Buy Bharat Electronics; target of Rs 214: Prabhudas Liladhar

Prabhudas Liladhar's research report on Bharat Electronics

We attended BEL’s analyst meet and returned confident of maintaining our bullish stance on the company as the prospects remain firm in the near/medium term. The company expects order inflow to remain healthy at ~Rs150bn for next 2‐3 years, given the healthy pipeline of orders. BEL is investing in capex to support execution of strong order book. It is also looking at stepping up R&D spend further, from 8.8% in FY17 to ~10% of sales in FY18 to maintain technological edge and retain leadership position in strategic electronics. BEL is targeting sales of Rs100bn and restricts margin dip to only 100bps despite increased wage provision and higher non‐defence revenue contribution expected in FY18. BEL is a key beneficiary of increasing focus in modernization of current fleet and procurement of new capital equipment by government.

Outlook

We continue to believe BEL offers good investment opportunities to investors who want to invest in the Indian Defence sector with a long‐term view. We expect stock to deliver earnings CAGR of 14.5% over FY16‐19E. Maintain ‘BUY’ with a TP of Rs214.