MOSL: BHARAT ELECTRONICS (Buy)-Beat on all fronts despite high share of low-margin EVM orders
Bharat Electronics: Beat on all fronts despite high share of low-margin EVM orders
(BHE IN, Mkt Cap USD4.1b, CMP INR116, TP INR145, 25% Upside, Buy)
- Operational results were meaningfully above our estimates. BHE’s revenue increased 22% YoY to INR21.0b (our estimate: INR18.6b) in 1QFY19, primarily driven by execution of EVM/VVPAT orders (INR4.5b). EBITDA grew 88% YoY to INR3.1b (our estimate: INR1.7b), while net profit increased 43.4% YoY to INR1.8b. Other income declined to INR89m from INR700m in the corresponding quarter last year due to lower cash balance with the company.
- EBITDA margin expanded 520bp YoY to 14.8%. Gross margin improved 270bp YoY to 47.3%, despite execution of relatively low-margin VVPAT/EVM orders during the quarter (22% of sales); another INR25b of EVM/VVPAT orders will be executed in 2Q/3QFY19. The margin improvement was driven by execution of better-margin orders like IACCS and weapon locating radar.
- Order backlog stood robust at INR416b (+1% YoY) at end-1QFY19, providing strong revenue visibility of 4x its TTM revenue. Order inflow improved 48% YoY to INR36b in 1QFY19, driven by AMC for Rohini radar, setting up of weapon repair facility at Naval Shipyard, up-gradation of Shikari/Lynx fire control systems, light combat aircraft- avionics packages and electronic fuses. BHE expects the LRSAM order to be finalized over the next one month and Akash missile order to be finalized post the CCS Committee approval.
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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