Bharat Electronics Ltd Result Update: Q2 FY 12

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1 Bharat Electronics Ltd Result Update: Q2 FY 12 C.M.P: Rs Target Price: Rs Date: Jan. 12 th 2012 BUY Stock Data: Sector: Defence Face Value Rs wk. High/Low (Rs.) / Volume (2 wk. Avg.) BSE Code Market Cap (Rs in mn) Share Holding Pattern 1 Year Comparative Graph SYNOPSIS Bharat Electronics Limited (BEL) was established at Bangalore, India, by the Govt. of India under the Ministry of Defence in 1954 to meet the specialized electronic needs of the Indian defence services. During the quarter ended, the robust growth of Net Profit is increased by 20.12% to Rs million. The company has two offices; one in New York & the other in Singapore mark as current international presence. BEL has manufacturing units at nine locations in India. Net Sales and PAT of the company are expected to grow at a CAGR of 6% and 12% over 2010 to 2013E respectively. Bharat Electronics BSE SENSEX Years Net sales EBITDA Net Profit EPS P/E FY FY 12E FY 13E

2 Peer Group Comparison Name of the company CMP(Rs.) Market Cap. (Rs. mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%) Bharat Electronics Pipavav Defence Astra Micro Investment Highlights Q2 FY12 Results Update Bharat Electronics Ltd. has reported net profit of Rs million for the quarter ended on September 30, 2011 as against Rs million in the same quarter last year, an increase of 20.12%. It has reported net sales of Rs million for the quarter ended on September 30, 2011 as against Rs million in the same quarter last year, a rise of 10.68%. Total income grew by 17.00% to Rs million from Rs million in the same quarter last year. During the quarter, it reported earnings of Rs a share. Quarterly Results - Standalone (Rs in mn) As At Sep-11 Sep-10 %change Net sales % PAT % Basic EPS % 2

3 Break up of Expenditure Company Profile Bharat Electronics Limited (BEL) was established at Bangalore, India, by the Government of India under the Ministry of Defence in 1954 to meet the specialized electronic needs of the Indian defence services. The company is a multi-product, multi-technology, multi-unit company serving the needs of customers in diverse fields in India and abroad. BEL has also diversified into civilian areas. Some of the successful civilian products include the Electronic Voting Machines, Solar Powered LED-Based Traffic Signal Lights, and Simputers & Set Top Boxes. BEL offers contract-manufacturing services for both domestic and international customers. It has automated assembly, inspection and testing facilities as also precision machining capabilities. It adheres to strict process and manufacturing standards, producing world-class products. BEL has its corporate office at Bangalore and manufacturing units at nine locations in India. A network of marketing and customer support centers across India completes the vertically integrated company profile. 3

4 Two offices, one in New York and the other in Singapore mark the company s current international presence. Products BEL offers products and services in a wide spectrum of technology like Radars, Military Communications, Naval Systems, Electronic Warfare Systems, Sound and Vision Broadcasting, Telecommunications, Opto-Electronics, Tank Electronics, Solar Photovoltaic Systems, Embedded Software and Electronic Components. The company also provides turnkey systems solutions with its expertise developed over the years. Defence Communications Radars Naval Systems Opto Electronics Electronic Warfare Systems Weapon systems Tank Electronics Simulators Non Defence Switching Equipment TV & Broadcast DTH Telecom Simputer Electronic Voting Machine Electronic Components 4

5 System/Turnkey Solutions C4I Solutions SATCOM Networks SATCOM APPLICATIONS IN SYSTEM INTEGRATION SATCOM APPLICATIONS E-GOVERNANCE VTMS Vehicle Tracking & Messaging System Services Contract Manufacturing Design & Manufacturing Services Semiconductor Device Packaging Software Development Quality Assurance Facilities Subsidiary venture BEL Optronic Devices Ltd: BELOP manufactures mainly Image Intensifier Tubes (I.I. Tubes). These Tubes are supplied to the Defence customers and also used in the Night Vision Devices manufactured by BEL. Joint Venture Companies GE BE Pvt. Ltd. BEL Multitone Pvt. Ltd. 5

6 Financial Results 12 Months Ended Profit & Loss Account (Standalone) Value(Rs.in.mn) FY10 FY11 FY12E FY13E Description 12m 12m 12m 12m Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross profit Depreciation Profit Before Tax Tax Profit After Tax Equity capital Reserves Face value EPS

