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Prabhudas Lilladher
Bharat Electronics (Accumulate)
CMP: ₹106.9
Target: ₹120
Bharat Electronics (BEL) in its FY19 annual analyst meet guided for FY20 revenue growth of 12-15 per cent (FY19 revenue included ₹2,500 crore from EVM) and sustainable EBITDA margin of 19-21 per cent. Nomination based order margins have reduced to 7.5 per cent from 12.5 per cent earlier, however operating efficiencies are likely to partially offset impact of this margin rationalisation by Ministry of Defence. Order inflow for FY20 is expected to be ₹13,000-15,000 crore, year-to-date order inflow of ₹9,000 crore going ahead, order pipeline remains robust with visibility of ₹15,000-20,000 crore a year for the next few years.
Current order backlog stands at ₹57,600 crore which gives strong revenue visibility. Services has been growing at 21 per cent CAGR over FY15-19 and is 10 per cent of revenues. This is likely to grow to 25 per cent of revenues over the next 4-5 years. Working capital under stress due to customer’s budget constraint, but going ahead improvement in receivables is expected due to advances from recently won Akash Missile order.
We have lowered EBITDA margin assumption and hence cut earnings by 7 per cent/4 per cent for FY20/21E respectively. The stock is currently trading at 15.2x/13.7x FY20/21E. We maintain ACCUMULATE rating on stock with target price of ₹120.
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