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Bharat Electronics (BHE)
Industrials
In-line sales but disappointing EBITDA margin; other income boosts PAT. BEL
reported in-line sales (up 11% yoy). Contribution margin declined (230 bps yoy) but in
line with full-year expectation. Higher employee cost (includes Rs245 mn VRS costs) and
other expenses led to sharply lower EBITDA margin (560 bps yoy decline) and EBITDA
(Rs406 mn versus Rs901 mn last year). Higher other income boosted PAT to Rs1.25 bn,
up 20% yoy. Revise estimates, retain ADD (revised TP of Rs1,850).
Sales growth at 11% marginally below estimate; contribution margin declines, as expected
BEL reported 2QFY12 revenues of Rs10.6 bn, up 10.5% on a yoy basis (from Rs9.6 bn in 2QFY11)
and in line with our estimate of Rs10.8 bn. Sales at Rs19.8 bn were up 5.7% versus Rs18.7 bn in
1HFY11. Contribution margin declined 230 bps yoy on higher raw material cost. We do note that
(1) 2Q margin at 41.7% was broadly at FY2011 average levels of 42.1%, (2) contribution margin
decline of 260 bps was expected during FY2012E buffered by operating leverage to lead to 40 bps
yoy decline in EBITDA margins (before other income) to 15.6% for the year, and (3) sequentially
contribution margins have picked up significantly (180 bps – though may be led by seasonality).
Employee cost (led by VRS costs), other expenses affect EBITDA margin; other income boosts PAT
BEL also reported higher employee cost (160 bps negative impact - led by Rs245 mn VRS costs)
and other expenses (160 bps margin impact) leading to a 560 bps lower EBITDA margin at 3.8%.
Adjusted for VRS costs, EBITDA margins would have been above 6% versus our estimate of 9%.
This led to EBITDA of Rs406 mn, less than half of last year’s value of Rs901 mn. Stronger-thanexpected
other income (up 91% yoy to Rs1.6 bn versus estimate of Rs1.4 bn) resulted in improved
PAT of Rs1.25 bn, up 20% on a yoy basis, versus our estimate of Rs1.4 bn.
Working capital moderates from end-FY2011 though still at strong levels
Working capital moderated to negative 49 days of sales from extremely strong end-FY2011 levels
(-149 days) on higher inventories (181 days from 163 days). We highlight that BEL’s current
liabilities have increased sharply over the past 12 months, potentially led by advances for strong
ordering won by the company. We also highlight modest drawdown of Rs6.4 bn of cash during
1HFY12, leading to end-September cash position of Rs59 bn for execution of current projects.
Revise estimates on lower ordering and higher other income assumptions; reiterate ADD
We revise estimates to Rs125.7 and Rs132.8 from Rs120.3 and Rs133.8 for FY2012E and FY2013E
on slightly lower execution assumption compensated by higher other income. We reiterate ADD
(TP: Rs1,850 versus Rs1,875 earlier) on (1) acyclical demand, (2) attractive valuations (11.6X
FY2013E), (3) strong cash position and (4) large unexecuted backlog (Rs260 bn at end-August’11).
Revenues and contribution margin in line; other income boosts PAT
Sales in line with estimate, up 10.5% yoy. BEL reported 2QFY12 revenues of Rs10.6 bn,
up 10.5% on a yoy basis (from Rs9.6 bn in 2QFY11) and in line with our estimate of
Rs10.8 bn.
Contribution margin declines yoy but within expectations and long-term averages,
and is better sequentially. BEL reported a 230 bps yoy contraction in the contribution
margin (higher raw material cost). We note that (1) this does not seem sharp decline
compared to entire FY2011 average contribution margin (41.7% in 2QFY12 is in line with
42.1% achieved in FY2011E), (2) we are already expecting contribution margin decline of
260 bps during FY2012E buffered by operating leverage to lead to 40 bps yoy decline in
EBITDA margins (before other income) to 15.6% for the year, and (3) sequentially
contribution margins have picked up significantly by 180 bps.
Higher employee expenses (led by VRS costs) and other expenses affect EBITDA
margin. BEL also reported higher employee cost (160 bps negative impact - led by Rs245
mn VRS costs) and other expenses (160 bps margin impact) leading to a 560 bps lower
EBITDA margin at 3.8%. Adjusted for VRS costs, EBITDA margins would have been above
6%. We had estimated modest decline of 40 bps in EBITDA margin (9%). This led to
EBITDA of Rs406 mn, less than half of last year’s value of Rs901 mn.