7 Quarterly Ended Profit & Loss Account (Standalone) Value(Rs.in.mn) 31-Mar Jun Sep Dec-11E Description 3m 3m 3m 3m Net sales Other income Total Income Expenditure Operating profit Interest Gross profit Depreciation Profit Before Tax Tax Profit After Tax Equity capital Face value EPS

8 Key Ratios Particulars FY10 FY11 FY12E FY13E No. of Shares (in mn) EBITDA Margin (%) 21.59% 22.86% 23.52% 23.51% PBT Margin (%) 19.42% 20.68% 21.35% 21.43% PAT Margin (%) 13.40% 15.34% 15.44% 15.49% P/E Ratio (x) ROE (%) 16.67% 17.28% 15.57% 14.55% ROCE (%) 29.53% 28.19% 25.88% 24.02% Debt Equity Ratio EV/EBITDA (x) Book Value (Rs.) P/BV Charts: Net sales & PAT 8

9 P/E Ratio (x) Debt Equity Ratio 9

10 EV/EBITDA(x) P/BV 10

11 Outlook and Conclusion At the current market price of Rs , the stock is trading at x FY12E and x FY13E respectively. Earning per share (EPS) of the company for the earnings for FY12E and FY13E is seen at Rs and Rs respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 6% and 12% over 2010 to 2013E respectively. On the basis of EV/EBITDA, the stock trades at 8.22 x for FY12E and 7.54 x for FY13E. Price to Book Value of the stock is expected to be at 1.95 x and 1.66 x respectively for FY12E and FY13E. We expect that the company will keep its growth story in the coming quarters also. We recommend BUY in this particular scrip with a target price of Rs for Long term investment. Industry Overview The year looks promising as well as challenging. The Defence Sector is increasingly being opened up for private sector participation and changes are being brought into the Defence Purchase Procedure. All this has pushed the Company towards much higher competitiveness and productivity. Apart from strengthening its in -house R&D, the Company is also laying greater emphasis on working closely with DRDO labs, other research institutions and academic institutions for development of new products and systems. The opening up of the Indian economy during the early nineties heralded an era of unprecedented industrial growth in India. The growth rates seen match those of the fastest growing economies. A confident and resurgent Indian Industry is making forays into almost all the sectors of manufacturing. Lately, the huge opportunities for growth within the domestic and global defence and aerospace industries have attracted the attention of Indian industry. The current profile of equipment held by the Indian 11

12 Armed Forces with regards to State of the Art, Matured and Obsolescent equipment is 15, 35 and 50 percent respectively. This suggests that the Government will have to make serious efforts towards upgrading its defence resources either by developing or procuring defence equipment and systems. Moreover, modernization, upgradation and maintenance of the existing equipment will also provide immense opportunities to the industry. India is one of the largest global military spenders. The defence budget for has increased by percent over the previous year s budget estimate (BE) of INR 1,056 Bn. The huge opportunity has attracted the attention of not only a few large players but also a large number of Micro, Small and Medium Sized Enterprises (MSMEs) which visualize this unprecedented opportunity as a gateway towards entering into the domain of defence production. The slowing down/saturation of markets in other sectors has also been responsible for the directing their interest towards the unexplored defence sector which promises sustained business opportunities. The private sector is enthusiastic about its ability to play a larger role in contributing to the total defence related production both within the country, as well as looking at export markets once sufficient experience has been gained in particular areas. The need of the hour is to combine the skills of Public and Private sector, developing this into a partnership with the aim of achieving self-reliance in defence production. CII believes in creating an environment where both public and private sector grow together and partner with each other, thereby contributing towards the national growth. CII has supported this endeavor and has been working with the armed forces and the Ministry of Defence towards achieving maximum indigenization. At the policy level as well, there is a clear support for achieving the long cherished goal of self reliance in defence sector. The Government has been receptive to suggestions and has been willing to make the required policy changes whenever required. Initially promulgated in December 2002, Defence Procurement Procedure has already undergone five revisions. The recent amendments in DPP 2008 (Amendments 2009) are a welcome step. Various provisions have been laid down to ensure industry participation at various levels. The investments allocated more than 1.64 trillion rupees to defence sector in announced in the budget of India steeply hiked its defence budget by 11 percent, pegging the allocation at Rs 164,415 crore (nearly $36 billion), to fuel the rapid modernization of the Army, Navy and the Air Force. Finance 12

13 minister Pranab Mukherjee, who presented the budget increased the capital expenditure to Rs 69,199 crore. Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it s affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. 13

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