Bharat Electronics Ltd

NSE:BEL

Earnings Call Analysis

Bharat Electronics Reports Strong Q2 Growth with Positive Outlook

Bharat Electronics Limited achieved a notable 15.83% revenue growth, reaching INR 8,530 crores, with a profit before tax of INR 2,488 crores, up 45% from the prior year. The profit after tax increased by 39.03% to INR 1,867 crores. An order book of INR 74,595 crores underpins their confidence in meeting a full-year order inflow target of INR 25,000 crores, backed by major projects. Despite current negative cash flows of INR 2,300 crores due to inventory buildup, management anticipates a successful turnaround, projecting a 15% overall revenue growth and maintaining EBITDA margins between 23% to 25% for FY '25.

Strong Financial Growth Overview

Bharat Electronics Limited (BEL) has reported robust financial performance for Q2 of FY '25, with total revenue reaching INR 8,530 crores, a 15.83% increase compared to INR 7,365 crores in the same quarter last year. Profit before tax surged by 45% to INR 2,488 crores, up from INR 1,777 crores, while profit after tax rose 39.03% to INR 1,867 crores. The company's EBITDA margin improved to 27.26%, up from 22.66% year-over-year, indicating operational efficiency. The earnings per share increased to INR 2.55 from INR 1.84, thus demonstrating significant gains across key financial metrics.

Robust Order Book and Growth Expectations

As of October 1, 2024, BEL's order book stands at a substantial INR 74,595 crores. The company has already achieved INR 7,500 crores in order inflows in the first half and is confident in meeting its guidance of INR 25,000 crores for the fiscal year. Major orders expected in the second half include a radar contract worth INR 2,500 crores and another INR 2,000 crores electronic warfare system, which will bolster revenues significantly.

Working Capital and Cash Flow Insights

Despite strong revenue and profit growth, BEL reported negative operating cash flows of approximately INR 2,300 crores in the first half due to increased inventories and accounts receivable. This buildup is necessary to support an anticipated turnover of around INR 14,500 crores in the second half. The management remains optimistic about cash flow normalization within the fiscal year, supported by their working capital management strategy, which maintains a healthy current ratio around 1.6.

Guidance and Future Outlook

BEL is targeting a revenue growth of 15% for FY '25, aiming for a turnover of INR 23,000 crores and maintaining EBITDA margins in the range of 23% to 25%. The estimated gross margin for the fiscal year is 42%, even though it reached 45% in the first half. With R&D investments exceeding INR 1,300 crores and targeted CapEx of INR 800 crores, BEL is poised for future expansion in product offerings and sustained profitability.

Sector-Specific Developments and Export Potential

The company continues to see healthy demand across its sectors, particularly in defense electronics, where a minimum annual growth of 15% is expected over the next five years. For exports, BEL currently holds a modest 3% of turnover, with a goal to reach 5% in the coming year. Ongoing developments include major orders in the pipeline worth over USD 500 million, indicating promising expansion into international markets.

New Strategic Business Units and Innovations

BEL has expanded its operations to include 29 strategic business units (SBUs) from 24 a year prior, targeting diverse areas like electronic warfare and cybersecurity. These new units are projected to drive incremental revenues, with one SBU expected to achieve INR 1,500 crores in its first operational year. This diversification reflects BEL's commitment to adapting to market needs and enhancing its technological capabilities.

Earnings Call Transcript 2025-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to Bharat Electronics Limited Q2 FY '25 Earnings Conference Call hosted by Nomura Financial Advisory and Securities. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Umesh Raut from Nomura. Thank you, and over to you, sir.

[Umesh Raut, analyst]

Thanks, Steve. Good afternoon, everyone. On behalf of Nomura, we welcome you all for the Q2 '25 conference call of Bharat Electronics Limited. I take this opportunity to welcome the management of Bharat Electronics, represented by Shri Manoj Jain, Chairman and Managing Director; Shri Damodar Bhattad, Director, Finance and CFO; Shri Sreenivas, Company Secretary.

I'll now hand over the call to company management for their opening remarks. Thank you.

[Manoj Jain, executive]

Yes. Good morning, good afternoon, everybody. myself, Manoj Jain, CMD BEL. I will just touch upon financial highlights up to Q2 financial year '24, '25.

So in this Q2, we have achieved a turnover to INR 8,530 crores as compared to INR 7,365 crores up to Q2 of last year, with a growth of 15.83%. And profit before tax has also increased to INR 2,488 crores as compared to INR 1,777 crores, which was there up to last year Q2, with a growth of [ 45.0% ]. The profit after tax also has increased to INR 1,867 crores as compared to INR 1,343 crores in the last Q2 2024, with a growth of 39.03%.

EBITDA also has increased to 27.26% up to Q2 of '24, '25 as compared to 22.66% last year. The earnings per share has also increased to INR 2.55 as compared to INR 1.84 in the last year at the same time at Q2. The order book position as of October 1, 2024, is INR 74,595 crores. So overall, on all financial parameters, we have achieved a good growth in -- up to Q2. This is a brief opening remarks from my side.

[Unknown Executive]

So we'll leave it to you for taking up the question-and-answer session.

[Operator]

[Operator Instructions] First question is from the line of [indiscernible] Sharma from TSC Life.

[Unknown Analyst]

Just 2 questions. One was on the order inflows. Now what we see for the first half, we've done about 7,000-odd -- INR 7,500-odd crores of inflows. Our guidance, I think, is 25,000. So if you could just help us, which are the larger orders that you expect in the second half, which would kind of help you get to that target? Or are you seeing any slippages or otherwise? So just some sense on the order inflows.

And my second question will be on the working capital. So while profitability and top line growth has been very strong in the first half, operating cash flows are actually negative INR 2,300-odd crores with this very substantial rise in both debtors and inventory. So if you could just help us what is driving that? And do we expect that to kind of normalize by the end of the year?

