ICICI Direct is bullish on Bharat Electronics has recommended buy rating on the stock with a target price of Rs 105 in its research report dated September 26, 2018.
ICICI Direct's research report on Bharat Electronics
We attended the analyst meet of Bharat Electronics (BEL) to get an insight into recent developments along with the future outlook on the Indian defence space. The management has reiterated its stand of minimal impact on margins (50-200 bps) on the recent defence ministry notification, which notifies slashing of PBT margins from 12.5% to 7.5% on nomination based orders. This margin impact will be minimal because margins of 7.5% will now be earned on bought-out items vs. 0% earlier. Additionally, tax rate for BEL is also likely to go up from here as benefits of spend on indigenous R&D are likely to go down from 150% to 0% in coming years. The management has also highlighted that receivable days for BEL are likely to remain elevated at 180-200 days. BEL has guided for 12-15% topline growth in the next three to four years with EBITDA margins of 17-19%.
We now expect revenue, EBITDA and PAT CAGR of 14.9%, 13.5% and 10.5%, respectively, in FY18-20E. BEL’s stock price has witnessed a significant correction of ~45% in the last six months, making it available at reasonable valuation of ~12x FY20E earnings. We now value the company at 15x FY20E earnings to arrive at a target price of Rs 105/share. We maintain BUY rating on the stock.
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