COMPANY UPDATE

RETAIL EQUITY RESEARCH

Bharat Electronics Ltd Buy
Defence Electronics Rating as per Large cap 12months investment period
BSE CODE:500049 NSE CODE: BEL
CMP Rs169 TARGET Rs195 RETURN 15%
Bloomberg CODE: BHE:IN SENSEX: 31,311

19th June, 2017

Company Data
Execution picks-up... order intake strong Market Cap (cr) Rs37,659
Bharat Electronics Ltd (BEL) is a Navaratna enterprise having 37% market
Enterprise Value (cr) Rs36,073
share in Indian Defence Electronics. BELs core capabilities are in radar &
Outstanding Shares (cr) 223
weapons systems, defence communication & electronic warfare .
Free Float 32%
Order inflow in Q4FY17 grew by 172% YoY. Current order backlog of
Dividend Yield 0.5%
Rs40,000cr is 5.3x FY17 sales, has significantly improved the earnings
outlook. 52 week high Rs187

FY17 Revenue & PAT grew by 15% & 10% YoY respectively driven by 52 week low Rs118
strong execution. 6m average volume (cr) 0.3
EBITDA grew by 15% & margins improved by 10bps YoY to 20.5%. Beta 1.0
BEL to emerge as key beneficiary due to its strong position in Face value Rs1
strategic defence electronics space & GoI focus on indigenisation. Shareholding % Q2FY17 Q3FY17 Q4FY17
We factor earnings to grow at 14% CAGR over FY17-FY19E. Promoters 75.0 74.4 68.2
We value BEL at P/E of 22x (20x) on FY19E on improved order inflow FIIs 4.0 4.3 6.7
outlook. We maintain Buy rating on the stock with a target price of MFs/Insti 14.5 15.7 17.7
Rs195. Public 3.6 2.8 3.5
Others 2.9 2.7 3.4
Revenue growth robustorder intake healthy Total 100.0 100.0 100.0
BELs Q4FY17 revenue grew by 24% YoY, led by strong execution. The order 3mth 6mth 1 Year
Price Performance
intake continues to be robust with order inflow for Q4FY17 at Rs10,081cr
Absolute Return 4.3% 17.1% 32.8%
which grew by 172% YoY. The major projects executed during the year
Absolute Sensex 5.6% 18.7% 18.0%
include Akash missiles system, handheld thermal imagers, weapon locating
Relative Return* -1.3% -1.6% 14.8%
radars and IACCs. The current order backlog is Rs40,000cr which 5.3x FY17
*over or under performance to benchmark index
sales provides strong visibility for next 4years. Going forward, orders related
Akash missile system, LRSAM, EW systems, mobile cellular communication 200 BEL Sensex Rebased
system and commander TI sight is expected boost the order inflow further for
FY18E. We factor order book to grow at 15% CAGR over FY17-FY19E. We 150
build in a revenue growth of 17% CAGR over FY17-FY19E.
EBITDA grew by 15% YoY...PAT growth muted 100
Gross margins declined by 441bps YoY to 48.3% in Q4FY17 due to higher cost
May-16 Aug-16 Nov-16 Mar-17 Jun-17
and some low margin project execution. While EBITDA margins declined by
354bps YoY to 24.6% due to higher employee cost. Higher employee cost was Consolidated (Rs.cr) FY17A FY18E FY19E
due to Rs70cr gratuity provision and Rs130cr related to 7 th pay commission. Sales 8,654 10,290 11,812
PAT growth was limited to 6% YoY to Rs792cr due to lower other income Growth (%) 14.6 18.9 14.8
which declined by 34% YoY. For FY17 EBITDA grew by 15% YoY and EBITDA 1,773 2,068 2,398
EBIDTA margins improved by 10bps YoY to 20.5% led by higher domestic
Margin (%) 20.5 20.1 20.3
order execution. Going forward we factor EBITDA margins to be at 20.1% &
PAT Adj 1,523 1,729 1,984
20.3% for FY18E & FY19E.
Growth (%) 9.8 13.5 14.8
To benefit from increased indigenous procurement
Adj.EPS 6.4 7.7 8.9
BEL is a market leader in defence electronics given its strong technological &
Growth (%) 9.8 13.5 14.8
execution capabilities. BEL will benefit from of GoI focus on indigenous
procurement. P/E 24.7 21.8 19.0
P/B 4.9 4.2 3.6
Valuations
At CMP, BEL is trading at 22x and 19x FY18E & FY19E EPS of Rs7.7 & Rs8.9 EV/EBITDA 20.4 17.4 15.0
respectively. We value BEL at P/E of 22x (20x) on FY19E EPS on improved ROE (%) 18.0 20.7 20.4
order inflow outlook. We maintain Buy rating on the stock with a target price D/E 0.0 0.0 0.0
of Rs195. Anil R
Analyst
Financials