[Unknown Executive]

Good afternoon. As we have told that we have achieved an order book flow of INR 7,500 crores in the first half of '24, '25. We are confident of achieving the target guidance given of INR 25,000 crores for '24, '25.

In terms of the major orders, which are expected are, one is for a [indiscernible] radar of around INR 2,500 crores, electronic water pressure for FY '17, that is INR 2,000 crores. Actually there is another INR 2,000 crores, [indiscernible] another INR 2,000 crores. So these are the major orders expected. Already, we achieved INR 7,500. And with these orders and some other small orders, we hope to -- we are confident of achieving the given guidance of INR 25,000 crores.

As regards to the working capital, the ratio is -- current ratio as of 30th September is 1.6, and working capital is fairly reasonably okay. It has been around 1.5, 1.6 for the past few years. So we don't see any much challenges in the working capital management.

[Unknown Analyst]

Okay. My question is because your operating cash flow was negative despite this, but you're saying will be broad?

[Unknown Executive]

Operating cash flow is negative because in the first half, the inventory is more taken up because for the second half, of our turnover further, we have to achieve around INR 14,500 crores as per the target. If you see, our inventory is around INR 9,000 crores there. So first half, we have achieved INR 8,500 crores. Given a guidance of 15% growth, we hope to achieve INR 23,000 crore turnover, which means we have to achieve INR 14,500 crores turnover in the second half, for which we have to build up inventory for which cash outflow will be there. So that's why the operational cash flow is negative and inventory is slightly built up for the second half. So that will recover [indiscernible] issue.

[Operator]

The next question is from the line of [indiscernible] from Mahindra Mutual Funds.

[Unknown Analyst]

Just 2 questions. First, if you could provide a breakup of execution for this quarter in terms of project or program-wise?

[Unknown Executive]

What you received in September? Our execution?

[Unknown Analyst]

Yes, execution for the second quarter.

[Unknown Executive]

Execution in the first half, we can tell you. Major was, of course, last time same order, which we executed in the first half. There are 5, 6 more major projects. One is called CDIC project, we call it, for Delhi government -- for Central Board of Indrect Taxes. That is around INR 300 crores we executed. [indiscernible] many activities we are continually doing. And this first half, we have almost some INR 300 crores worth of orders we executed for that project.

The EW system of Shakti around INR 250 crores. [indiscernible] Systems, INR 235 crores; then [indiscernible] terminal, around INR 200 crores. So these are the major project orders which we executed in -- till September 2024.

[Unknown Analyst]

What would be the equivalent of financial, sir?

[Manoj Jain, executive]

INR 1,600 crores roughly. INR 1,622 crores roughly.

[Unknown Analyst]

Okay. Okay. And just wanted to understand the underlying reason that -- for the gross margin expansion that we have seen in the second quarter of FY '25, if you could provide the reason for the same? And also, would that be a fair assumption that this could be a sustainable gross margin for FY '25?

[Manoj Jain, executive]

See, we have given a gross margin guidance of 42% for the current year '24, '25. The current half, the gross margin we achieved is 45%. So it is a composition of product mix during the first half, which has given us this margin of 45%. Overall, during the current year, we expect to have the gross margin of 42% only as we have given the guidance.

[Operator]

The next question is from the line of Mohit Pandey from Macquarie Capital.

[Mohit Pandey, analyst]

Sir, firstly, if you could highlight which are the major projects to be executed in the next 2 quarters? That would be very helpful.

[Manoj Jain, executive]

Yes, in the next 2 quarters, the main project again is [indiscernible]. So that is around INR 1,600-plus crores. We will execute orders for that. Then one -- another EW project is [indiscernible]. That also will be around INR 800 crores to INR 900 crores worth of order we will execute in the next half.

One more EW project is instrumented EW range. That also is one more major project executed by our Hyderabad unit, around INR 750 crores is there for that. [indiscernible] army, we have already started a good progress on that, and we will liquidate around INR 500 crores worth of items we'll deliver by March for Akash Army.

D29 EW system India now, continuously, we are supplying. So in the next two halves -- next 2 quarters, around almost INR 500 crores worth of equipment we will supply for the D29 EW system. And then weapon-locating radar airplane, we will supply around INR 450 crores. So these are the major items which we are going to supply in the next 2 quarters.

[Mohit Pandey, analyst]

Okay, sir. And sir, secondly, on the supply chain, if you could give an update on Israel-linked supply chains? Are you facing any challenges on that front?

[Manoj Jain, executive]

Yes and no. Actually, major challenges which we had seen earlier about LR and other, those big ticket items already streamlined. So we are not facing any challenge. Some other all items, which are not in our turnover that much, but this go as a subsystem -- in larger system of ther DPSUs.

There, we are finding some challenges. So it may affect their turnover that much. But our turnover point of view not, in fact, is analyzed for items which are coming from Israel. All the items streamlining has been done in the last 3 to 6 months. So we are not facing any challenge as such.

[Mohit Pandey, analyst]

Sure, sir. Sir, just -- and lastly, on margins, if you could highlight what are the 2, 3 factors which lead to variation in margins across the different products? That would be very helpful, sir.

[Unknown Executive]

No, it is just the product mix of different products. See, there are 29 strategic business units which we have worked, and all are exhibiting different product lines. So it is all that combinant factor has given us an advantage in this current half. That is the only one. Initially, I cannot tell which product has given [indiscernible] that we are not able to comment on.

[Operator]

The next question is from the line of Nitin Arora from Axel Funds.

[Unknown Analyst]

Sir, just on the order intake guidance, which you said you feel very confident of doing INR 25,000 crores and you articulated a few projects. Can you throw some light, especially on this Ashwini Radar and all? It's been now 4, 5 quarters, we've been hearing that this is something coming.