Other income doubles resulting in 20% yoy PAT growth. BEL reported strongerthan-
expected other income (up 91% yoy to Rs1.6 bn versus estimate of Rs1.4 bn). The
yoy improvement was likely led by the company’s strong cash position of Rs65 bn at end-
FY2011 versus Rs38 bn at end-FY2010. The higher other income improved PAT to Rs1.25
bn, up 20% on a yoy basis, missing our PAT estimate of Rs1.4 bn by 11%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bharat Electronics (BHE)
Industrials
In-line sales but disappointing EBITDA margin; other income boosts PAT. BEL
reported in-line sales (up 11% yoy). Contribution margin declined (230 bps yoy) but in
line with full-year expectation. Higher employee cost (includes Rs245 mn VRS costs) and
other expenses led to sharply lower EBITDA margin (560 bps yoy decline) and EBITDA
(Rs406 mn versus Rs901 mn last year). Higher other income boosted PAT to Rs1.25 bn,
up 20% yoy. Revise estimates, retain ADD (revised TP of Rs1,850).
Sales growth at 11% marginally below estimate; contribution margin declines, as expected
BEL reported 2QFY12 revenues of Rs10.6 bn, up 10.5% on a yoy basis (from Rs9.6 bn in 2QFY11)
and in line with our estimate of Rs10.8 bn. Sales at Rs19.8 bn were up 5.7% versus Rs18.7 bn in
1HFY11. Contribution margin declined 230 bps yoy on higher raw material cost. We do note that
(1) 2Q margin at 41.7% was broadly at FY2011 average levels of 42.1%, (2) contribution margin
decline of 260 bps was expected during FY2012E buffered by operating leverage to lead to 40 bps
yoy decline in EBITDA margins (before other income) to 15.6% for the year, and (3) sequentially
contribution margins have picked up significantly (180 bps – though may be led by seasonality).
Employee cost (led by VRS costs), other expenses affect EBITDA margin; other income boosts PAT
BEL also reported higher employee cost (160 bps negative impact - led by Rs245 mn VRS costs)
and other expenses (160 bps margin impact) leading to a 560 bps lower EBITDA margin at 3.8%.
Adjusted for VRS costs, EBITDA margins would have been above 6% versus our estimate of 9%.
This led to EBITDA of Rs406 mn, less than half of last year’s value of Rs901 mn. Stronger-thanexpected
other income (up 91% yoy to Rs1.6 bn versus estimate of Rs1.4 bn) resulted in improved
PAT of Rs1.25 bn, up 20% on a yoy basis, versus our estimate of Rs1.4 bn.
Working capital moderates from end-FY2011 though still at strong levels
Working capital moderated to negative 49 days of sales from extremely strong end-FY2011 levels
(-149 days) on higher inventories (181 days from 163 days). We highlight that BEL’s current
liabilities have increased sharply over the past 12 months, potentially led by advances for strong
ordering won by the company. We also highlight modest drawdown of Rs6.4 bn of cash during
1HFY12, leading to end-September cash position of Rs59 bn for execution of current projects.
Revise estimates on lower ordering and higher other income assumptions; reiterate ADD
We revise estimates to Rs125.7 and Rs132.8 from Rs120.3 and Rs133.8 for FY2012E and FY2013E
on slightly lower execution assumption compensated by higher other income. We reiterate ADD
(TP: Rs1,850 versus Rs1,875 earlier) on (1) acyclical demand, (2) attractive valuations (11.6X
FY2013E), (3) strong cash position and (4) large unexecuted backlog (Rs260 bn at end-August’11).
Revenues and contribution margin in line; other income boosts PAT
Sales in line with estimate, up 10.5% yoy. BEL reported 2QFY12 revenues of Rs10.6 bn,
up 10.5% on a yoy basis (from Rs9.6 bn in 2QFY11) and in line with our estimate of
Rs10.8 bn.
Contribution margin declines yoy but within expectations and long-term averages,
and is better sequentially. BEL reported a 230 bps yoy contraction in the contribution
margin (higher raw material cost). We note that (1) this does not seem sharp decline
compared to entire FY2011 average contribution margin (41.7% in 2QFY12 is in line with
42.1% achieved in FY2011E), (2) we are already expecting contribution margin decline of
260 bps during FY2012E buffered by operating leverage to lead to 40 bps yoy decline in
EBITDA margins (before other income) to 15.6% for the year, and (3) sequentially
contribution margins have picked up significantly by 180 bps.
Higher employee expenses (led by VRS costs) and other expenses affect EBITDA
margin. BEL also reported higher employee cost (160 bps negative impact - led by Rs245
mn VRS costs) and other expenses (160 bps margin impact) leading to a 560 bps lower
EBITDA margin at 3.8%. Adjusted for VRS costs, EBITDA margins would have been above
6%. We had estimated modest decline of 40 bps in EBITDA margin (9%). This led to
EBITDA of Rs406 mn, less than half of last year’s value of Rs901 mn.
Other income doubles resulting in 20% yoy PAT growth. BEL reported strongerthan-
expected other income (up 91% yoy to Rs1.6 bn versus estimate of Rs1.4 bn). The
yoy improvement was likely led by the company’s strong cash position of Rs65 bn at end-
FY2011 versus Rs38 bn at end-FY2010. The higher other income improved PAT to Rs1.25
bn, up 20% on a yoy basis, missing our PAT estimate of Rs1.4 bn by 11%.
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