Buy Bharat Electronics; target of Rs 2100: Sharekhan

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Buy Bharat Electronics; target of Rs 2100: Sharekhan

Sharekhan is bullish on Bharat Electronics and has recommended buy rating on the stock with a target of Rs 2100 in its July 13, 2011 research report.

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Sharekhan is bullish on Bharat Electronics and has recommended buy rating on the stock with a target of Rs 2100 in its July 13, 2011 research report.

"The audited results of Bharat Electronics Ltd (BEL) for FY2011 show a significant jump in cash & cash equivalents to Rs6,519 crore compared with Rs3,578.4 crore as on March 2010. The spike in cash reserves was driven by a jump in the current liabilities during the year which is intriguing for us. This has led to free cash of Rs815 per share on the books, which is close to 50% of the prevailing valuation.  At the end of March 2011, BEL had a strong order book of Rs23,600 crore, more than double its FY2010 order book. However, the order execution period is now longer. BEL has an export order book of about $66.36 million which includes an offset order book of $42.28 million. The strong order book at 4x FY2011 gross sales gives strong visibility for the next few years. The company's management has set a revenue target of Rs6,200 crore for FY2012 which is a 12.1% growth over FY2011. Given the strong order book, we believe that the company would be able to comfortably surpass the revenue target."

"The first quarter is the slowest quarter in terms of revenues for Bharat Electronics Ltd (BEL) as in this quarter the government finalises its capital expenditure (capex) plan for the whole year. For Q1FY2012 we expect the company to report revenues of Rs1,078.5 crore, showing a growth of 18.1% on a year-on-year (Y-o-Y) basis. The company had started the new fiscal with a strong order book of Rs23,600 crore which may aid its growth in the first quarter. The EBITDA margin for the quarter is expected to improve by 60 basis points year on year (YoY) to 9.5%. The net profit for the quarter is expected to grow by 12.6% to Rs91.7 crore."

"BEL is one of the best plays on the defence capex space. With the increase in the defence budget and the focus on modernisation of the defence technology, BEL is best placed to take a sizeable pie of the defence spend. With its partnerships with leading defence original equipment manufacturers, the company is well placed to benefit from the offset clause. It has a strong order book which provides growth visibility. Moreover, it has huge cash reserve of Rs 6519 crore which translates into cash per share of Rs 815. Given the recent correction in the stock price, the company's strong business positioning and healthy cash reserves, we are upgrading the stock to Buy with a target price of Rs 2100. However, kindly note that BEL's quarterly performance is quite volatile and Q1 is a seasonally lean quarter for the company," says Sharekhan research report. 

Quarterly Shifts by Morgan Stanley

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To read the full report click on the attachment