Bharat Electronics (BHE)'s 2QFY21 earnings were 23% higher than our est., with revenue beat of 15%. While EBITDA was 25% higher than our est., the EBITDA margin came in lower due to a miss on gross margins. Margins depend on the sales mix between deliverables and hence it tends to be volatile on a quarterly basis. BHE's current order book is strong at INR522b, with an OB/rev ratio of 4x. Order inflows declined 78% YoY to INR15.6b. In 1HFY21, order inflow decline stood lower at 45% YoY. Major orders received in 2Q were for advanced composite communication system, electronic warfare system, naval fire control system, and 3D surveillance radar.
OutlookWe maintain our earnings estimate as the 2HFY21 ask rate looks within reach, given strong orders in hand. Our TP remains unchanged at INR116 (14x FY22E EPS, below its long-term trading multiple of 16x). Maintain Buy.
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