MOSL: BHARAT ELECTRONICS (Buy)-Top line-led earnings miss-operating performance disappoints
BHARAT ELECTRONICS: Top line-led earnings miss; operating performance disappoints
(BHE IN, Mkt Cap USD4.1b, CMP INR119, TP INR138, 16% Upside, Buy)
- Operational results below expectations: BHE's revenue declined 19% YoY to INR27.4b (19% miss) in 2QFY20. Note that the year-ago period revenue included INR12b contribution from EVM and VVPAT. Adjusting for the same, revenue was up 26% YoY. 2QFY20 revenue was supported by execution of LRSAM, intelligence gathering system, thermal imager sights, upgrade of communication equipment, integrated air command and control system, etc. EBITDA declined 36% YoY to INR5.4b (our estimate: INR7.7b), while PBT was down 41% YoY to INR4.7b. Tax rate was flat YoY at 28.2%, which led to a 41% decline in net profit to INR3.4b (37% miss). For 1HFY20, revenue/EBITDA/PAT declined 11.7%/23.4%/27.5% YoY.
- Margin contraction attributable to unfavorable revenue mix: Gross margin shrank 530bp YoY to 46.8%, while EBIDTA margin contracted 540bp YoY to 19.9%. BHE expects the EBIDTA margin to moderate to 20-21% in FY20 from 23.7% in the previous year.
- Order backlog was robust at INR562b (+15% YoY), providing strong revenue visibility of 4.9x its TTM revenue. Order inflow declined 34% YoY to INR71b in the quarter, mainly due to the presence of a large order worth INR92b for LRSAM in 2QFY19. Key orders booked during the quarter are Akash Missile System (7 sqdn), upgrade of EW system, and sonar systems. YTD, BHE has secured new orders worth INR90.7b versus our full-year estimate of INR200b. BHE expects orders for the coastal surveillance system to finalize in FY20.
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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