MOSL: BHARAT ELECTRONICS (Buy)-Results disappoint – execution weak, margins shrink
Bharat Electronics: Results disappoint – execution weak, margins shrink
(BHE IN, Mkt Cap USD4.3b, CMP INR119, TP INR150, 26% Upside, Buy)
- 4QFY18 operational results below expectations: BHE reported revenue of INR36.1b (-9.5% YoY; our estimate: INR38.4b) and operating profit of INR8b (-19% YoY; our estimate: INR10b). Net profit declined 29.4% YoY to INR5.6b. For FY18, BHE booked revenue of INR103b (+20%), EBITDA was INR20b (+14%), and PAT was INR14b (-9.6%).
- Key projects executed in FY18 include integrated air command and control systems, hand-held thermal imager, weapon locating radar, Akash weapon system, naval fire control system, integrated communications system, electronic voting machine/ VVPAT, L70 gun upgrade, and mobile ELINT.
- EBITDA margin at 22.1%; decline led by adverse product mix: Gross margin declined 380bp YoY to 44.5%, impacted by adverse product mix. Operating profit declined 18.7% YoY to INR8b. EBITDA margin was 22.1% against 24.6% in 4QFY17. Net profit declined 29% YoY to INR5.9b, impacted by higher tax rate (25% v/s 22% in 4QFY17) and lower other income (-69% YoY), as BHE used cash reserves for share buyback.
- Order backlog robust at INR401b; inflow weak during the quarter: Order backlog of INR401b as at the end of FY18 provides strong revenue visibility of 4x its TTM revenue. Order inflow declined 72% YoY to INR28b in 4QFY18. In FY18, order inflow for BHE was INR100b (down 39%), impacted by delay in finalization of large orders (Akash phase-2 of INR70b and LRSAM order of INR65b). We expect both the orders to be finalized in FY19 and orders of INR190b in FY19.
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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