MOSL: BHARAT ELECTRONICS (Buy) - Strong execution, outlook robust with a healthy order book
(BHE IN, Mkt Cap USD5.5b, CMP INR168, TP INR195, 16% Upside, Buy)
- BHE's 4QFY21 earnings were 39% above our estimate, with the surprise entirely led by higher than expected EBITDA margin (28.5% v/s our estimate of 21.3%). The EBITDA margin expansion was largely attributable to lower employee costs (-17% YoY), other expenses (-10% YoY) and higher domestic outsourcing by BHE.
- Margin depends on the sales mix between deliverables and hence tends to be volatile on a quarterly basis. BHE’s current order book is strong at INR534b, with an OB/revenue ratio of 3.9x. The company raised its margin guidance to 21-22% from 18-19% in FY22.
- BHE ended FY21 with a 9%/17%/15% increase in revenue/EBITDA/PAT, which is commendable given the COVID-led disruptions. We increase our FY22E/FY23E EPS by 17%/14%, led by higher EBITDA, due to a revised margin guidance. Our revised TP stands at INR195/share (18x FY23E EPS). Maintain Buy.
Margin led earnings beat
- 4QFY21 snapshot: Revenue grew 19% YoY to INR69b and was 7% ahead of our estimate. Gross profit grew 14% YoY as gross margin contracted by 180bp to 41.1%. EBITDA grew 33% YoY to INR19.7b and was 43% ahead of our expectation. EBITDA margin came in at 28.5% v/s our estimate of 21.3%. Adjusted PAT grew 31% YoY to INR13.5b and was 39% ahead of our estimate.
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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