Profit & Loss Account

(Rs Cr) Q4FY17A Q4FY16A YoY Growth % Q3FY17A QoQ Growth %

Sales 3,988 3,224 23.7 2,042 95.3
EBITDA 980 906 8.1 483 102.9
EBITDA margins 24.6 28.1 (350bps) 23.6 +100bps
Depreciation 57 49 16.3 45 27.0
EBIT 923 857 7.6 437 111.0
Interest 1 4 - 11 -
Other Income 91 138 (34.0) 78 17.0
Exceptional Items - - - - -
PBT 1,012 991 2.1 504 101.0
Tax* 221 247 (10.5) 131 69.0
Other comprehensive income (71) (1) - 5 -
Reported PAT 721 744 (3.1) 378 90.6
Adjustment (71) (1) - 5 -
Adj PAT 792 745 6.3 374 112.0
No. of shares (mn) 223 223 - 223 -
EPS (Rs) 3.5 3.3 6.3 1.7 112.0

Change in estimates

Old estimates New estimates Change %

Year / Rs cr FY18E FY19E FY18E FY19E FY18E FY19E
Revenue 9,893 11,057 10,290 11,812 4.0 6.8
EBITDA 1,887 2,152 2,068 2,398 9.6 11.4
Margins (%) 19.1 19.5 20.1 20.3 +100bps +80bps
PAT 1,696 1966 1,729 1,984 2.0 1.0
EPS 7.6 8.8 7.7 8.9 1.3 1.1
 Consolidated Financials
Balance Sheet
Profit & Loss Account

Y.E March (Rs cr) FY15A FY16A FY17A FY18E FY19E Y.E March (Rs cr) FY15A FY16A FY17A FY18E FY19E

Sales 7,093 7,549 8,654 10,290 11,812 Cash 2,171 2,685 1,790 1,725 1,843
% change 8.8 6.4 14.6 18.9 14.8 Accounts Receivable 3,805 3,741 4,355 5,018 5,760
EBITDA 1,175 1,538 1,773 2,068 2,398 Inventories 3,424 4,213 4,931 5,846 6,684
% change 27.4 30.9 15.3 16.7 15.9 Other Cur. Assets 4,773 5,608 3,171 4,877 5,518
Depreciation 166 200 212 238 259 Investments 0 242 576 576 576
EBIT 1,008 1,338 1,561 1,830 2,138 Gross Fixed Assets 2,684 2,965 3,451 3,771 4,091
Interest 3 6 13 3 2 Net Fixed Assets 888 1,067 1,341 1,423 1,484
Other Income 507 533 434 463 491 CWIP 140 224 414 200 200
PBT 1,513 1,869 1,983 2,290 2,628 Intangible Assets 185 374 488 185 185
% change 25.5 23.5 6.1 15.5 14.8 Def. Tax (Net) 338 371 529 621 726
Tax 316 471 486 561 644 Other Assets - - - - -
Tax Rate (%) 20.9 25.2 24.5 24.5 24.5 Total Assets 15,726 18,525 17,596 20,470 22,975
Reported PAT 1,197 1,387 1,431 1,729 1,984 Current Liabilities 6,590 8,148 8,334 9,743 10,563
Adj* - - 92 - - Provisions 786 1,178 1,309 1,635 1,877
Adj PAT 1,197 1,387 1,523 1,729 1,984 Debt Funds 26 31 204 104 54
% change 25.8 15.9 9.8 13.5 14.8 Other Liabilities - - - - -
No. of shares (cr) 240.0 240.0 223.4 223.4 223.4 Equity Capital 240 240 223 223 223
Adj EPS (Rs) 5.0 5.8 6.4 7.7 8.9 Reserves & Surplus 8,238 8,923 7,512 8,750 10,243
% change 25.8 15.9 9.8 13.5 14.8 Shareholders Fund 8,318 9,163 7,736 8,973 10,466
DPS (Rs) 1.2 2.0 2.2 2.2 2.2 Total Liabilities 15,726 18,525 17,596 20,470 22,975
CEPS (Rs) 5.7 6.6 7.4 8.8 10.0 BVPS (Rs) 35 38 35 40 47

