Bharat Electronics' Q4FY18 results (Outperformer) - Weak performance; Outlook remains robust
Q4FY18 result highlights
- PAT at Rs5.6bn (-29% yoy): due to weak operational performance & lower other income (-69% yoy; Rs3.7bn buyback in 4Q18).
- Muted revenues (-9.5% yoy to Rs36.1bn): due to high base as also advancement of execution in prior quarters as BEL attempts to distribute revenues evenly across quarters. We note that execution of the VVPAT order is yet to pick up meaningfully (revenue share of
- Higher RM cost, negative operating leverage impact margins: by 250bps to 22.1%. Hence, EBITDA declined 18.7% yoy to Rs7.96bn.
- Order intake muted: at Rs32.6bn (-67.6% yoy). FY18 intake at Rs100bn (-39% yoy) due to lack of large order wins. Intake pipeline remains healthy with likely order wins from projects such as LRSAM, Akash, etc in FY19E. Order backlog flat yoy to Rs401.2bn (4x FY18 rev).
- FY18 robust execution offset by lower other income: 20% revenue growth to Rs103.2bn was offset by 108bp margin drop to 19.4% (wage revision, lower gross margins). Hence, EBITDA +14% yoy to Rs20bn. However, PAT fell 9% yoy to Rs14bn on lower other income (-58% to Rs2bn) and higher tax (+400bps; lower deduction on R&D spend).
Key positives: Strong backlog
Key negatives: Drop in quarterly revenues, lower other income
Impact on financials: FY19/FY20 EPS cut by 15% / 17% to Rs6.4 /7.4
Valuations & view
The stock has corrected 30%+ over the past 6 months on expected weakness in 4Q18 results, order win slippages and likely margin drop on strong EVM order execution. However, we believe concerns are factored in and the order backlog would drive a sustained 15% revenue growth over FY18-20E. The positive operating leverage, muted employee costs and uptick in defence project execution is likely to offset the impact of EVM on margins (50bps drop in FY19 OPM). We believe valuations at 16.5x FY20E earnings are attractive considering pick up in order inflows as BEL is well-positioned to capture the growing defence spend led by its strong manufacturing capabilities and R&D focus. Maintain Outperformer.
Bharat Electronics Limited is engaged in design, manufacture and supply of electronics products/systems for the defense requirements, as well as for nondefense markets. The Company's principal products/services include weapon systems, radar and fire control systems, and communication. Its defense products include defense communication; radars; naval systems; command, control, communications, computers, and intelligence systems; weapon systems; telecom and broadcast systems; electronic warfare; electro optics, and solar photovoltaic systems. Its nondefense products include turnkey system solutions; civilian radars; e-governance systems, and homeland security. Its other range of products include electronic voting machines, communication equipment, radar warning receiver and casings. It offers electronic manufacturing services in areas of printed circuit board assembly and testing; precision machining and fabrication; opto electronics components and assemblies, and offsets, among others.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.