Buy Bharat Electronics; target of Rs 120: Motilal Oswal

Motilal Oswal is bullish on Bharat Electronics has recommended buy rating on the stock with a target price of Rs 120 in its research report dated September 06, 2018.

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September 18, 2018 / 12:55 IST

26 Aug, 2025 12:21

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Motilal Oswal's research report on Bharat Electronics

The MoD has proposed a new pricing mechanism for defense PSUs with intent of making PSUs more efficient on the operational front. According to the new guidelines, margins (at PBT level) have been lowered from 12.5% to 7.5% for projects given to all defense PSUs on a nomination basis. The new pricing mechanism will be applicable for future orders (not applicable to the recently concluded long-range surface-to-air missile order of INR92b) and will not impact the company's existing order book of INR500b. Management believes that the new pricing policy is more detailed/scientific in nature and covers all costs associated with orders. The revised guidelines also allow pass-through of royalty, R&D, program management and prototype costs, which were not covered in the earlier version. The new policy will not have a material adverse impact on BHE's business, according to management.

Outlook

However, the uncertainty over profitability post the recent MoD circular on capping margins (at PBT level) of defense PSUs to 7.5% (prior: 12.5%) leads us to cut our target price to INR120 (16x FY20E EPS of INR7.3; prior TP: INR145). We maintain our Buy rating on the stock.

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