JMFL
Bharat Electronics (Buy)
CMP: ₹107.95
Target: ₹130
We attended the annual investor meet of Bharat Electronics and key takeaways are as follows: a) management guides for 12-15 per cent sales CAGR over next 10 years under the long-term integrated prospective plan (LTIPP); b) concerns over margins were allayed to some extent as management highlighted various efficiency/cost levers and mix improvement, thus sustaining margins at 19-21 per cent in near term and 17-19 per cent over long term; c) order inflow pipeline remains healthy and is likely to sustain at ₹15,000-16,000 crore a year over FY20-21, current order book stood at ₹57,600 crore (4.8x TTM sales); d) high margin AMC contracts are seeing a sharp ramp up and are likely to jump to 25 per cent of sales in 5 years vs 10 per cent in FY19 (AMC order book: INR23bn); and e) weakening fiscal situation may lead to elongated receivable cycle, thus straining NWC cycle which has stabilised at 118 days in FY20 (vs 117) after seeing sharp deterioration over FY16-18.
While competition from private sector is increasing, BEL is geared up through various tie-ups to capture larger pie of defence orders and is slated to incur 10-12 per cent of sales in R&D to stay ahead of competition.
We maintain BUY rating with TP of ₹130, based on 16x FY21E EPS (LT median).