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Bharat Electronics
Management contact update
BEL reiterated its FY12 revenue guidance of Rs62bn, though order book has
doubled to Rs236bn, as some deliveries begin only by FY13. Over the long term,
BEL expects a gradual increase in system integration projects and expects PBT
margins to stabilise at 16-17%. It continues to be our preferred Defence play.
Bharat Electronics management reiterated its FY12 revenue guidance of Rs62bn, though it
has doubled its order book in the past one year from Rs114bn to Rs236bn. The reason for
this is that majority of orders, won in 2HFY11, will start delivery only in FY13. Its current order
book implies 3.8x FY12F sales and provides strong visibility in term of future revenues.
The largest order in recent times has been the order for Akash missiles at Rs36bn. However
BEL is the system integrator for this project and c.60% of the order value would be direct BEL
products and the remaining would be outsourced. A further Akash order of Rs100bn (along
with Bharat Dynamics Ltd, an unlisted Defence PSU) is also likely to happen in 1HFY12.
The company currently has 35-40% of its order book mix in the form of system integration
projects, where margins are lower. However company expects fall in staff cost to sales to
offset these lower margins. The company's current wage settlement is until December 2016.
Over a longer term, the company is looking at a revenue mix of 60:40 for system integration
and products and expect PBT margins to stabilize at 16-17%.
The company currently spends ~6% of its turnover on R&D and is targeting increasing this to
8% to keep expanding its offerings. However this will have limited impact on margins since
70% of R&D costs is manpower, which gets accounted in staff costs.
The company's current cash balance is Rs60bn, including Rs35bn of customer advances.
The company remained non committal on the use of this cash.
We believe BEL offers the best way to play the Indian defence capex story. It has expertise in
niche areas, making it the sole vendor for several defence orders. It is a preferred supplier to
the Ministry of Defence by virtue of being partly government-owned. In addition, its
relationships with foreign vendors help it to gain offset orders (where a specified percentage
of the order value must be met locally) over competitors.
We maintain our Buy rating on the stock. Stock trades at 15x FY12F earnings and 13x FY13F
earnings.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bharat Electronics
Management contact update
BEL reiterated its FY12 revenue guidance of Rs62bn, though order book has
doubled to Rs236bn, as some deliveries begin only by FY13. Over the long term,
BEL expects a gradual increase in system integration projects and expects PBT
margins to stabilise at 16-17%. It continues to be our preferred Defence play.
Bharat Electronics management reiterated its FY12 revenue guidance of Rs62bn, though it
has doubled its order book in the past one year from Rs114bn to Rs236bn. The reason for
this is that majority of orders, won in 2HFY11, will start delivery only in FY13. Its current order
book implies 3.8x FY12F sales and provides strong visibility in term of future revenues.
The largest order in recent times has been the order for Akash missiles at Rs36bn. However
BEL is the system integrator for this project and c.60% of the order value would be direct BEL
products and the remaining would be outsourced. A further Akash order of Rs100bn (along
with Bharat Dynamics Ltd, an unlisted Defence PSU) is also likely to happen in 1HFY12.
The company currently has 35-40% of its order book mix in the form of system integration
projects, where margins are lower. However company expects fall in staff cost to sales to
offset these lower margins. The company's current wage settlement is until December 2016.
Over a longer term, the company is looking at a revenue mix of 60:40 for system integration
and products and expect PBT margins to stabilize at 16-17%.
The company currently spends ~6% of its turnover on R&D and is targeting increasing this to
8% to keep expanding its offerings. However this will have limited impact on margins since
70% of R&D costs is manpower, which gets accounted in staff costs.
The company's current cash balance is Rs60bn, including Rs35bn of customer advances.
The company remained non committal on the use of this cash.
We believe BEL offers the best way to play the Indian defence capex story. It has expertise in
niche areas, making it the sole vendor for several defence orders. It is a preferred supplier to
the Ministry of Defence by virtue of being partly government-owned. In addition, its
relationships with foreign vendors help it to gain offset orders (where a specified percentage
of the order value must be met locally) over competitors.
We maintain our Buy rating on the stock. Stock trades at 15x FY12F earnings and 13x FY13F
earnings.
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