I just want to understand, it is some structural issue has come in it? Or is the final negotiation is somewhat delaying init? Also on the other projects where the confidence is so high that we will do INR 25,000 crores, are these more of in the final negotiation of pricing where the stuff? Just wanted your view on that.

[Manoj Jain, executive]

Definitely, once we have told you that our target was INR 25,000 crores of order inflow this year, definitely, we have the homework and we are confident that only we announced that. So it was there. [indiscernible] radar, we have told. This radar already, we have become L1, already declared L1 also. So it might become a multi-bid. Actually, we were trying this to become a single bid.

But because of previous statement given by DRDO, that it will be a single-bid portal. But anyway, over a period of time, they told like it go to multi-vendor situation. And we were confident that we will become L1 because our associates, our development, our knowledge, our expense, based on that, we can give to our users the most cost optimum solution. And then we were L1 already declared.

So now declared L1, it may take another 3 months maximum to convert that L1 to getting the order. It will not be an issue. Already, I think the 3 vendors participated in this, and we were L1 in that. So this is about to come any time now.

So previous [indiscernible] because of that confusion only, whether they will go multi-vendor or single vendors or partial quantity single vendor to BEL because BEL was associated from day 1 in the radar development program jointly with DRDO. So we were fighting for that, and it was their previous commitment also.

Anyway, part of life that we have to have multi-vendor situation. And multi-vendor also, there is no threat for BEL. So in this particular case, we have proved that we are cost-competitive also. And we are getting order very soon now because all other processes are done by the user.

Regarding other 3 projects also, we are in a very, very advanced stage. We are having multiple discussions going on. Even some of them have already started PMC also, first round of PMC, et cetera, started for that. So we are confident in next 3 months, maximum 4 months, we will have this order -- and as soon as the order comes, we will partly intimate to cap [indiscernible] and send to you immediately.

[Unknown Analyst]

Okay. Sir, the second question was given -- and sorry for again asking you this. I always ask this. Is that INR 25,000 crore kind of an order intake, you've been consistently maintaining the momentum in the last 2, 3 years? But given next year, how you're looking at it?

I mean to grow at INR 25,000 crores, you think you can grow on that number? Still do we have those programs, for example, MRM is still there. But generally, in your sense, in a very practical way, do you think growing on INR 25,000 crores is still possible?

Because otherwise, then your growth on the -- basically, your profit growth will start looking quite weak. So just more of a question on a forward basis, that how are you looking beyond INR 25,000 crores, if you look at your pipeline and government agency of ordering new orders?

[Manoj Jain, executive]

Everything is promising for us right now. Let me again assure you. So we are targeting -- next year, it will be more than this year growth guidance what we have given you. Next year, April, we will again consolidate all of that.

I can only assure you today, it will be more than what is there for this year. This year, we have revenue growth of 15%. Next year, I can assure you now it will be a little bit more because of so many leads and so many discussions, we are already having so many programs, including we have called QRM, including MRM follow-on orders. So these all orders are going to certify mostly next year.

So next year, order book position, if you say only QRM alone itself may give us INR 25,000 crores to INR 30,000 crores order book, one line item itself. Then remaining line items will give us something more. So we are confident next year will be definitely much more than what target we had set ourselves for this year. It will be much more. I can assure you. But that we will tell you from data on April 1, definitely, we'll come to you with much more better figures for next year. But we are fully confident on that.

[Unknown Analyst]

And sir, in terms of margin, you stated -- you're generally been saying that gross margin, I will maintain it for about 42%. But given you have plan to strong margin, I understand mix always is important, which you better understand than us. But generally, in your sense, do you think there is a high chance of you doing better margins just because of the mix part, nothing else?

I mean operational leverage would be there, but I'm saying just because of the mix where it is getting concluded because you stated one number of one project, which is like INR 1,600 crores over the next 1 or 2 quarters. So that could be coming because of that order mix is somewhat -- do you think margins can hold up further?

[Manoj Jain, executive]

You're asking in no different version of the same question. All I say is that we maintain the gross margin of 42% for the current year. We will definitely maintain that. We are in the process of doing further and further digitization of our module subsystems, et cetera.

So hoping that if the [indiscernible] is done well in line, definitely it will be profit margin will increase. But today, we can't quantify about the future. But today, we are confident about what our margins which we have given to you, we are definitely going to cross that. We'll achieve this, no doubt on that.

[Operator]

The next question is from the line of [indiscernible] from HSBC Mutual Funds.

[Unknown Analyst]

You highlighted that you now are working across 29 SBUs. I think a year or so back, it was around 24 SBUs. Can you just highlight which SBUs you have added over the past 1 year? And what do you think is the total addressable market for these SBUs?

[Manoj Jain, executive]

So January 1st, we had opened 5 more SBUs. And that one of them are EW land systems at our Hyderabad. So that was the biggest SBU. Because for that, we were doing so much of homework.So they have now started generating -- this year, I think they will cross around INR 1,500 crores plus turnover this year itself. Because last year, they were working jointly with another [indiscernible] view of EW.

So they already were doing a good work. We had to only streamline them and separate them and become a separate SBU. So that SBU already in the first year of existence, [indiscernible] will cross INR 1,500 crores. Other 4 SBUs are created in Bangalore for us. That also started as a micro SBU type of concept within BEL. And some [indiscernible] already done.

One of them is speaker SBU, RF and [indiscernible] speakers. Another one is arms and ammunition SBUs. One of them is network and cybersecurity SBUs, and one of them is unmanned systems SBU. So these 4 SBUs also have good growth prospects, et cetera. We have reviewed that. RF speaker SBU this year may touch around INR 350 crores to INR 400 crores turnover.

