Technology

Bharat Electronics Ltd (BEL) reported bad set of numbers for 1QFY2017. Its
top-line declined by 20.9% yoy to Rs847cr, which is below our estimate. For the
quarter, BEL reported below than expected negative EBITDA of Rs71cr. Negative
operating leverage in our view led to EBITDA de-growth. In-line with EBITDA degrowth,
PAT de-grew 52.9% yoy to Rs36cr. PAT margins were down 290bps yoy to
4.3%, which is below our expectation.
For 1QFY2017, BEL reported order inflows of Rs1,003cr, which includes
Homeland Security, Navigational Complex System, and Next generation Main
Automatic Exchange order wins. Post these wins, order book as of 1QFY2017-
end stood at Rs32,139cr. Order book/ last twelve month (LTM) sales ratio as of
1QFY2017-end stood at 4.5x.
Valuation: Despite disappointing quarterly results, we maintain our positive view
towards the stock. Considering the delays in clearance from customer side, there
exists possibility of better 2Q revenue booking. On the back of continuous order
wins and strong order book, there exists some scope for the company delivering
favorable performance going forward.
On the back of strong market positioning, large order book, debt free status, we
expect BEL to report increased traction in sales and earnings growth, going
forward. We recommend BUY on the stock with price target of Rs1,414.

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