Buy Bharat Electronics Ltd For Target Rs.260 - Yes Securities
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Robust execution; maintain BUY
Our view
Bharat Electronics Ltd (BHE) reported a strong set of numbers largely in‐line with our estimates, led by healthy execution across its order book. Despite input cost pressures, gross margins expanded by 71bps YoY however EBITDA margins contracted 374bps on account of higher employee (up 20.8%) and other expenses (up 27.7%). Ordering pipeline remains robust across segments such as electronic warfare system, army equipment like Akash weapon system, QRSAM, LRSAM, MRSAM and naval equipment like surveillance system, radars, navigation system, etc. Order inflows grew by 32% YoY taking its order book to ~Rs575.7bn (3.8x TTM revenue), providing revenue visibility for next few years. Export order inflows came in at US$179mn in FY22 while export order book stands at US$269mn.
Given strong tender pipeline, comfortable order book, healthy execution capabilities and diversification into newer business verticals we expect BHE to report 12%/14% revenue/PAT CAGR over FY21‐24E. At CMP, the stock trades at 19.9x/17.4x FY23E/24E. We maintain our BUY rating with a revised TP of Rs260 valuing the company at PE of 20x (20x 10 years avg.) on FY24E EPS.
Result Highlights
* Sales de‐grew 8.4% YoY to Rs63.3bn slightly below YSL estimate of ~Rs64.4bn, as execution was impacted due to pandemic and supply chain disruption.
* Despite steep rise in raw material cost gross margin expanded by 71bps YoY to 41.8% in Q4FY22.
* EBITDA came in at Rs15.7bn down 20.4% YoY (YSL estimate Rs16.3bn) with EBITDA margins contracting by 374bps YoY to 22.3% vs 28.5% in Q4FY21, mainly on account of rise in employee cost (up 20.8%) and other expense (27.7% up).
* PBT de‐grew by 20.9% YoY to Rs15.3bn led by higher depreciation of Rs1,010mn (up 10.2% YoY) and poor operating performance.
* PAT came in at Rs11.4bn, down 15.6% YoY led by poor operational performance.
* Order inflows came in at ~Rs73.2bn taking its order book ~Rs575.7bn (3.8x its trailing revenues).
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