Debt-free shares jump 1000 times from ₹1 lakh to ₹50 Cr after 3 free shares: buy?

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The industrial company Bharat Electronics Ltd. is a large cap with a market value of Rs. 81,284.74 crores. A Navratna PSU within the Indian Government’s Ministry of Defense is Bharat Electronics Limited (BEL). It produces state-of-the-art electronic equipment and products for the army, navy and air force. According to data from Value Research, the company is a debt-free company, which is an endearing feature of the stock. However, what makes the action even more intriguing is the fact that the company declared three free shares, turning investors into crorepati in the span of 23 years. Let’s know how.

Share price and free share history of Bharat Electronics Limited (BEL)

Shares of Bharat Electronics Ltd. ended trading on the NSE at Rs. 111.75 apiece, up 0.59% from the previous close of Rs. 111.10. In trading today, the stock’s total volume was 27,675,466 shares compared to the 20-day average volume of 25,560,615 shares. The stock price has skyrocketed since 0.22 on January 1, 1999 at the current market price which records a multibagger yield and a record high of 50,695.45%.

If from the initial stage of the business, an investor would have invested 1 lakh in the stock then it would have 4,54,545 shares in the portfolio. After this company declared 3 free shares in 2015, in 2017 and most recently on September 15, 2022. The company first issued free shares in 2015 at a ratio of 2:1, changing the initial shareholding from a investor and make the total share count at 13,63,635, which increases the value significantly.

Few years later, the company announced the free shares again, but this time at a ratio of 1:10, which adds 1,36,363 to the existing shareholding, bringing the number up to 14,99,998 , which increases the holding percentage which was proved to be profitable in the year 2017. Recently, on September 15, 2022, the company gave its most recent bonus share in the ratio of 2:1, which gives the investor an additional 29,99,996 shares, bringing the total shareholding to 44,99,994, which is now several times more than the original shares.

All of the company’s bonus issues seem to have been profitable for investors, and the initial investor who decided to stay with the company for a long time made a considerable profit. The initial investment skyrocketed, maximizing more than 1000 times, making the total of 44,99,994 shares worth more than 50.28 Crores from now at current market price.

BEL Q1FY23 results

Navratna Defense PSU Bharat Electronics Limited (BEL) recorded revenue of Rs. 3063.58 Cr, in the 1st quarter of FY 2022-23 against recorded revenue of Rs. 1564.34 Cr in the same quarter of the previous year, representing an annual growth of 95% on a stand-alone basis. The company declared a total expenditure of 2694.42 Cr at T1FY23 compared to 1664.08 Cr in Q1FY22 representing a year-on-year growth of 61.91%. Profit before tax (PBT) in Q1FY23 stood at Rs. 578.10 Cr against profit before tax (PBT) of Rs. 15.17 Cr recorded in Q1FY22 and profit after tax (PAT) in Q1FY23 at Rs. 431.49 Cr against profit after tax (PAT) of Rs. 11.15 Cr recorded in the same quarter of the previous year. The company’s earnings per share (EPS) climbed to 1.77 at T1FY23 which was 0.05 at T1FY22.

Should BEL shares be purchased?

Research analysts at brokerage firm ICICI Securities said in a note on Thursday that “the company made an announcement regarding the bonus issue on August 4, 2022. The free share issue is in a ratio of 2: 1, i.e. two new bonus shares each for each existing capital share The ex-bonus date is today, i.e. September 15th and the date of registration for the same is September 16. Therefore, we are revising our target price to 135/share after this corporate action. We maintain our BUY rating on the stock and value Bharat Electronics based on 30x P/E on FY24 EPS.”

They further added that the company’s strategy of 1) diversifying into areas other than defence, focusing on increasing the share of exports and services would promote long-term growth and help reduce the risks of its activity, 2) the order book to 55,333 crores at the end of June 2022 (~3.3x TTM revenue). Strong pipeline of orders in FY23-24E, 3) Major pending orders are: Akash Prime from Bharat Dynamics worth 4000 crore, the value of Himshakti Electronic Warfare (EW) 3,200 crores, the value of Arudhra radar 3000 crore, EW system for Mi-17 helicopters worth 1,500 crores, electronic warfare systems for ships worth 12,000 crore, 12 weapon detection radar (WDR) 1,000 crore, 4) Major orders expected during Exercise 24E in Rapid Reaction Surface-to-Air Missile (QRSAM) worth 20,000 crore Medium Range Surface-to-Air Missile (MRSAM) value 15,000 to 20,000 crores. The Army is in the process of supporting the Acceptance of Necessity (AoN) position which they will issue upon approval, 5) We expect revenue and EBITDA to grow at a CAGR of 18.5%, 20 .1%, respectively, in FY22-24E, helped by sustained margin growth in the mid-22% range and 6) Strong balance sheet, double-digit earnings ratios are key triggers future share price performance.

Disclaimer: The opinions and recommendations made above are those of individual analysts or brokerage firms, and not of Mint.

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