Bharat Electronics Ltd (BEL) reported a mixed set of numbers for 4QFY2016. Its
top-line rose by 10.7% yoy to Rs3,135cr, which is below our estimate. The surprise
came on the EBITDA margin front which came in ahead of our expectation at an
impressive 29.3%, mainly led by savings on stock purchases. However, despite
the expansion in EBITDA margin, PAT margins declined owing to lower other
income and higher effective tax rate.
For FY2016, the company reported order inflows of Rs17,094cr, which included
an IACCS (Integrated Air Command Control Systems) order win of Rs8,000cr.
Some of the other order wins include Weapon Locating Radar order, USHUS-II
order, Sub-systems for T-90 and Shakti EW Systems order. Post the recent order
wins, order book as of FY2016-end stood at Rs32,022cr. Order book/ last twelve
month (LTM) sales ratio as of FY2016-end stood at 4.5x.
Valuation: During the quarter, despite some disappointment on the revenue
front, BEL surprised us on the margins front. In terms of FY2016 performance,
BEL won orders to the tune of Rs17,094cr. This can be perceived as a good sign
and some indication of the company delivering a favorable performance going
forward. Further, we expect the company to continue reporting order wins on the
back of its strong market positioning.
On the back of increase in order inflows, we are optimistic that the company
should see increased traction in sales and earnings growth, going forward. Since
our initiation report, BEL’s stock attained our then recommended target price of
Rs1,414 although it then corrected. We see the correction as an opportunity to
enter the stock with the valuation having turned attractive. So we recommend a
BUY on the stock with a price target of Rs1,414.

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