This LIC favourite stock delivered over 350% return in 3 years; still a good bet

Shares of Bharat Electronics (BEL) have surged over 350 per cent in the past three years on robust order book and earnings upgrade. After moving in a narrow range since 2008 (see graph), the stock showed some traction at Rs 36.87 in April 2014 and surged 4.54 times to Rs 167.50 till April 7, 2017. The benchmark BSE Sensex has gained 33 per cent in the same period.

Market experts say the scrip is poised to surge another 20 per cent over the next few months.

Over the past many years, the country’s biggest institutional investor Life Insurance Corporation of India ( LIC) has been holding over 5 per cent stake in Bharat Electronics.



LIC is a leading financial institution of the country with assets under management of Rs 15 lakh crore, as per the information available on the LIC website.

Edelweiss Securities said Bharat Electronics (BEL) would continue to outperform as triggers are abound, including the company’s favourable positioning as a lead systems integrator, which augurs well in the light of the forthcoming large projects. The company’s focus on beefing up integration capability is a step towards improving delivery capabilities. Higher throughput of manufactured core products imparts strong margin comfort.

BEL is a Navratna public sector enterprise and is one of the oldest companies in the Indian defence sector. Over the past two years, the company has transformed from being a mere sub-system company to emerge a systems integrator, which has positively surprised the Street and seen around 16 per cent earnings upgrade.

It has witnessed strong order inflows of Rs 17,094 crore and around Rs 16,000 crore in FY16 and FY17, respectively. This has propelled the order backlog to an all-time high of Rs 40,000 crore. The company has a strong balance sheet with near nil debt and a cash balance of Rs 6,000 crore (even after a Rs 2,100 crore share buyback).

“Continuous order inflows and BEL’s track record in execution give us reasonable confidence about continued stable performance of the company. Accordingly, we expect BEL to deliver sales and PAT growth at a CAGR of 15 per cent and 9 per cent, respectively, in FY16-19E. With a planned capex of around Rs 1,500 crore in FY17E-19E, BEL is well placed to capitalise on the emerging defence sector,” brokerage ICICI Securities said in a note.

The company’s business valuation has seen strong re-rating in last three years with the PE value moving from 10 times to 20 times over FY14-17. This was driven by strong policy action of the Modi government, order book build-up and earnings upgrade.

With the company now earning the tag of largest defence systems integrator with leading market share, Edelweiss believes it is well equipped to grow its order book to Rs 58,900 crore by FY19E (at 23 per cent CAGR), with around 15 per cent earnings CAGR over the same period.

“We have strong conviction on BEL’s sturdy earnings growth visibility with a sustainable competitive profile. As we introduce FY19E earnings, we maintain a buy rating with a revised target price of Rs 200 (earlier Rs 155), based on 23 times PE given improving earnings growth profile,” Edelweiss Securities said.

Brokerage ICICI Securities is also bullish on BEL and believes the stock can touch Rs 198 level in three months.

“With continuous inflow of defence orders, BEL has been a major beneficiary of current government policies. In anticipation of fresh order flow from Prime Minister’s visit to Israel, we believe the current rally in the stock is likely to continue,” ICICI Securities said.

For the latest quarter ended December 31, 2016, the company reported a net profit of Rs 373.54 crore, up 33.34 per cent from Rs 280.14 crore reported for the corresponding quarter last year.