Recommendation From Electricals Sector

Recommendation From Electricals Sector

This section gives a recommendation of a stock having stock price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon.

BHARAT ELECTRONICS LIMITED : DEFENSIVELY PROFITABLE

HERE IS WHY
☛Good financial improvement
☛Good growth prospects
☛Good returns on capital employed

Bharat Electronics Limited (BEL) was set up by the Government of India under the Ministry of Defence to meet the specialised electronic needs of the Indian defence services. It is engaged in the business of land-based radars; electro-optics; command, control, communications, computers and intelligence (C4I) systems; and so on. The company is focussed on enhancing its capabilities and competitiveness through indigenisation, diversification, continuous modernisation, creating various high standard facilities for research and development, testing, production and skill development.

On the revenue front, it earned 82 per cent from its defence segment and 18 per cent from its non-defence segment in the financial year 2019-20. Defence systems being a major segment of the company, the demand for its products was least affected by the pandemic, although a delay in order acquisition is expected over the short term. For FY20-21 it expects major orders for electronic warfare systems, ‘Akash’ weapon system for the army, avionics package for LCA and ‘smart city’ business. 

In accordance with India’s ‘self-reliant’ initiative, the government’s embargo on import of weapons will further empower the Indian defence industry and this will be favourable for the company’s goal of indigenisation. The company’s order book as of October 1, 2020 stood at Rs 52,148 crore and orders received during Q2FY21 stood at Rs 1,564 crore. On the exports front, it had a turnover of USD 7.15 million with an order book of USD 198.97 million. Although the domestic order book for the quarter declined by almost 54.34 per cent on a QoQ basis, it was partially compensated by an increase of 21.32 per cent QoQ in its export order book. 

The management is targeting a healthy growth of 12-15 per cent for the financial year 2019-20. For the quarter ended September 2020, consolidated revenue from operation registered a growth of 18.95 per cent to Rs 3,168.36 crore from Rs 2,663.57 crore in the corresponding period the previous year. Total income witnessed a growth of 16.26 per cent to Rs 3,195.24 crore for Q2FY21 as against Rs 2,748.32 crore in Q2FY20. The company’s EBITDA, excluding other income, saw a growth of 14.32 per cent to Rs 627.31 crore in Q2FY21 from Rs 584.72 crore in Q2FY20. 

However, the EBITDA margin saw a contraction of 167 bps to 19.63 per cent owing to increased cost of materials consumed and other expenses. Consolidated net profit for the period saw an increase of 16.04 per cent to Rs 399.01 crore in Q2FY21 from Rs 343.85 crore in Q2FY20. BEL’s segments like radar and missile systems, communication and network-centric systems, anti-submarine warfare and sonar systems, tank electronics and gun upgrades will continue to drive the growth curve in the coming years. 

The company is putting in efforts for increasing business opportunities in Southeast Asia, Europe, the Middle East, Africa and North America as a part of maximising its geo-strategic reach and increasing the global footprint. The company had a healthy return on capital employed (RoCE) of around 25.73 per cent and a return on equity (ROE) of around 18.59 per cent. The stock is trading at a PE multiple of 9.93x. By virtue of these factors, we recommend our reader-investors to BUY this stock.

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