Bharat Electronics - Best defence bet! - Prabhudas Lilladher

Bharat Electronics (BEL) is a pure play on growing expenditure by the Indian government on defence. It is a market leader, with ~60% market share in defence electronics in India. The company has an order book of Rs250bn (executable over four years). Though private competition has opened up in the sector, BEL believes that it is a threat only in the long term (4-5 years).

We expect the stock to deliver 13% CAGR in earnings and 10% CAGR in order flow over FY12-14E. While the opportunity for BEL is large, given the increase in defence spend, both for capital equipments and modernization, we expect volatility in annual earnings (due to change in product mix) and order flow to impact sales.

The stock is trading at 9.2x FY14E earnings. We believe BEL offers good investment opportunity to the investor who wants to invest in the Indian defence sector with a long-term view. We assign a 'BUY', with a target price of Rs1,457.

Source : Equity Bulls

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