Bharat Electronics - Concerns Overdone; Revenue Pick Up from Q2 - ENAM

Bharat Electronics (BEL) stock has underperformed the Sensex by 27% FYTD due to weak execution in Q1FY13 which resulted in EBITDA loss of Rs 1 bn. Delay in execution was due to deferment of deliveries for Akash Missile Systems project. We believe execution delays are not structural and will get resolved in FY13. Blacklisting of Rheinmetall (a supplier for subsystems for fire control systems to BEL) by Ministry of Defense led to concerns on revenue growth. However, we believe this will have a limited impact of Rs 1 bn.

Valuation attractive: BEL stock trades at 3.6x/3.2x FY13E/FY14E EV/EBITDA, which is attractive. Reiterate BUY with TP of Rs 1,405 (12x FY14E) given (1) strong balance sheet with net cash of Rs 66 bn (Rs 825/share), (2) high RoCE of 28%, (3) positive FCF generation of Rs 4-5 bn pa, and (4) dividend yield of 2%.

Source : Equity Bulls

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