Watch a complete video on our webinar on 'Investing In The Post Covid-19 World. What's Next For Investors?'. Watch Now

14 Aug 2020 by Pradeep U
Should You Invest in the Stock of BEL? - Research & Ranking

The government recently made a historic announcement placing the acquisition of 101 weapon systems and platforms from foreign countries under a negative arms imports list to boost India’s domestic defence production sector under the Make in India initiative.

The weapon systems falling under this list will be progressively banned from December 2020 to December 2025 and include those products which are currently being made in India or at a developmental stage.

These 101 items, with varying embargo timelines include different types of arms and ammunition, assault rifles, sonars, radars, artillery guns, missile destroyers, transport aircraft, light attack helicopters, armoured fighting vehicles, conventional submarines and satellites for communications.

However, this outright ban on import of these 101 weapons systems does not restrict defence sector companies India from partnering with foreign companies for joint production in India in line with the government's decision to hike the FDI limit in defence sector from 49% to 74%.

This move is expected to give a thrust to domestic companies involved in the manufacture of arms, armaments and defence systems like L&T, BEL, BEML, Bharat Forge etc. A direct impact of this can be seen in the form of a rally in defence stocks in the last few days especially in the case of stocks of BEL and Bharat Forge.

With this many stock market investors have a similar question in mind.

Is it the right time to invest in the stock of BEL?

To help investors understand the answer, let's first look at the business of BEL and its role in India's defence sector.

BEL, a public sector undertaking was established in 1954, in association with erstwhile CSF of France for manufacturing basic communication equipment. BEL however later diversified into production of a wide range of state-of-the-art equipment in fields such as weapon systems, defence communication, radars, naval systems, telecommunications & broadcasting systems, electronic warfare equipment, tank electronics, and solar photovoltaic systems. Besides these BEL also provides turnkey system solutions.

BEL also manufactures products of civil use such as electronic voting machines, tablet PC, solar-powered traffic signal systems and access control systems.

Strengths of BEL

BEL has a strong track record in research and development right from the beginning. It has also successfully partnered with DRDO, another premier government agency for setting up production labs across the country.

Healthy order book

BEL has a robust order book with an inflow of more than fifteen thousand crores expected in the current year according to publicly available information as compared to twelve thousand crores in FY 20. Being the sole manufacturer and supplier of many key defence systems and weapons systems in the country currently, BEL enjoys a huge monopoly.

With Covid-19 pandemic on the rise over the last few months, the demand for ventilator support systems also rose across the country. Seizing this opportunity, BEL started manufacturing ventilator support systems which not only boosted India’s self-reliance in a challenging time but also significantly boosted the company’s revenues from non-defence product portfolio.

Now let’s take a look at the key financials of BEL

Equities & Liabilities

MAR 2020

MAR 2019

MAR 2018

MAR 2017

MAR 2016

Share Capital

243.66

243.66

243.66

223.36

240.00

Reserves & Surplus

9,827.87

8,967.84

7,772.02

7,512.41

9,006.16

Current Liabilities

12,865.72

10,448.75

9,896.18

8,750.83

8,451.03

Other Liabilities

1,411.06

1,160.33

1,048.65

1,109.68

907.11

Total Liabilities

24,348.31

20,820.58

18,960.51

17,596.28

18,604.30

Assets

         

Fixed Assets

3,540.57

3,146.63

2,779.10

2,243.91

1,661.76

Current Assets

18,738.09

15,874.44

14,304.52

14,066.50

15,832.65

Other Assets

2,069.65

1,799.51

1,876.89

1,285.87

1,109.89

Total Assets

24,348.31

20,820.58

18,960.51

17,596.28

18,604.30

 

BEL has shown consistent growth in terms net profit over the last three years.

Debt levels of BEL

Before investing in the stock of BEL or for any stock, it is very important to check the debt levels of the company. A company with zero or low debt will not only have enough cash to reward its shareholders with dividends from time but also adequate capital to fund further growth and expansion plans. On the other hand, any company which has heavy debts will have the burden to pay huge interests every month, which will affect its expansion plants significantly.

BEL is a debt-free company which is a very important attribute in fundamental investing.

BEL is a good dividend paymaster

BEL has consistently declared dividends over the last few years. For the year ending March 2020, BEL had declared a dividend of Rs 2.8 per share. In terms of the current market price of Rs 116.65, the dividend yield of BEL is 2.4%.

Bottom line – Should you invest in the stock of BEL?

While BEL has been an outperformer right from its early days and also has an assured market for its products from government’s defence purchases, one should also consider the fact that some PSU’s which earlier had a monopolistic advantage lost their sheen with time after a level playing field was introduced or due to underperformance.

One such prime example is the stock of MTNL, which after failing to bear the onslaught of private sector telecom companies is now languishing in single digits from highs of around Rs.387 levels in its glory days. Many other defence projects of other PSU's have been dogged by excessive budget escalations and huge delays. The best example of this is the light combat aircraft project first conceived in the 1980s to replace the ageing MIG's in Indian Airforce but entered service only after four decades and is still powered by American engines.

When you look at the stock of BEL from a fundamental point of view, there are some things which tick the boxes right such as consistent dividend to shareholders and visionary management. However, before investing in the shares of BEL or any stock there are several other important factors too which an investor should keep in mind such as return on equity, future growth, profit margins, and BEL's underlying value and potential for future growth.

For any investor who wishes to create sustainable wealth from equities, the right way to proceed is creating a well-diversified portfolio of 15-20 stocks. That is what successful investors do. Check out this detailed guide to creating a winning portfolio.

Disclaimer:

The sole objective of this article is to help investors understand whether it is worth investing in the stock of BEL at this point with a long-term view by evaluating the strengths and weakness of the stock of BEL. This article in no way should be considered as advice to invest in the stock of BEL.

 

Wish To Know More?

Free Research Reports

Get Free Fundamental Stock Market Research Reports Worth Rs. 10,000 The recommended two fundamental stocks are to demonstrate the depth of research conducted at Research & Ranking. This should not be considered as free trial of our services.