Accumulate Bharat Electronics; target of Rs 120: Prabhudas Lilladher

Prabhudas Lilladher's research report on Bharat Electronics

Bharat Electronics Ltd (BEL) in its FY19 annual analyst meet guided for FY20 revenue growth of 12-15% (FY19 revenue included Rs25 bn from EVM) and sustainable EBITDA margin of 19-21%. Nomination based order margins have reduced to 7.5% from 12.5% earlier, however operating efficiencies are likely to partially offset impact of this margin rationalization by MoD. Order inflow for FY20 is expected to be Rs130-150 bn, YTD order inflow of Rs90 bn. going ahead, order pipeline remains robust with visibility of Rs150-200bn per year for the next few years. Current order backlog stands at Rs576 bn which gives strong revenue visibility. Services has been growing at 21% CAGR over FY15-19 and is 10% of revenues. This is likely to grow to 25% of revenues over the next 4-5 years. Working capital under stress due to customer's budget constraint, but going ahead improvement in receivables is expected due to advances from recently won Akash Missile order. We have lowered EBITDA margin assumption and hence cut earnings by 7%/4% for FY20/21E respectively.

Outlook

The stock is currently trading at 15.2x/13.7x FY20/21E. We maintain Accumulate rating on stock with TP of Rs120.