Hold Bharat Electronics, target Rs 115: Axis Capital

Axis Capital has a hold call on Bharat Electronics Ltd. with a target price of Rs 115.0 . The current market price of Bharat Electronics Ltd. is Rs 116.7 Time period given by the brokerage is a year when Bharat Electronics Ltd. price can reach defined target. Bharat Electronics Ltd., incorporated in 1954, is a largecap company with a market cap of Rs 28513.38 crore.

Investment rationale by Axis Capital
Disappointing FY18… Bharat Electronics (BEL) received orders of Rs 100 bn in FY18, down 39% YoY. Revenue at Rs 103 bn was up 20% YoY, but EBITDA margin at 19.4% was 110 bps YoY lower due to higher material costs and employee costs. Lower other income (down 58% YoY due to lower cash balance) and higher tax rate (partial withdrawal of deduction on R&D spend and withdrawal of allowance on capex) pulled PAT down 10% YoY to Rs 14 bn.


…FY19 guidance: Order inflow of ~Rs 150-160 bn on finalization of two large orders i.e. Akash Missile Systems (AMS) worth ~Rs 42 bn and Long Range Surface to Air Missile (LR-SAM) for 7 ships worth ~Rs 60-70 bn. Based on strong order backlog of Rs 401 bn (~4x FY18 revenue), revenue to grow 15% YoY at ~Rs 115 bn and margin to remain stable.