And other SBUs also will be of this similar line. The first year for these 4 SBUs, we've given a target -- internal target of around INR 200 crores, INR 2505 crores to INR 300 crores, barring this fifth SBU, which we definitely cross INR 1,500 crores. And then slowly, they will pick up

Finally, we want all these 5 SBUs to become INR 1,000 crores SBU because they have those types of operation. In the next 2, 3 years, they will start contributing INR 1,000-plus crores that we have already our own plans for these SBUs.

[Unknown Analyst]

Okay. And sir, on the cybersecurities, I think it was largely being -- the services were largely being consumed internally. Have you started offering these services to third party now that you're targeting INR 200 crores, INR 300 crores revenue?

[Manoj Jain, executive]

Certainly, certainly. Because earlier, their services are used for our bigger programs of our bank itself, which earlier we were supplying directly to [indiscernible], but there were no direct orders for them.

So now anyway, they will keep on supporting that internal usage. And we have our own internal booking standards for that. If they give services to our internal SBU, also, we account for that. But definitely, now we are looking at direct turnover for them, direct SBU knowledge.

So that -- there are 4, 5 big grids already which converted into a business case for them. We are expecting 1 or 2 big orders in the next 10, 15 days or maybe a 1 month time, one from Minister of Defense, one from medical aims and other department. And some orders are from FOC-related activities for some DPSUs. So some 4, 5 big leads are there, which is they are going to get and then execute also some INR 10 crores, INR 15 crores type of orders they have already got, and they have started executing that.

But these big-ticket items, we are expecting now. And that's why we are confident by March direct sales, they may cross INR 200 crores to INR 250 crores. But definitely, they are supporting other SBUs and generating indirectly revenue for them for around INR 200 crore worth of services we started giving to other SBUs. Seeing the potential is to have formed a separate strategic business unit, there is a great potential in this area. There will be a slow beginning. And as the time goes, they will slowly take off.

[Operator]

[Operator Instructions] The next question is from the line of Harshit Patel from Equirus Securities.

[Harshit Patel, analyst]

So my first question is India's naval pipeline is quite comprehensive in terms of additions of next-generation destroyers, frigates as well as there has been a substantial movement on the submarine programs as well recently. So could you highlight how we are going to increase our wallet share in these platforms vis-a-vis how we were doing in the past? So basically, what are our newly indigenized products and systems that we can now offer in these platforms, which we were not doing earlier?

[Manoj Jain, executive]

Definitely, one is number. The number increases, turnover increases, and one is extra share in this platform. So extra indigenization of extra products to be added in this platform. So we are working on both fronts, adding number, upgrading previous products because some of the products which we have suppled, now we are giving slightly upgraded features. So that is not called as a new addition, but upgradation also has a huge turnover advantage for us because upgradation comes at some cost.

So there are incremental product upgradation, subsystem upgradation. And third is adding some new portfolio of electronic variety subsystems. So we are working on all the 3. The new variety share also, we have now discussed special submarine programs, et cetera. And that itself will give us very good returns, very good turnover for us.

So all the 3 fronts, we are working on a level platform. So many new type of products, which were early are imported, and now we are indigenized and we are giving like radar orders, which we received in the last quarter. That is one such example, which are older ships. It was a foreign-sourced radar and now we have indigenized, and that's why now it is directly supplied by BEL.

Earlier, it was directly by global radar. So that way, we are increasing some other gun interfaces and other things we have added some other integrated sonar suit type of things we are adding for a marine program. So we keep on increasing the indigenization content in these programs and keep on upgrading various products, which we had supplied earlier, like EW or communications suits, et cetera, we are upgrading.

So all the fronts, we are finding in our level pipeline, project itself are growing. And our share -- our electronic share is further increasing because of indigenization efforts which we have put at the right time. So because of that, naval segment is the most promising out of the 3, army, navy and airport, for us as of now. But definitely, other 2 also, navy and airport also are catching up now because there also we have done a lot of many indigenization programs and so many big programs. But definitely, naval has taken the lead as of now for us.

[Harshit Patel, analyst]

Understood. My second question is, could you comment on our content in the artillery systems being developed by the private players? So there are many programs happening simultaneously, ATx, power gun systems, [indiscernible] mounted gun systems as well as light tanks. So what is the total addressable opportunity for us in these programs? I am asking because a lot of OEMs, which are developing these programs, they also have their own electronics division. So would we be competing with their own divisions? How our market share, wallet share will pan out in these systems?

[Manoj Jain, executive]

Okay. All platforms, firstly for us, each and every platform is important, whether it is a naval platform or whether it is a tank-and-gun type of platform because everywhere, there is a presence of electronics and there is a presence of BEL. So in these programs, although many of the programs are now -- which type of platforms are opened up to private. But basic electronics for that, based on our experience, based on our products and based on our compatibility with the previously supply system or based on our expertise of integrating them to a larger C4I systems.

Because of all these things, we are confident that they are coming to us for all these type of interfaces, like I call it TIU is one such example. The communication interface unit for all these tanks and guns is provided by us. Typically, all type of [indiscernible] system are provided by us. So those are the same radios, radio communications with them that is provided by us.

And because when they approach us, they know we will give them a quality product and which is visible to present solutions and future solution because largely all complex system-oriented policies, [indiscernible] program are handled by BEL. So that gives us an extra advantage. And that's why even these private companies also want to work with us very, very closely.

So we are not foreseeing any problem. We are working very, very closely with Bharatpur or Tata or LNT and all these big players, private players also to see that we give them right products and technology required for them in these programs.

[Operator]

The next question is from the line of Amit Dikshit from ICICI Securities. SP-6 Yes.

[Amit Dixit, analyst]

Congratulations for a good set of numbers. The first question is on the EBITDA margin, which seems to be very high in the quarter. Now I just wanted to understand whether it is due to the nature of contracts or nature of orders that were executed or whether certain provisions have been rolled back? So I just wanted to get a little bit more clarity on that.

