Buy Bharat Electronics; target of Rs 270: Motilal Oswal

Motilal Oswal's research report on Bharat Electronics

Revenue grew a strong 61% YoY in 3QFY22 and was 21% ahead of our estimate. EBITDA margin continued to surprise, as has been now for many quarters. Adjusted PAT grew 123% YoY to INR5.8b and was 34% ahead of our expectation. The current order book is strong at INR566b, with an OB/revenue ratio of 3.6x. The management lowered its FY22 revenue guidance to 10-12% from 17% earlier on account of the semiconductor shortage. However, it reiterated its multi-year revenue growth guidance of 15-17% thanks to the Make in India drive in the Defense space as well as its foray into civil segments like Medical Equipment, e-mobility, Metro, Smart Cities, EVM/VVPAT orders for the upcoming elections, etc. It is also confident of achieving an EBIDTA margin of ~22% over the next few years. BHE is looking to replicate its strong capabilities in manufacturing and R&D in the Defense space in newer segments over the next few years. It is one of the prime beneficiaries of the government’s indigenization drive.

Outlook

On account of its strong 3QFY22 performance, we increase our FY22-24E EPS estimate by 6-8% and our TP to INR270/share from INR250 earlier. We maintain our Buy rating.