Bharat Electronics , 27% upside
Call & Research Report by ICICI Direct Research
Report Date: 7 January 2021
CMP Rs. 134 TP Rs. 170 Period 12 Months
Strong all-round performance to continue…
Bharat Electronics (BEL) is expected to ramp up on the execution front in
coming years given strong order book size and robust order inflow pipeline
over the next couple of years. BEL’s strategy to diversify its revenue stream
to non-defence segments would de-risk its business given concentrated
exposure to defence budgets likely to auger well in long term. BEL is expects to deliver double digit revenue growth over the next two years along with sustained margins at current levels of 20-21%. It expects services to contribute ~10% of revenue in FY21E and gradually to increase to ~25% of revenue over the next five years growing at a CAGR of 10-15%. Overall,
diversification strategy, expected double digit growth, sustainable margins
and better order inflows suggest a strong performance in the long term.
Strong order pipeline, operational performance to aid execution
BEL continues to have a strong order book and order inflows. The order
book as on Q2FY21 was robust at Rs 52148 crore (vs. Rs 53751 crore in
Q1FY21). BEL is aiming at order inflows of ~ Rs 15000 crore for FY21E (vs.
Rs 13000 crore in FY20). It expects orders like Avionics package for LCA,
Akash weapon system, LRSAM, smart city business, electronic warfare
systems, etc. Future opportunities include Jammer for LCA. Also, LUH and
LCH (helicopters) may allow BEL sensors (MAWS and counter-measure
dispensers along with HMDS) and weapons to significantly augment BEL’s
avionics revenue. Going ahead, a further pick-up in execution and a
favourable product mix would help BEL stabilise base EBITDA margins at
~20-21%. BEL aims to diversify into non-defence areas that now contribute
~10% of order book and ~7% of revenues as of now. The revenue
contribution is expected to increase to 15% over the next two to three years.
On working capital front, government’s assurance to release substantial
money may stabilise trade receivables in near future. BEL being a zero debt
company is able to maintain its working capital without external borrowings.
Valuation & Outlook
Overall, expected double digit revenue growth, sustainable margins, better
order inflows and strong order book of | 52148 crore suggests strong
performance in long term. Also, strategy to diversify into non-defence areas, focus on increasing exports and services share would aid long term growth and help de-risk its business model. We introduce FY23E estimates and expect BEL to report revenue, EBITDA, PAT CAGR of 11.6%, 10.4%, 10.2%, respectively, in FY20-23E. We revise our target price from | 110 to | 170 (17x on FY23E EPS) and maintain BUY rating.
Read Interesting analysis of Elgi Equipments , 20% upside
https://www.analysislibrary.com/elgi-equipments/
Check our Intraday Calls@
https://chanakyanipothi.com/intraday-trading-tips-calls/