Bharat Electronics - Q2 FY21 Result Update - YES Securities

Bharat Electronics (Q2 FY21) First Cut - ADD (Target Rs106, 15.2%)

Actual results vs. expectations: Beat on sales & margin

Key highlights from Q2FY21 standalone results:

- Revenues increased 16.3% yoy to Rs31.9bn (+6% vs our est) due to execution of remaining part of ventilator order in addition to existing defence projects like LRSAM.

- Order book stood at Rs521.5bn (4x TTM sales), +4% yoy.

- Implied order inflow for Q2FY21 was at Rs15.9bn, lower than our expectations of Rs25bn.

- BHE's EBITDA margin came in at 19.6%, down 31bps (+121bps vs our est) as gross margin contraction of 178bps & higher other expenses (+144bps yoy) were negated by lower employee cost (down 291bps yoy). Gross margin contraction could be the result of ventilator order execution, which we would clarify from mgmt.

- Absolute EBITDA stood at Rs6.2bn, up 14.5% yoy (+13% vs our est).

- Adjusted PAT stood at Rs3.97bn, up 17% yoy.

- Cash flow from operations was at Rs13.6bn during H1FY21 vs Rs32.9bn in H1FY20.

Our View: The stock is trading attractively at 11x FY22E earnings (lower than its 15-yr avg. 1-yr forward P/E multiple of 14x). Currently, we have 'ADD' rating on the stock with TP of Rs106 & our estimates are largely remaining unchanged. Pick in ordering during H2FY21 would be crucial for the company. Our EPS estimates for FY21E/FY22E are at Rs7/Rs8.3 respectively. Bharat electronics is a play on India's growing capital outlay on defense and thrust on import substitution. We remain positive from long term view on the account of, i) New business opportunities arising under 'Atmanirbhar Abhiyan', ii) Healthy order book & margin sustainability at 20%, iii) Strong in-house and joint R&D focus with DRDO, iv) Leader in defense electronic with ~55% market share & v) Reasonable valuations.

Shares of BHARAT ELECTRONICS LTD. was last trading in BSE at Rs.92.9 as compared to the previous close of Rs. 92.4. The total number of shares traded during the day was 324764 in over 1772 trades.

The stock hit an intraday high of Rs. 94.8 and intraday low of 91.8. The net turnover during the day was Rs. 30227593.

Source : Equity Bulls

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