[Manoj Jain, executive]

It is on the nature of orders executed.

[Amit Dixit, analyst]

So there are no provisions that have been rolled back?

[Manoj Jain, executive]

Provisions withdrawn are minimal only. It's more on the nature of contracts. That's why the gross margin is 45. That is why the EBITDA margin has gone up to 27.

[Amit Dixit, analyst]

Okay. Fair enough. The second 1 is, if you can just throw some more light on QRS? And specifically, where we are when we expect the ordering? I mean what is the -- where are stuck? What is the major -- are there some tests spending or something? And also, whether we are also participating in this [indiscernible]?

[Manoj Jain, executive]

[indiscernible] can you explain a little bit more? That is a radar program of 230. Because 230 has so many upgrade programs. And there are 2 or 3 programs that we are taking indeed also. We are having constant discussions with our defense users, [indiscernible], for that. So we are engaging with them for EW right now.

And for this radar program, we and SAL both are participating. And we will see how -- but it will take some more time to finalize that configuration, optimum configuration, et cetera, for this. Because right now, we have just -- the DRD has just frozen the LCA configuration. So from that to 230 configuration, there are a lot of technical challenges, et cetera. We are just watching that and technically associated with them for them.

So regarding QRM, last time also, we told quite good advancements have happened now in the last 3 months also. We are moving in the right direction. Some clarification, configuration changes, et cetera, some MRLs, those type of nitty-gritty of the contract or scope of work only is finalized.

And once everything is totally frozen, it will go to ministry for competent authority approval. Hopefully, next year, first quarter, we are expecting RFP maybe issued to us.

[Operator]

The next question is from the line of Ishan Srimali from Tara Capital Partners.

[Unknown Analyst]

I have a couple of questions. The first would be, what would be the EBITDA margin, like outlook or guidance for FY '25? And the second thing is in the last con call, you had asked -- that you had said that '24, '25 is projected around INR 800 crores, with some facilities in Hyderabad and Andhra and Nagpur. So could you elaborate on the anticipated production capabilities of these facilities? And how they align with the future order pipeline?

[Manoj Jain, executive]

The EBITDA margin, as we have told, we maintain at 23% to 25% on variance we have already given for the current financial year.

[Unknown Analyst]

Okay. For the current financial year.

[Manoj Jain, executive]

For the current financial year. As far as the CapEx is concerned, we are in the range of around INR 800 crores is what we are targeting in the current year. And what growth projections we are giving to you is all based on the different capabilities, which are also coming.

[Technical Difficulty]

[Operator]

Ladies and gentlemen, the management line has been reconnected with us. Thank you for patiently waiting.

[Manoj Jain, executive]

Are you asking about the CapEx?

[Unknown Analyst]

I first talked about the EBITDA margin guidance for the...

[Manoj Jain, executive]

EBITDA margin, we maintain the guidance of 23% to 25%, what we have done for the finance year '24, '25, okay? And as far as CapEx is concerned, yes, we are expecting a total CapEx of INR 800 crores in the current financial year. This CapEx, what you are telling the additional factories, what are coming up, it will take maybe next year, next to next year [indiscernible] become operational. It maybe next year and some maybe next to next year also.

So these are work in progress in some of the cases. So whatever growth we are forecasting for the current year and especially in the next year is based on the additional capabilities also which we are building up because as the base goes up, the percentage also goes up and the growth overall actually more. For this only, the additional factors, additional CapEx is being done.

[Operator]

The next question is from the line of Lavina from Jefferies.

[Lavina Quadros, analyst]

Congrats on a great set of numbers. I just wanted to check nondefense side. Any updates you'd like to give? Defense side is very clear?

[Manoj Jain, executive]

Nondefense. Nondefense side, yes, we are having an order book position. I don't know exact order book, but around 10% of our order book is typically nondefense. Right now, we have around INR 8,475 crores as our nondefense order book. We are getting very good leads now for like we got last year CB10 and UP112 as a project.

This year also, we are finding a lot of interests in our [indiscernible] system for BSF. We are going to get order very soon. We have declared already L1 for that also. And one more, some security-related cabinet -- one more security-related project, we have recently got ordered.

So we are getting every month around INR 500 crores to INR 500-plus worth of orders in the nondefense segment also. So we will have a logical mix of around 85%, 15%, which we typically want to maintain between defense and nondefense. So we are in that range only right now also, and plans are there separately because we review our non-defense market leads, execution, et cetera, separately. And we found that there are no problems for maintaining this ratio of 85, 15.

[Lavina Quadros, analyst]

And then lastly, sir, I know a couple of people have asked as well, but just wanted to understand there is a concern that defense in general might be slowing down. There could be some derailment in future orders. I know, at this point in time, the outlook looks very healthy. But do you think any challenges you foresee over 12 months or 2 years for 3 years that could derail the story, in general, from a very macro perspective?

[Manoj Jain, executive]

In defense or nondefense?

[Lavina Quadros, analyst]

In Defense, in defense.

[Manoj Jain, executive]

Defense for the next 5 years, we are doubling with the lease and order books and other things. We are not having any issue for next 5 years. When we all set together internally and then see what are the main news, which we are having or main acquisition plans of our defense forces, Army, Navy, Airport, we are confident minimum 15% growth guaranteed for us in next 5 years.

We have made already for next 5 years our internal plans, which at appropriate point of time, we may share with you also. But definitely, for next 5 years, our visibilty is very good for maintaining minimum 15% growth. We wanted to target for 17.5%. But right now, minimum 15% guarantee visibility is ensured for the next 5 years for defense electronics for us.

