Bharat Electronics - Delivering a Bazooka; Result Update Q3FY15 :: Edelweiss

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Bharat Electronics (BEL) sprung a pleasant surprise by reporting strong Q3FY15 numbers, which surpassed our and consensus estimates. Revenue jumped 34% riding robust execution primarily in missile systems, radar systems and night vision devices. The company’s exports also saw ramp up (up 68%), albeit on a small base. EBITDA margin at 17.3% catapulted 250bps led by operating leverage despite dip in gross profit margin (down 310bps). PAT jumped 42% driven by strong execution and operating performance. At INR7.6bn, order intake fell 18% even as backlog remained healthy at INR220bn (down 10%), rendering over 3x revenue visibility. We continue to anticipate improvement in pace of orders over the next few quarters from armed forces given the government’s mandate to speed up piled-up defence deals. This, along with an improving outlook, places BEL in a sweet spot.

Robust execution, strong operating performance aid profitability

BEL’s revenue, at INR16bn, jumped 34%, significantly ahead of our and consensus estimates led by strong uptick in execution. Exports also saw ramp up during the quarter (up 68%). EBITDA margin at 17.3% catapulted 250bps led by operating leverage. Strong execution and operating performance propelled PAT 42% to INR2.7bn.

Healthy order backlog of INR220bn despite muted order intake

The company’s order intake fell 18% to INR7.6bn, which could be due to postponement of order awarding. Healthy order backlog at INR220bn renders visibility of 3x FY15E revenue. We expect ordering momentum to improve over the next few quarters.

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https://www.edelweiss.in/research/Bharat-Electronics--Delivering-a-Bazooka;-Result-Update-Q3FY15/28116.html