Bharat Electronics (Buy)

| Updated on January 16, 2020 Published on January 17, 2020

ICICI Securities

CMP: ₹105.55

Target: ₹128

Starting from a single Unit in Jalahalli, Bengaluru, BEL has established its presence across the country by setting up eight other Units — in Ghaziabad, Pune, Machilipatnam, Panchkula, Kotdwara, Navi Mumbai, Chennai and Hyderabad. Each unit has a specific product mix and customer focus. BEL has also set up a wide network of offices and service centres countrywide as well as two overseas offices — at New York and Singapore.

Bharat Electronics’ (BEL) performance in Q2FY20 was lower than expectations with 12 per cent y-o-y decline in H1FY20 topline (excluding other operating income). The stock has corrected about 20 per cent since Q2FY20 numbers on the back of lowered earnings expectations and is interestingly poised given i) possibility of a significant increase in H2FY20 3execution and ii) accommodative valuations.

Key risks are i) execution driven by budget constraints of state and centre; and ii) sudden margin drop due to deteriorating mix and increased price scrutiny. Significant working capital stress has started impacting RoCEs and we hear more and more concerns on multiples if such an elevated period of stress continues. Yet, at 11x FY22E P/E downside looks limited and H2FY20 can surprise. Upgrade to ‘buy’.

Published on January 17, 2020
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