And as far as the macroeconomic, what you are doing, macro budge is concerned, as you could see from the budget, which is presented every year. The defense budget is always on an increasing trend only in general. Maybe sometimes increases could be a little bit here and there. But overall, it is on an increasing trend only, even the country's defense budget also

[Operator]

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

[Amit Mahawar, analyst]

I have 2 quick questions. First is, so broadly in FY '25, assuming INR 250 billion to INR 260 billion worth of orders, the advance thatn we'll have is around INR 2,500 crores plus minus? Or there is a change there?

[Unknown Executive]

In terms of what? What [indiscernible] INR 25,000 crores or orders?

[Amit Mahawar, analyst]

I'm saying the advance that we get on orders. I was just trying to understand if anything has changed on the contract from them?

[Manoj Jain, executive]

So in general, the contractual terms more or less remains the same. It is, of course, depending on contract by contract, but more or less, they are on the same pattern.

[Amit Mahawar, analyst]

Same. Okay, fair. And second question is more medium term. You shared about status on QRSAM and some large orders. Across '25 QRSAM is a very long project, and it is come in stages. So apart QRM, MRM, [indiscernible] and Akash, et cetera, I just want to understand how should we year-wise look at the large auto configuration for BEL in '25, '26 and '27? The reason I asked the question is, if you're growing your turnover by 15% in '25 and '26, your revenue billing is going to be more than INR 500 billion. So I just want to understand if '26, '27 is going to be a very, very high intake year for you?

[Manoj Jain, executive]

There is always -- we are always talking on larger programs like USM and some other programs, but there's always a base order, which always is there, which is INR 1,5000 to INR 20,000 crores, which constitutes for whatever supplies you have already made, there are upgrades. There are spare supplies, there are maintenance, which are being done. So that base order is always there.

What we talk always is the incremental program, like sometimes we talk [indiscernible] radar, QRSAM, MRSAM. These are the further programs which we talk. So base order of minimum of INR 15,000 crores is always there based on the old upgrades as well as pass as well as maintenance services for which equipment have already been supplied.

In addition, these programs also build up on that. So as it is -- as we say, last -- next year or so, the base order book of INR 15,000 crores to INR 20,000 crores is there. We already talked of QRSAM is over and above [indiscernible] is a special thing. So we are adding as one-off for next year.

So similar programs will keep coming because so many R&D spend is also going on in the company. So there are many programs of the Ministry of Defense, which are going on. So as to say, as the program fortifies in the future, we see more and more good size orders coming in.

[Operator]

The next question is from the line of Harshit Jitendra Kapadia from Elara Capital.

[Harshit Kapadia, analyst]

Congratulations for a good set of results. Just 2 questions from my side, starting on the order book of INR 75,000 crores. Could you give us a tentative breakup regarding how much of the order book is still left for LRSAM, MRSAM, the electronic warfare system, IACCS, which you generally give and some many other large projects, which is there in the pipe?

[Manoj Jain, executive]

LRSAM order book as on October 1st is around INR 4,200 crores, pending order of INR 74,500 crores what we told. [indiscernible] is INR 4,200, IACCS is INR 2,000. Our cash payment is INR 3,500 in total. LC Avionics is INR 1,600. [indiscernible] INR 1,300. [indiscernible] is INR 1,500, MSW is INR 1,000 and all other below INR 1,000.

So these are the major orders. INR 4,000, INR 2,000, INR 3,500, [indiscernible], INR 1,600, [indiscernible] 1,400, [indiscernible] 1,500, and the MI 17 upgrade, INR 1,000. These are the major orders out of the INR 25,000 order book what we do on 1st of October.

[Unknown Analyst]

Okay. And the LRM/MRM execution would be completed by FY '26. Would that be a correct understanding? Or would it be -- may go into FY '27?

[Manoj Jain, executive]

As of now, I think '26 only, but some spares and other small quantities only may spill over to next year.

[Unknown Analyst]

Okay. And just continuing on the previous question on the order inflow part. If you can also highlight, apart from the QRSM, which you expect of, let's say, the first batch of INR 12,000 crores to INR 14,000 crores. Any of the large program that you envisage for FY '26 when you give a guidance of INR 37,000, INR 38,000 in terms of order inflow.

[Manoj Jain, executive]

We are telling there is a base order which we are setting of INR 15,000 crores, which comes up from the old programs. This QRSM is a onetime, high-value order, which we are talking about for the coming year, next year, which you are saying it may come.

There are many other programs which are coming up on which our R&D is going on. We are working on those programs. It would not be fair on my part to name all the programs as we can. Please understand it's open for hours. So we cannot name all the programs what we are -- what the company is working on.

[Operator]

The next question is from the line of Deepak Krishnan from Kotak Institutional Equities.

[Deepak Krishnan, analyst]

Just wanted to understand defense, nondefense mix for 2Q as well as 1H FY '25.

[Manoj Jain, executive]

As such, overall, we told. No. Overall, it is 85-15, 85% to 89% is typically defense and 10% to 15% is typically non-defense. And quarter-to-quarter, also, we don't minutely check that, but the ratio will be similar order only in each quarter.

[Unknown Executive]

If you are very precisely interested in the first half of '24, '25, it is 97 defense and nondefense 3 percentage points.

[Deepak Krishnan, analyst]

Sure. Sir, and maybe just sort of a split on how much is indigenized versus how much is foreign collaboration?

[Unknown Executive]

Total -- our overall invested typically around 85% to 88% of the products which we supply are either in-house or by other indigenized sources like DRDO and any other Indian company. And typically, TOT component is of the order of 10% to 15% only.

So in general, we maintain that as a logical mix because some TOT products also are required for growth turnover and urgent requirements of the user. But over a period of time, those are also -- we are in the process of indigenization.

So typical ratio of around 80% to 85% of total in-house, some other individual sources of DRDO, et cetera, the technology we are delivering. So that ratio, we are more or less tracking and maintaining.

