Estimate change
TP change
Rating change
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Financials & Valuations (INR b)
Y/E Mar
2020 2021E
Sales
129.2 134.0
EBITDA
27.3
25.6
PAT
17.9
16.7
EBITDA (%)
21.1
19.1
EPS (INR)
7.4
6.8
EPS Gr. (%)
(6.9)
(7.2)
BV/Sh. (INR)
40.7
44.8
Ratios
Net D/E
(0.2)
(0.2)
RoE (%)
18.1
15.2
RoCE (%)
18.9
16.0
Payout (%)
42.1
40.0
Valuations
P/E (x)
17.7
19.0
P/BV (x)
3.2
2.9
EV/EBITDA (x)
11.0
11.6
Div Yield (%)
2.4
2.1
FCF Yield (%)
5.7
3.4
CMP: INR130
TP: INR150 (+16%)
Bharat Electronics
31 January 2021
3QFY21 Results Update | Sector: Capital Goods
Buy
Execution disappoints, but should catch up in 4Q
BHE IN
2,437
317.5 / 4.4
141 / 56
16/12/17
1506
EBITDA margin remains strong at 19%+
2022E
161.4
31.0
20.9
19.2
8.6
25.4
50.0
(0.2)
17.1
18.1
40.0
15.2
2.6
9.5
2.6
3.4
Bharat Electronics (BHE)’s 3QFY21 earnings were 21% below our est., with
revenue coming in 13% lower. The revenue miss was largely due to muted
execution (billing spillover likely in 4Q). EBITDA was up 24% YoY (13% below
our est.). The EBITDA margin expansion was largely attributable to the beat
on gross margins (lower RM cost). Adj. PAT grew a strong 22% YoY to
INR2.6b, but fell short of our expectation (21% miss) – as a follow-through of
the revenue miss.
Margins depend on the sales mix between deliverables and hence they tend
to be volatile on a quarterly basis. BHE’s current order book is strong at
INR548b, with an OB/rev ratio of 4.2x.
Revenue/EBITDA for 9MFY21 stood flat YoY, with PAT coming in 6% lower.
We trim our FY21E EPS by 4%, but maintain our FY22/FY23E earnings
estimate, given the company’s strong order book position and execution
track record. Our TP remains unchanged at INR150 (16x FY23E EPS, on par
with its long-term trading multiple). Maintain
Buy.
Revenue was broadly flat YoY at INR22.9b and 13% below our expectation.
EBITDA was up 24% YoY to INR4.4b and 13% below our expectation – as a
follow-through of the revenue miss.
The EBITDA margin came in at 19.2% (+360bp YoY).
Adj. PAT grew 22% YoY to INR2.6b and was 21% below our expectation.
The order book stood at INR548b, with an OB/rev ratio of 4.2x, providing
strong revenue visibility.
We estimate YTD order inflows at ~INR100b. Key orders won in the current
year include ventilators, advanced torpedo defense systems, smart city
projects, advanced composite communication systems, electronic warfare
systems, naval fire control systems, and 3D surveillance radars. We believe
the company is well-placed to meet its FY21E order inflow target of INR140–
150b, implying INR40–50b of order inflows in 4QFY21. Our FY21E order
inflow estimate stands at INR145b, at the mid-point of the guidance.
We forecast a revenue/EBITDA/PAT CAGR of 14%/15%/17% over FY21–23E.
We have built in a sufficient margin cushion as we assume an EBITDA margin
of 19.2%/19.3% by FY22E/FY23E (v/s 21.1% reported in FY20). Our TP
remains unchanged at INR150 (16x FY23E EPS, on par with its long-term
trading multiple). At CMP, the stock trades at FY22E/FY23E P/E of just
15x/14x – despite having RoE/RoCE of ~17%/18%, dividend yield of ~3%, and
FCF yield of 3.5–6%. Maintain
Buy.
Working capital deterioration is the key
risk to our rating.
Execution-led earnings disappointment; margins remain strong
Order book position remains strong
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
Dec-20 Sep-20 Dec-19
51.1
51.1
55.3
31.3
31.6
25.3
10.3
9.6
12.2
7.3
7.7
7.2
FII Includes depository receipts
Valuation and view
Nilesh Bhaiya – Research Analyst
(Nilesh.Bhaiya@MotilalOswal.com)
Pratik Singh – Research Analyst
(Pratik.Singh@MotilalOswal.com)
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.