Bharat Electronics Ltd. (BEL) reported mixed set of numbers. BEL reported 5.1%
yoy decline in its top-line to Rs1,500cr, which is below our estimate of Rs1,713cr.
Surprise from results has been on EBITDA margin front. Against our expectation
of 16.3%, BEL reported impressive 18.4% margins, mainly led by inventory gains.
In-line with EBITDA margin expansion, BEL reported PAT margin expansion to
19.7%. PAT was at Rs296cr, ahead of our estimate of Rs288cr.
BEL in 3QFY2016 reported Rs12,776cr of order inflows, which includes Rs8,000cr
IACCS (Integrated Air Command Control Systems) order win. Some of the other
order wins include: Weapon Locating Radar order, USHUS-II order, Sub-systems
for T-90 and Shakti EW Systems order. In 9MFY2016, BEL has reported
Rs15,297cr of order inflows. Post recent order win, order book as of 3QFY2016-
end stood at Rs32,333cr. Order book/ Last twelve month (LTM) sales ratio at
3QFY2016-end stood at 4.8x.
Valuation: During the quarter, despite some disappointment on revenue front,
BEL surprised us on the margins front. Another, positive emerging from the
9mFY2016 performance is that BEL has won orders to the tune of Rs15,927cr.
Given their strong market positioning, we expect BEL to continue reporting order
wins, going forward.
On the back of increase in order inflows, we are optimistic that the company
should see increased traction in the sales and earnings growth, going forward.
Since our initiation report, BEL stock has touched our then recommended price
target of Rs1,414 and has corrected. With recent correction in the stock price,
BEL’s valuation has got attractive. Accordingly, we recommend BUY on the stock
with price target of Rs1,414.

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