MOSL: BHARAT ELECTRONICS (Buy)-Robust execution leads to better than expected performance
​Bharat Electronics: Robust execution leads to better than expected performance
(BHE IN, Mkt Cap USD6.2b, CMP INR179, TP INR210, 16% Upside, Buy)
- 1QFY18 operational results ahead of estimates: BHE reported revenue of INR17.2b (+98% YoY; our estimate: INR12b) and operating profit of INR1.6b (v/s loss of INR0.5b in 1QFY17; our estimate: loss of INR0.2b). Net profit rose 247% YoY to INR1.3b. Exports were USD4.4m (INR286m).
- Key projects executed during 1QFY18 include integrated air command and control systems, advance composite communication system, integrated communication system, weapon locating radar, Akash weapon system (Indian Army), ship-borne EW system, and L70 gun upgrade.
- EBITDA margin at 9.5%; improvement driven by better operating leverage: Operating profit for the quarter was INR1.6b as against a loss of INR0.5b in 1QFY17. EBITDA margin was 9.5% in 1QFY18 as against -5.4% in 1QFY17. Margin expansion was driven by better operating leverage. Net profit was INR1.3b v/s INR0.4b in 1QFY17. Other income declined 48% to INR0.7b from INR1.4b in 1QFY17, as the company utilized its cash reserves for share buyback.
- Robust order backlog provides strong revenue visibility: Order backlog of INR411b as at the end of 1QFY18 provides strong revenue visibility of 4.3x its TTM revenue. Order inflow grew 142% YoY to INR24b. For FY18, the management has guided sales of INR100b (+15% YoY), +/-100bp YoY change in EBITDA margin, and orders of INR130b-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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Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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