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 USD6.9b, CMP INR185, TP INR210, 14% Upside, Buy)
- 2QFY18 operational results exceed estimates: BHE reported revenue of INR24.3b (+45% YoY; our estimate: INR19.8b) and operating profit of INR5.9b (+76% YoY; our estimate: INR2.5b). Net profit rose 19% YoY to INR4.1b. Exports stood at USD8.9m (or INR578m).
- Key projects executed in 2QFY18 include integrated air command and control systems, hand-held thermal imager-MK II, weapon locating radar, electronic voting machine - VVPAT ship-borne EW system, and L70 gun upgrade.
- EBITDA margin at 24%; improvement driven by better operating leverage: Gross margin for BHE stood at 53%, an all-time high, driven by a better product mix. Operating profit stood at INR5.9b v/s INR3.4b in 2QFY17 (+76% YoY). EBITDA margin stood at 24%, as against 19.9% in 2QFY17, led by better operating leverage. Net profit came in at INR4.1b v/s INR3.5b in 2QFY17. Other income declined 70% to INR0.5b from INR1.7b in the year-ago period, as the company utilized its cash reserves for share buyback.
- Robust order backlog provides strong revenue visibility: Order backlog of INR417b as at end-2QFY18 provides strong revenue visibility of 4.1x its TTM revenue. Order inflow declined 12.8% YoY to INR32b. For FY18, management guided for 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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