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India Equity Research Reports, IPO and Stock News
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BHARAT ELECTRONICS
TARGET PRICE: Rs. 1913
RECOMMENDATION: ACCUMULATE
INVESTMENT RATIONALE
BEL reported higher than expected PAT for Q1 FY12 mainly driven by
steep rise in other income as the company would have generated higher
yields on its cash deposits. Revenue growth has been muted in the
quarter but the strong order backlog should enable it to meet our annual
revenue target. Order backlog is strong at Rs 230 bn, providing revenue
visibility of 43 months, one of the highest in capital goods sector. We
thus see revenue growth rates to move up in the future.
The company is targeting Rs 100 bn in order intake in FY12, which
would enable it to end the current fiscal with an order backlog of Rs 260
bn.
Even as the Capital Goods sector has struggled to book orders during
the fiscal, BEL has won major orders. Resultantly, its order backlog has
doubled in FY11, thus it is strongly positioned for driving revenue growth
in FY13 and beyond. The company should also be a beneficiary from the
offsets that are likely to accrue from the USD 10 bn aircraft order that the
Indian government is all set to place with Rafale or Eurofighter.
The company enjoys a dominant status in the defence sector and has a
steady growth profile. At 14.4x, near-term valuations are close to the
higher end of its trading range of 8-16x. The business is high-end with
rich profitability and strong cash generator. In view of this, we
recommend investors to Accumulate the stock with a DCF based price
target of Rs 1913 (unchanged).
RISKS & CONCERNS
Defence orders tend to get delayed due to number of approvals at
various levels.
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