[Deepak Krishnan, analyst]

Sure, sir. Maybe I just want to sort of understand sort of ability to continuously sort of report EBITDA margins substantially higher than what is sort of the margins for the typical nominated contract?

Sir, how does it affect your future negotiations and upgrades? Or is it like every product is sort of looked at a new product. So even if you're sort of reporting substantially higher than nominated ranges, you can still continue to enjoy that because of our own sort of cost efficiency measures?

[Manoj Jain, executive]

The thing is, overall, how we earn the profit it not make us only margins. It is based on overall indigenization efforts which we put. We give the most optimum solution to our defense forces, the most economical way of funding a problem. So there are various ways.

And overall, again, different type of product mix are there, which gives us -- some gives us slightly better margins, some gives us a slightly less margin. So overall, margins are good because we have put a lot of efforts on R&D in-house as well as supporting industry also. So this indigenization effort or this in-house R&D effort only gives us more and more margins in long term.

[Operator]

The next question is from the line of Kaan Tarica from ASK Investments.

[Unknown Analyst]

Last quarter, you indicated that you will also be doing work related to coverage, which is the anti-collision train anti-collision systems. I think some large orders were to be placed in October, November for that. Any news flow regarding that? Has BEL participated there?

[Manoj Jain, executive]

No, the coverage program, we told our intention now that we are to enter into this coverage development. This development is an involved process. So right now, [indiscernible] has given us execution, small execution order to prove our capability.

And that order, they have sold around 18 months' time to do that on a small section so we are in the process of development of this coverage ourselves. And we have to install it in that smart execution place. And once we qualify, then only we will be given the bulk production clearance.

So right now, we are in the process of building the prototype, developing and building the prototype, and then only the bulk production activities will start. So at least we have got this order from the railway for development, right?

So we are in that space because that's the only railway works. Firstly, they gave a small execution order based on that capability shown by us. So we have proved our capability. After witnessing that capability, they have given us a small execution order to execute. And the detailed evaluation will be done on that order, that particular execution order, where we will really install it also. And there only the efficacy of our system will be verified by railways. And once that is done, then only we will migrate to participate in bulk production-related orders.

Recently, they have RFP we have issued. There, we cannot participate because we have not crossed that particular milestone. So once we cross that milestone, the next order when it comes bigger order, definitely, we'll participate. But this present order, we cannot participate because we are still in that prototype verification phase for the company.

[Unknown Analyst]

Okay. Second question on -- I mean around manpower and talent. One, I wanted to understand the attrition rate in the company. And two, I think that there were some news, some media articles that you had given offers to the new trainees in IT Mandi, but finally, none of them joined. Is there, therefore, a challenge in terms of getting quality manpower? So attrition and hiring are the 2 aspects I wanted to understand.

[Manoj Jain, executive]

Firstly, luckily, we are not having attrition problems to the extent what this IT sector and other electronic sector person are facing because of overall environment, which we give to our manpower, the overall growth and learning opportunities which we give to our manpower. So our attrition rate is typically 2% to 3%.

Only during -- post-COVID, there was a small chunk that time I think we might have touched around 5%. But otherwise, we are generally 2% to 3% only is our attrition rate, which is manageable. What I was referring in IT Mandi and other places also is now we are growing.

So for our future growth and where we have to do a lot more of indigenization, lot of more of [indiscernible] India and design in India type of initiatives, that requires much more manpower to be put in R&D for us to meet the government of India time lines and guidelines. So one is doing more and more of indigenization.

Second is for our own growth for 15%-plus growth. We have to diversify. We have to add so many new products in our portfolio. So that requires more and more of manpower. To attract that manpower, we are going to all IITs, NITs, and so many other places. And we are coming up with a better and better reward and the published schemes. That is a continuous process in that.

So more and more of those schemes, which we are going to give, that will -- we are confident that with that, we can attract the talent and increase our manpower considerably, especially in R&D.

[Unknown Analyst]

Okay. What could the hiring program look like, sir? Number of trainees or -- I mean, at a later level, hiring absolute terms, what is your target annually?

[Manoj Jain, executive]

No. This year, in next 12 months -- we have set our own target that in next 12 months, we should have permanent manpower, minimum 1,000-plus we are going to add. That we have already got from our Board approval also. So that is for permanent manpower.

And I can tell you, permanent manpower itself, we are going to have 1,000-plus more. All other contract manpower, like training engineer, researcher, project engineers, et cetera, minimum this number always will be there. So around 1,000-plus additional of other variety manpower. We will have 1,000-plus permanent manpower, which we are committing. For the next 12 months, we have come out with a plan, internal plan for that. And we are confident we will exceed our best internal target of manpower hiring also.

[Operator]

The next question is from the line of Rupesh Satiya from Intelsat Capital.

[Unknown Analyst]

Congrats for the good set of numbers. My question is around the [indiscernible] radar, [indiscernible] Uttam radar for LCAA program. So can you give some update on that? Where is that? And when are we expected a large order for that?

[Manoj Jain, executive]

This Uttam radar -- actually radar, the integration will be done by [indiscernible] because the first radar you know, there are a lot of challenges. So first time any radar has to be integrated in the airborne platform. So LRD and took a calculated task on hand.

And based on that, they decided -- let SAL only take the lead for this integration. So [indiscernible] radar per se will be integrated by HAL only as of now for the first few radars. However, the most important component of that is TR module and the triple AAAU, we call it.

So these modules, definitely, there is a role of when to play and when is working backwards for giving that type of quality solution to HAL. So it will take some more time for HAL to come out with the order for placing on us. But right now, the radar is going on under integration trials in the page, and it will take some more time to fully qualify.

You may be knowing airborne systems qualification is a very, very involved process. So that process and overall integration of Canara Usama will be integrated oblimanaged by HCL, although the basic component will come from industry and in that industry that is taking definitely good leads.