Ratios
Cash flow
Y.E March FY15A FY16A FY17A FY18E FY19E
Y.E March (Rs cr) FY15A FY16A FY17A FY18E FY19E
Profitab. & Return
Net inc. + Depn. 1,363 1,597 1,643 1,967 2,243
EBITDA margin (%) 16.6 20.4 20.5 20.1 20.3
Non-cash adj. (376) (324) (579) (552) (595)
Changes in W.C 446 (993) 1,421 (1,548) (1,160) EBIT margin (%) 14.2 17.7 18.0 17.8 18.1
C.F.O 1,434 2,257 2,485 (133) 489 Net profit mgn.(%) 16.9 18.4 17.6 16.8 16.8
Capital exp. (225) (653) (791) 198 (320) ROE (%) 15.2 15.9 18.0 20.7 20.4
Change in inv. (1,048) (1,244) - - - ROCE (%) 14.4 15.6 17.6 19.3 19.2
Other invest.CF 434 472 443 464 492 W.C & Liquidity
C.F - investing (839) (1,424) (348) 661 172 Receivables (days) 204.8 182.4 170.7 166.2 166.5
Issue of equity - - - - - Inventory (days) 313.7 355.9 377.1 373.3 379.6
Issue/repay debt 25 4 174 (100) (50) Payables (days) 626.5 686.8 679.8 626.2 615.2
Dividends paid (223) (302) (504) (494) (493) Current ratio (x) 1.9 1.7 1.5 1.5 1.6
Other finance.CF (11) (21) - -
Quick ratio (x) 0.9 0.8 0.5 0.6 0.7
C.F - Financing (209) (320) (330) (594) (543)
Turnover &Levg.
Chg. in cash 386 514 1,807 (65) 118
Closing cash 2,171 2,685 4,491 1,725 1,843 Gross asset T.O (x) 2.8 2.7 2.7 2.8 3.0
Total asset T.O (x) 0.5 0.4 0.5 0.5 0.5
Int. covge. ratio (x) 376.0 216.8 121.2 591.2 1345.6
Adj. debt/equity (x) 0.0 0.0 0.0 0.0 0.0
Valuation ratios
EV/Sales (x) 5.4 5.0 4.2 3.5 3.0
EV/EBITDA (x) 32.6 24.6 20.4 17.4 15.0
P/E (x) 33.8 29.2 24.7 21.8 19.0
P/BV (x) 4.9 4.4 4.9 4.2 3.6
 Recommendation Summary (last 3 years) Dates Rating Target
28-March-2016 BUY 136
215 31-January-2017 BUY 176
195 19 -June -2017 BUY 195
175
155
135
115
95
75
Jan-15 Jun-15 Nov-15 Apr-16 Sep-16 Feb-17

Source: Bloomberg, Geojit Research *Initiating Coverage

Investment Rating Criteria

Large Cap Stocks; Mid Cap and Small Cap;
Buy - Upside is 10% or more. Buy - Upside is 15% or more.
Hold - Upside or downside is less than 10%. Accumulate* - Upside between 10% - 15%.
Reduce - Downside is 10% or more. Hold - Absolute returns between 0% - 10%.
Reduce/Sell - Absolute returns less than 0%.
To satisfy regulatory requirements, we attribute Accumulate as Buy and
Reduce as Sell.
The recommendations are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. It is
possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating.
* For reasons of valuations/return/lack of clarity/event we may revisit rating at appropriate time. Please note that the stock always carries the risk of being
upgraded to BUY or downgraded to a HOLD, REDUCE or SELL.

General Disclosures and Disclaimers

CERTIFICATION
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issuer or securities. This report has been prepared by the Research Team of Geojit Financial Services Limited, hereinafter referred to as Geojit.
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Please ensure that you have read the Risk Disclosure Documents for Capital Market and Derivatives Segments as prescribed by the Securities and
Exchange Board of India before investing

Digitally signed by ANIL R

Date: 2017.06.19 17:33:02 +05'30'

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