Akash Jain
At CMP of Rs 145 (Face value: Re 1), Bharat Electronics Limited looks very attractive. We have a one year target of above Rs 200 and are very bullish on the stock with a longer term perspective for next 2 to 5 years.
The company’s stock price corrected by more than 20 percent over the past three months due to shrinkage in Q3FY18 earnings owing to delay in order booking of Akash Missile System (Rs 6,000 crore) and long- range surface-to-air missile for P17A (Rs 9,000 crore).
It’s a strong play on domestic defence space. With improved thrust on defence sector by the Indian government after rising tensions between India and China and Make in India initiative, we are confident this sector would accelerate strongly.
Recently, Bharat Electronics unveiled eight new products at DEFEXPO 2018. The products launched are - 100 Mbps Radio, Secure Military Wireless Local Area Network, Multi-Function Hand Held Thermal Imager, Long Range Surveillance System, Chemical Agent Monitor (CAM), Multi-Purpose Reflex Weapon Sight, Light Weight Composite Shelter and Mine Field Recording System.
On Wednesday, Larsen & Toubro signed a memorandum of understanding (MoU) with state-run Bharat Electronics (BEL) to cater to the needs of domestic and export markets for defence products and systems.
The MoU seeks to leverage the capabilities of both the firms for meeting the growing requirements of the Indian armed forces, the company said in a statement issued in Mumbai. Through this agreement, both the companies intend to leverage their well-developed supply chain, vast experience and expertise to synergise and enhance exports in the defence sector. This MoU offers an opportunity for public-private sector partnership between two industry leaders in defence equipment and systems to synergise their strengths to deliver to the Indian armed forces and to the export market contemporary products with high indigenous content,” said Jayant Patil, whole-time director (defence) and member of board, L&T.
L&T and Bharat Electronics have collaborated and partnered on co-development and production of major sub-systems involving complex technologies and sophisticated weapon systems such as Akash Missile launchers and other radar platforms for the ministry of defence (MoD) orders. L&T has been delivering a range of launcher systems, fire control systems and airframes/sub-systems for various indigenous weapon programmes as development partners and production agency to the Defence Research and Development Organization (DRDO) and defence public sector undertakings.
“By synergising L&T’s manufacturing, system design and integration capabilities and extensive global footprint with Bharat Electronics’ core competencies in electronic equipment and systems, the companies look forward to enhancing their product range, jointly evolve new products and enhance business prospects,” said Patil.
"In line with the government's efforts to indigenise the defence sector under the 'Make In India' initiative, we have signed an agreement with BEL to make defence products and systems for the domestic and export markets," said the Mumbai-based L&T in a statement.
In Q3FY18, the company implemented revised wages in Q3 of FY18 which hit its margins. Lower other income impacted profitability in December quarter. Cash balance also reduced due to buyback. The company’s 88 percent of orders are from defence and will focus on defence going ahead.
Disclaimer: The author is Vice-president, Equity Research at Ajcon Global Services. The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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