Recommendation From Electrical Sector

Bharat Electronics

Here Is Why

BSE CODE : 500048      CMP : Rs.1279
VOLUME: 37228            FV : 10

Government's efforts had immensely incentivised private sector participation in manufacturing for the defence and related agencies. There are various tie-ups with various countries for supply of defence components. It's the Make in India campaign which will also boost overall this sector. Therefore, companies like Bharat Electronics (BEL) will have more traction in coming time.

BEL is engaged in design, manufacture and supply of electronics products/systems for the defence requirements, as well as for non-defence markets. The company has nine manufacturing plants across India, which are into manufacturing of entire range of defence products offered by the company. It is a Navaratna enterprise having 37 per cent market share in Indian defence electronics segment.

BEL is setting up a new plant at Nimmaluru village in Andhra Pradesh on 50 acres of land with an investment of Rs 300 crore. The company's 87 per cent products are to be manufactured at this plant and the same will be supplied to the Indian armed forces. BEL is expanding its capital from Rs 530 crore in FY12 to Rs 1233 crore in FY16.

During, Q1FY17, BEL reported order inflows worth Rs 1003 crore, which includes Homeland Security, Navigational Complex System, and Next Generation Main Automatic Exchange order wins. The company's order book stood at Rs 32139 crore. Its order book per last 12 month sales ratio as of Q1FY17 stood at 4.5x times. BEL operates across eight business segments with approximately 20 per cent to 30 per cent of its current order book contributed by its largest business segment- radars, sonars and weapons systems.

On financial front, BEL's revenue increased by 7.07 per cent to Rs 7383 crore in FY16 as compared to previous fiscal year. The company's EBITDA rose by 31.11 per cent to Rs 1541 crore in FY16 on yearly basis. Its net profit also boosted by 15.83 per cent to Rs 1387 crore in FY16 as compared to the previous financial year.
During last five fiscal years, BEL's top line increased by 5.83 per cent CAGR as of in FY16. The company's EBITDA too rose by 11.01 per cent from FY12 to FY16 period. Its PAT also rose by 10.35 per cent CGAR as of FY16. The company's is debt free. Its ROE and ROCE stood at 15.86 per cent and 21.3 per cent respectively. BEL is expected to grow with CAGR of 8 per cent to 10 per cent in next five years.

On valuation front, BEL's share price is trading at TTM PE multiple of 21.73x times as compared to industry PE multiple of 31.19x times. The PE multiple of the company is trading lower as compared to peers such as Sika Interplant 27.75x times. On the back of strong market positioning, large order book, debt free status, we expect BEL to report increased traction in sales and earnings growth, going forward. We recommend BUY on the stock.