these segments? Or is profitability largely product-specific irrespective of the segment? -- just if I can continue with my second question. What were the key products executed during this quarter, some which you would attribute for the margin decline this time.

Okay, we cannot extrapolate that because of this product margin defined much less or more as such because, again, we are giving you only a glimpse of some top 8, 10 projects, not that detail because detailed projects are so many. The firstly, margin is spread across. Air Force is uniform because overall, we are having across Air force separately, some subsystem systems and system of systems type of projects. So it is not that in particular 1 segment or Army, we have less margin or maybe more margin is not like that. It is spreaded across type of solutions and our solutions are spreaded across various varieties. The major orders executed in this quarter were LSM, MPR Rudra, links U2, upgradation of periscope, BSS projects some supplies, UN51 systems, some supplies and the receivers. So again, this is only like an important projects, but overall projects are many more. So again, correlating that this particular project has less margin or as more margin, not correct to estimate because of the total spread across a number of projects which we execute even in a quarter also.

Understood. And just the last question from my side, sir, on the counter on ecosystem. Could you share some thoughts on BL's role today? Which systems or products are we currently involved in? And what components or subsystems do we supply? Here, the private sector also appears to account for a sizable share of the opportunity of the overall market. Could you share your perspective on which players are doing well in terms of innovation and product development and which areas within the counter loan market remained relatively untapped today? And where do you see opportunities for BL to expand its presence or, say, gain market share?

Firstly, let me tell you, a drawn and counter drone. This market is growing like anything because you might have seen in the recent conflicts also, the real threats and real deterrence, most of them are centering around drone and counterdron solutions. So the market is growing exponentially where there is an opportunity for big companies like Bell, midsized companies of private sector like Gen technology. So many other companies are there and the start-ups. So there is growth prospects for all of us. So we need not to worry or need not kick, pie of other fellow. So everyone has some unique solutions. What we are more focused is large, high-power laser-based or microwave-based DEW solution, integrated D4 solutions, means real with hard kill. The more of hard kill-based, more complex systems, we are more focusing on. But it doesn't mean that we are not working on drone killing zone or EW Jammer itself killing or bringing down the drone. So we are having also some products, which we call the D2, some products D3 and some progress real D4, where IT. D4 means, this will have hard kill also. So hard kill, soft scale, only detect and then use some other conventional way of neutralizing this total complex solution, we are more focused. Again, I'm stressing we are more focused on this hard kill based large systems more. But other players are there and especially start-ups are there for the D2 type of systems and different different innovative solutions but there is a requirement of our type of solutions for drone and counter drone. So we don't foresee a challenge. And definitely, we have put our own CRLs, Central Research Laboratories and I to look into some more innovative solutions, either themselves or collaborating with some start-ups. So good start-up with ecosystem. Also, we are tapping now. And a few orders, although right now is small, we have taken jointly with the start-ups, and we are going in a big way for this type of smart, small innovative products also. But the same case may be true for our so-called midsized competitor. But of course, this large complex domain solution, right now, we are the defector leader.

Understood. Thanks a lot for that explanation, thank you so much.

The next question comes from the line of Harshit Patel with Equilia Securities.

Sir, my first question is, you have highlighted the potential large orders materializing from major naval platform such NGC NP7. Could you also give some color on potential order prices from the follow on to 75, the that will be next-generation destroyer -- and the follow-on on '17 is that will be to coning.what could be the potential order prices for roles? I understand they might not materialize in FY '27 expect -- but over FY '28 and '29, what could be the prices for us?

Let me tell you right now, it is too early to predict the business volume of that. like P17 Bravo, P18 or other projects, MGD. So these projects, we are in a configuration finalization, technical interaction, specification finalization subsystem in digitization in those type of roles right now. So that role we are playing jointly with our DRDO or our maybe friends. So that activity once it crystallizes for 1 of the programs, with the time lines given by them. When it starts discussing BQ, that time only, we will really come back to you about real time frame when we may get this order and the size of the order. Today, it may be a bit early. Maybe 1 year down the , at least for maybe NGD, we may have better clarity about these 2 figures. So these programs are definitely beyond 28, '29, not before. So it takes its own time to finalize the configuration and finalize the exact volume of business for them, these programs.

