MOSL: BHARAT ELECTRONICS (Buy)-Beat on all fronts, despite high share of low-margin EVM sales
BHARAT ELECTRONICS: Beat on all fronts, despite high share of low-margin EVM sales
(BHE IN, Mkt Cap USD2.9b, CMP INR88, TP INR105, 20% Upside, Buy)
- Operational results meaningfully above our estimates: BHE’s revenue increased 37% YoY to INR33.8b (our estimate: INR28.4b) in 2QFY19, primarily driven by execution of electronic voting machines (EVM)/ Voter verifiable paper audit trail (VVPAT) orders (INR12b). EBITDA grew 44% YoY to INR8.5b (our estimate: INR4.7b), while net profit increased 38.5% YoY to INR5.7b. With EVM orders (INR12b) witnessing execution pick-up in 2QFY19, we believe 2QFY19 has seen peak profitability for FY19. Other income declined to INR143m from INR532m in the corresponding quarter last year due to lower cash balance with the company. For 1HFY19, sales/EBIDTA/PAT grew by 29%/66%/41% on YoY basis, respectively. For 2HFY19, we expect sales/EBIDTA/PAT growth of 8%/5%/0.1%, respectively.
- EBITDA margin expanded 130bp YoY to 25.3%: Gross margin declined 160bp YoY to 52.1%, as execution of relatively low-margin VVPAT/EVM orders during the quarter (35% of sales) picked up; another INR10b of EVM/VVPAT orders will be executed in 2HFY19. EBIDTA margin improved 130bp YoY to 25.3% led by operating leverage and execution of better-margin orders like IACCS and Weapon locating radar.
- Order backlog stood robust at INR490b (+18% YoY) at end-2QFY19, providing strong revenue visibility of 4x its TTM revenue. Order inflow improved 199% YoY to INR108b in 2QFY19, driven by finalization of LRSAM order, multi-capacity encryption units and HUMSA-NG Sonar order. BHE expects 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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
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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