Buy Bharat Electronics; target of Rs 150: Motilal Oswal

Motilal Oswal is bullish on Bharat Electronics has recommended buy rating on the stock with a target price of Rs 150 in its research report dated January 31, 2021.

Broker Research

February 04, 2021 / 17:37 IST

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Motilal Oswal's research report on Bharat Electronics

Bharat Electronics (BHE)’s 3QFY21 earnings were 21% below our est., with revenue coming in 13% lower. The revenue miss was largely due to muted execution (billing spillover likely in 4Q). EBITDA was up 24% YoY (13% below our est.). The EBITDA margin expansion was largely attributable to the beat on gross margins (lower RM cost). Adj. PAT grew a strong 22% YoY to INR2.6b, but fell short of our expectation (21% miss) – as a follow-through of the revenue miss. n Margins depend on the sales mix between deliverables and hence they tend to be volatile on a quarterly basis. BHE’s current order book is strong at INR548b, with an OB/rev ratio of 4.2x. n Revenue/EBITDA for 9MFY21 stood flat YoY, with PAT coming in 6% lower. We trim our FY21E EPS by 4%, but maintain our FY22/FY23E earnings estimate, given the company’s strong order book position and execution track record. Our TP remains unchanged at INR150 (16x FY23E EPS, on par with its long-term trading multiple). Maintain Buy. We forecast a revenue/EBITDA/PAT CAGR of 14%/15%/17% over FY21–23E.

Outlook

We have built in a sufficient margin cushion as we assume an EBITDA margin of 19.2%/19.3% by FY22E/FY23E (v/s 21.1% reported in FY20). Our TP remains unchanged at INR150 (16x FY23E EPS, on par with its long-term trading multiple). At CMP,

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