ICICIDirect's research report on Bharat ElectronicsBharat Electronics (BEL), a Navratna public sector enterprise, is one of the oldest companies in the Indian defence sector. Renowned for its professional management and strong execution capabilities, BEL stands out among select well-run government companies and, especially, defence public sector units (DPSUs). Over the years, the company has emerged as a market leader in the Indian defence electronics segment with ~44% market share. BEL’s consistent growth in order book, topline & bottomline over the last 10 years (CAGR of 13.4%, 7.3% & 8% respectively) in FY06-15, despite a weak procurement cycle and snailpaced decision making showcases the company’s robust fundamentals. Core competency in niche areas of electronics, diverse presence across geographies, debt-free status, best-in-class working capital cycle, reliability in execution and natural beneficiary of critical technologies developed by Defence Research and Development Organization (DRDO) places the company in a sweet spot. BEL has a strong balance sheet with near nil debt and cash balance of Rs 6038 crore (FY15). Accelerated order inflow and BEL’s consistent performance over the past 10 years, gives us reasonable confidence on the robust prospects of the company. With moderate capital expenditure of Rs 1500 crore over the next three years (FY16E-19E), a consistent dividend payout ratio of 20%, average RoEs, RoCEs of 19.3%, 37.8%, respectively, over the past 10 years and no equity dilution in its history, we believe BEL is a quality play and is on a strong footing. Accordingly, we expect BEL to deliver sales and PAT CAGR of 13.5% and 8.6% respectively, in FY15-18E. We value BEL at Rs 1552 i.e. 25x P/E on FY18E EPS of Rs 62.1 and initiate coverage with a BUY recommendation. For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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