MOSL: BHARAT ELECTRONICS (Buy)-Beat on all fronts-valuations attractive
Bharat Electronics: Beat on all fronts; valuations attractive
(BHE IN, Mkt Cap USD2.9b, CMP INR84, TP INR110, 32% Upside, Buy)
- Operational results above our estimates: BHE's 3QFY19 revenue increased 8.4% YoY to INR27.2b (v/s our estimate: INR28.4b), primarily driven by execution of electronic voting machines (EVM)/ Voter verifiable paper audit trail (VVPAT) orders (INR8b). EBITDA grew 72.5% YoY to INR7.7b (our estimate: INR4.9b), which includes custom duty reversal of INR0.5b and adjusting for it, EBIDTA stood at INR7.2b (+61% YoY), while reported net profit increased 68% YoY to INR5.1b. Other income declined to INR176m from INR492m in 3QFY18 due to lower cash balance (INR4.5b) with the company. For 9MFY19, sales/EBIDTA/PAT grew by 22%/61%/50% on YoY basis.
- EBITDA margin at 28.3%, supported by execution of better margin orders: Gross margin during the quarter improved 1,003bp YoY to 53.8%, supported by execution of service contracts worth INR800m. EBIDTA margin stood at 28.3% (+1,050bp) which includes custom duty reversal of INR0.5b; excluding this EBIDTA margin would stand at 26.4% (870bp YoY). Besides execution of the INR7.2b EVM/VVPAT orders, execution of better-margin orders like IACCS and Weapon locating radar also helped BHE to maintain its EBIDTA margins.
- Order backlog robust at INR484b (+19.6% YoY) at end-3QFY19, which provided strong revenue visibility of 4x its TTM revenue. Order inflow improved 76% YoY to INR20.6b in 3QFY19. Key orders booked during the quarter are Electro optical/ infra-red play load, L70 gun upgrade, and naval equipment. It expects finalization of the Akash missile order, 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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