Bharat Electronics (BEL) reported a revenue decline owing to lower execution and high base of EVM order in Q2FY19. During Q2FY20, revenues came in at Rs 2743 crore, down 18.9% YoY. EBITDA margins came in at 19.9% vs. 14.8% YoY, down ~540 bps owing to relatively higher raw material cost, higher employee cost (up 8.1%, YoY) and lower-than-expected execution. Overall, PAT declined 40.6% YoY to Rs 339.5 crore impacted by slower pace of execution. New initiatives like Smart City projects, etc, contributed ~20% to revenue.
OutlookWe expect BEL to report revenue, EBITDA and PAT CAGR of 12.9%, 3.6%, 1.8% (base impacted on account of lower accrual of other income), respectively, in FY19-21E. We value the company at 16x P/E on FY21E EPS to arrive at a target price of Rs 130 per share and maintain BUY rating.
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