MOSL: BHARAT ELECTRONICS (Buy)- Operational performance in-line
​Bharat Electronics: Operational performance in-line
(BHE IN, Mkt Cap USD5.9b, CMP INR173, TP INR200, 16% Upside, Buy)
- 4QFY17 operational results in line with estimates: BHE reported revenue of INR39.9b (+24% YoY; our estimate: INR39b) and operating profit of INR9.8b (v/s INR9b in 4QFY16; our estimate: INR9.8b). Net profit rose 6% YoY to INR7.9b. For FY17, revenue increased 17% to INR88.2b, EBITDA increased 20.5% to INR17.6b and net profit increased 18% to INR15.5b. Exports during the year were USD65m.
- Key projects executed during FY17 include 3D tactical control radar, Akash weapon systems, L 70 gun upgrade, weapon locating radar, hand-held thermal imager with laser ranger finder, passive night vision device, integrated air command and control systems, etc.
- EBITDA margin declines 350bp YoY, led by adverse product mix and wage revision impact: Operating profit grew 8% YoY to INR9.8b despite 24% rise in revenue. EBITDA margin declined 350bp YoY to 24.6%, driven by adverse product mix and increase in employee cost (14% of sales as against 10.4% in 4QFY16), as the company took wage hike revision under the 7th Pay Commission (INR0.7b for gratuity and INR1.3b for regular wage revision). Net profit was INR7.9b v/s INR7.4b in 4QFY16. Other income declined 34% to INR0.9b from INR1.4b in 4QFY16, as the company utilized its cash reserves for buyback of its shares.
- Robust order backlog provides strong revenue visibility: Order backlog of INR400b as on FY17 end provides strong revenue visibility of 4.6x its FY17 revenue. For FY18, management guides to sales of INR100b (+15% YoY), EBITDA margins to be in +/-100bps YoY and orders of INR130-140b.
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.
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