That's good. Secondly, the media reports suggest that I'm

Sorry to interrupt, your voice is a little muffled. Could you please use your phone on the handset mode in case if it's not on handset -- is this matter?

Recent report adjustment, are there any differences will be the electronic system integration partner to DDoS will we have no room to play over here, which are the other areas and platforms where we will be competing with this credible competition going forward? That way in...

Ladies and gentlemen, the line for the management has dropped. Please stay connected while I get them reconnected. Ladies and gentlemen, the management has been reconnected. Please go ahead, sir.

Yes. So about this particular era project. So this project, I think bidding was done maybe 1.5 years back roughly. We also participated in the bid, but unfortunately, we were not even -- so it's part of the competition. So in some program, somebody will be competitor company will be help, somebody will be L2. So in this macaroni became lean, and they are the system integrator for this program. But of course, subsystem-level modules or capabilities of well will be made use of by Dado as well as with Adani. So our tenth of subsystems like RA, our data links and so many subsystems are there in this Nitra program. So those subsystem level expertise, the do as well as Adani will tap our thing. But of course, as a role in this one, we missed we were not relevant and Adani became 1. So it is a part of life, some program as IV will be element, some program we may not be alone. But our subsystem strengths are our in-house strength of developing these subsystems that will definitely give us a good business down the line.

The next question comes from the line of Bhalchandra Shinde with Motilal Oswal Financial Services.

Sir, I would like to know on recent Astra Mace has been opened for the private players. So how you see that asset trend for the missile programs, so many programs are coming up, Sima. -- how we see the private participation opening up in the missile programs that?

Definitely, this question, you should ask more from a private fellow -- then from a public sector like well today, not established player in missiles, although we are also aspiring or entering into the missile domain. So definitely, we are right now seeing from the other side, like the private value thing, we also are seeing. The issue is this particular domain, as you again know, during recent conflicts and last 2, 3 if you have seen, how important the missile are for any war scenario. So quantity and quality, both matters here. So definitely to keep the case of such requirement, there is a scope of so many players other than BDL for this particular tough requirement to be met. So where Bell and other private fellows also are picking in. In 2, 3 programs, we are actually collaborating with private fellows, and then we have got some orders as PPP partner. So as such, this particular domain is very, very important. And role is there again for BDL, Bell and private companies. So all of us have a role to play for meeting the third requirement. But let me again assure you, in most of these metal programs, the major electronics today, we are the leader because that electronics is more complicated than Radar or others, where we have so many subsystems and expertise for customized solutions. So that will give us enough future businesses.

And sir, how much 1 should assume the pipeline over the next 5 years for sale program?

That is very difficult to predict that for that. We have to ask either ministry or maybe a because these are strategic things, and most of these strategic things are not even openly discussed by them also. We are seeing based on the projections given by all other countries like European countries, or U.S., et cetera, what type of missile production, they are expecting. Similar inflow will be there for Indian missile programs also. So we can only extrapolate that. but exact quantities, et cetera, we cannot tell you because that is a strategic goal with Government of India has to take, not us. We have to gear ourselves for that. So we are gearing ourselves that much I can assure you.

The next question comes from the line of Hardik Rawat with IIFL Capital.

Sir, my first question would be with regards to the P&L. So while we've seen quite a commendable 25% Y-o-Y growth in revenue, at the same time, our other expenses have actually declined by roughly 20% -- so just wanted to understand, are there any sizable provision reversals that have taken place here? Or what is the reason for this decline in other expenses?

During the previous year, the provisions relating to the liquidated damages during this current quarter, April to June of 25 was on the higher side based on the delivery schedule of those contracts, which are executed during the previous year due to which current year that is not there. So that is a difference where the other expenses have come down.

That is helpful, sir. And second question with regards to the counter discussion that happened a bit earlier on the call. mentioned that Bell would be looking more towards the directed energy weapons, both laser-based and microwave based. So sir, could you please provide some color as to when should we expect prototype in its most earliest phases being developed by Bell, and by when do you expect commercial sales from this product to begin?