[Unknown Analyst]

Okay. Okay. So sir, just one follow-up to that. So let's say, claims CA planes that would be reproduced in 2026, the order for that will come in -- how much advance? Will it come 6 months in advance? Will it come with 12 months in advance? How does that ordering cycle works?

[Manoj Jain, executive]

Actually, that question you should ask from HAL because...

[Technical Difficulty]

[Operator]

The management line has been disconnected. Please wait while we reconnect them come back. Ladies and gentlemen, thank you for patiently waiting. The management has been reconnected back with us.

[Manoj Jain, executive]

I think there was some technical glitch in between, again, [indiscernible]. I hope now I'm being heard properly.

[Unknown Analyst]

I understood. So sir, other question is the Shakti EW system. I think another private player actually was declared alone. So was there L1, L2 in that? And did we become L2 and did we get some order of the entire order than to the private player?

[Manoj Jain, executive]

Which [indiscernible] you are referring because 150, the EW subs. 1 is, we have our military communication-related set program.

[Unknown Analyst]

EW, electronic warfare.

[Manoj Jain, executive]

Electronic or then an is unwise. It is a buyer nominated equipment because overall, the total solution is developed jointly by BDO and then -- and I don't think any time it has gone into multi-interaction. The subs EW was always with Bel and it will be BEL only.

[Unknown Analyst]

I think the are noted in its annual report that they have been declared L1 for sub electronic warfare system. So I just wanted a clarification with respect to that.

[Manoj Jain, executive]

No, no, no. There may be some other contracts [indiscernible] that maybe they are telling. But this [indiscernible] other EW program of [indiscernible], we are the bianominated equipment, it's our equipment only.

[Unknown Analyst]

I think it's airborne.

[Manoj Jain, executive]

Airbone is a different name. That is AEW&Cm now. In AWC, we also participated for the new tender, where I think are there, [indiscernible] L1. But that is just some integration projects. There is no development that they are with some integration or based on the cap design. -- that project, we lost to a mine because we wanted to enter into this segment. We have never entered. We are only doing life cycle management of WCW system, but we were not a system integrator still there, but we wanted to enter into that.

Unfortunately, in this program, I think that they quoted they become L1, although they have not understood the total project nuances or project subsystems, which we understood very well with item for last 7 years. Some 3 of their aircraft are maintained by BEL only. But anyway, they become even the tepro that they can supply in that price is what they have quoted, best wishes to them. And anyway, part of life when we quote, we may become a lean, we may not be come. But this is not a development program, it is an integration program -- and mainly, it is a captive program. So that program, you are right. But we have our own taxes where we are BME. Hope I clarify it to you.

[Operator]

The next question is from the line of Aditya Agrawal from [indiscernible] Institutional Equities.

[Unknown Analyst]

In terms of export, like what major orders like the BEL currently have? And the contribution of exports at currently is 3%, so in the future, this trend line will be more than 3% of our --

[Manoj Jain, executive]

Definitely, it has to be more than 3%. 3% is not a healthy sign. But export, we started with very, very small order book and small orders, et cetera. And to that to reach 3% itself was challenged. But from 3%, our target is to cross 5% earlier. Maybe next year and if not next year, next, next year, we will definitely go 5%.

We have overall order book of around USD 403 million on today, various big, big orders are there in that. So we are confident what our target which we have set for this year, we are dropping that. And next year, will be more than 3%, I can assure you now itself. It will be more than 3%. Every year by year, we have to increase.

And finally, the government of India wants us to reach double digits. So we finally have to reach 10% of our turnover and export. But right now jumping to 10% immediately is not possible because it's requires continuous effort, systematic efforts, et cetera. So we are -- every year by year, we will increase our percentage of turnover from export.

Right now, I can't tell you when we will reach 10%, but our goal is 10%, and it will be a growth part on it. Every year, we will increase on whatever we have achieved last year. These 2 are our guiding principles, exact venues, et cetera,

[Unknown Analyst]

We will come to you maybe next year, beginning Sir, can you name a few projects that are in the pipeline for the exports?

[Manoj Jain, executive]

Major projects in the pipeline, that is actually around $500-plus million lease are there with us right now. One or 2 major things actually are there for RR, MWS is payers and training for the Airbus. But I think today, the P25 [indiscernible] is there, for that expected order is plant from past related orders and general related orders from NP systems for exporting to them so that they can supply to some other countries.

Some Asian countries related, some orders are their big orders. Something related to Brazil, something that is weapon-locating Radar in Egypt. So those type of EBIT leads are there around $500-plus million lease, we are working right now, and we are confident we can liquidate as many as possible of them in the next 1 year. This year, anyway, we are going to -- we are targeting around 200 plus million acquisition. So that we are confident we will have that much acquisition extra in this year. Overall, order book is healthy from export point of view, the way we are planning, the way our growth is there. So we are confident about that.

[Operator]

Ladies and gentlemen, that was the last question for today's conference call. I would now like to hand the conference over to the management for their closing comments.

[Manoj Jain, executive]

Yes. The future outlook, as we told, we started to watch our data. We are committed to achieve that, but that only shows the overall confidence from wealth management to the investors that madly started the year. We are continuing on that goal, and we are confident that we are going to achieve that goal of overall revenue growth of 15%, EBITDA margins of 20% to 25%, order inflow of minimum INR 25,000 crores. We are crossing -- we will cross.

R&D investments, we have increased INR 1,300-plus crores. We are going to have that bigger CapEx, INR 700 crores plus and depends on defense business of around 85%, 15%. So these are all guidance what we had given, we are committed to achieve that for this financial year '24, '25. Thank you.

[Operator]

On behalf of Nomura, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.

[Unknown Executive]

Thank you.