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MOSL: BHARAT ELECTRONICS (Buy)-Gradual ramp-up expected in execution

BHARAT ELECTRONICS: Gradual ramp-up expected in execution

(BHE IN, Mkt Cap USD5.6b, CMP INR171, TP INR205, 20% Upside, Buy)

 

Maintains FY22 guidance despite miss in 1QFY22

  • Bharat Electronics (BHE)'s 1QFY22 revenue came in 32% below our estimate, with the miss attributed to lower execution on account of the COVID disruption. With lower execution and elevated commodity costs, the EBITDA margin stood at 3.8% (v/s 8.8% YoY), largely attributable to the lower absorption of fixed costs, such as employee expenses.
  • The margin depends on the sales mix between deliverables; hence, it tends to be volatile on a quarterly basis. BHE's current order book is strong at INR545b, with an OB/revenue ratio of 3.9x. The company maintained its revenue guidance at 15-17% growth and margin guidance at ~22% for FY22, and is confident of achieving this despite the miss in 1QFY22.
  • While its 1QFY22 performance has been below expectations, we believe BHE has sufficient levers to recover lost sales over 9MFY22 and meet its guidance. Notably, 1Q has historically contributed 10-15% to the topline (over FY15-20). While we cut our FY22E EPS by 5%, we broadly maintain our FY23-24E EPS and forecast a revenue/EBITDA/PAT CAGR of 11%/8%/10% over FY21-24E. Our TP stands at INR205/share (20x FY23E EPS). Maintain Buy.
Underlying
Bharat Electronics Ltd.

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.

Provider
Motilal Oswal
Motilal Oswal

​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. 

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