No, let me tell you, we have got enough orders already in the last 3 years. for this 2-kilowatt laser-based DEW solution and which we have most of that something like 80% of those orders already we have supplied also. Of course, microwave DEW based solutions right now is still under evaluation, although we have the prototype ready. These prototypes we had made jointly with DRDO, but parallelly, also, we have started some customized configuration, especially for export purposes. So in export, we are getting very good leads. We have given very good demos to some of the countries and they have shown very keen interest on this high-power laser or microwave-based DEW solutions. So we have our own in-house strengths to make customized different, different products for the basic design, but the basic design originally came from DRDO for us. They were our real development gurus but today, we have the capability to customize them or to come out with different versions, upgrade on range, upgrade on higher power laser, et cetera. So that there are a series of product versions, we call it. So they are already pipelined. And 1 or 2, we have given demonstration also to our end users as well as to our -- some of the external countries, export countries who have shown some interest. So as and when this order conformed order comes, I will again let you know.

The next question comes from the line of Dipen Vakil with Phillip Capital.

Congratulations on a great execution. Sir, my first question is on your order book you currently have INR 72,000 crores worth of order book. Can you help us with the order book breakup for like 10 major orders that are there. So what would be the quantum of these orders?

Yes, certainly, certainly. So the main orders are few minute 1 minute. In the last slide, we have where we had a product which I was reading. Product by product, I will just tell you, there were, first is fused, of course, largest order book consists of us as fuse requirement is for 8 years more we have to supply. And then we have LRSM orders, then LCA, Mark and Mark 1A LRUs for the 83 and 97 aircraft. Then there's BMP-2 upgrade, then Aswini Radar, then MTR Rudra. So these are the top 7 projects which are there in our order book as on first of July.

So possible to share quantum of the order book -- these 7 projects are around INR 20,000 crores.

Out of INR 70 crores -- so -- but overall, we have so many small, small projects consist of 400, 500 line items minimum. So these are the top 7 items, which consist of around INR 20,000 crores plus of order book today for me.

Got it, sir. Sir, my second question is that -- so for the order pipeline that you have suggested for INR 55,000 crores, if we consider excluding QRSM which would be the major orders which are currently gaining traction in expected on the expected lines?

As I told last time, also, Saugata Samat, we may get in another 3 to 6 months' time line. So the biggest is that after -- then as I told, NGC or P75. One of these 2, definitely, we may go through. Maybe both of them, we can go through because government has to give approval. Again, they are waiting for CCS approval only. but we are confident out of that, as I told last time, at least 100% probability of having at least 1 of them and more than 50% viability of getting both of them. So that's why in these 2 programs are another major subsystems are there in these 2 programs, for which we may get a big order. Of course, Hammer project, also, we are going to get in this financial year and Shakthi Phase 4. So these are also a few more major programs, which we are expecting orders in this financial year.

Got it, sir. And sir, apart from these platform orders, the base orders, what would be the quantum of pay orders that you're expecting in this year?

We put together, I told a total INR 55,000 crores out of that 30,000 roughly will be QRSM, then around 15,000 plus is these platform orders, and remaining will be the other base orders, smaller quantities, support services or AMCs, all this put together remaining.

The next question comes from the line of Atul Tiwari with JPMorgan.

My question is on the likely impact of a commission number. Sir, my question is on the likely impact of pay commission provisions on company's margins over the next 2, 3 years. So when will these provisions start in which quarter? And what will be the likely quantum and the impact on the margin?

See, current year January 27, current financial have on January 27 onwards, the waste revision is due. So for the current year, the provisions will be made for 3 months period, January to March 27 this for the current year. Next year, of course, it will be depending on settlement things settle or not. Again, if it is settled, it's fine, others full provision. As far as the impact is concerned, because the turnover will be increasing year-on-year as we already told that we are projecting a good growth in the coming years. We expect the employee cost to turn over to be in the range of around 12% even in the coming years also, which is now also 12% last year. In the coming years also, we expect it to be in the range of 12% employee cost to turnover percentage since the turnover will also be growing in a good scale.

Okay. Sir. So despite the pay commission provisions being implemented, you don't anticipate any change in employee cost to the revenue ratio over the next 2, 3 years shortly?