Established in 1954 under the Ministry of Defence (MoD) to meet the specialised electronic needs of the Indian defence services, Bharat Electronics Ltd (BEL) stands to be a multi-product, multi-technology and multi-unit company, serving the needs of customers in diverse fields in India and abroad.
BEL is among an elite group of public sector undertakings, which have been conferred the Navratna status by the Government of India. BEL offers defence products including defence communication equipment, radars, sonar’s, naval systems, opto-electronics, electronic warfare systems, tank electronics, and simulators. The company also provides nondefense products, such as switching equipment, TV and broadcast, direct-to-home television (DTH), telecom, simputer, electronic voting machine and electronic components, including passive components, small signal transistors, power devices, integrated circuits and silicon detectors, and professional broadcast and communication
Valuation and view
Holding a dominant position in the Indian defence industry with ~60% market share in defence electronics in India, we believe the growth opportunity for BEL is large, given the increased focus of the new government on defence spending, both for capital equipments and modernization of technologies. Further, we believe BEL will be amongst the key beneficiaries of opening up of the defence sector. Thrust on R&D by the company will continue with roadmaps drawn for future products and key technologies. We maintain a positive view on the company considering its strong order book, which is about 3.7 times its FY14 revenue, provides growth visibility of two to three years. Further, healthy cash reserve, which reflects the company’s balance sheet strength.
At the CMP of Rs 3,296, BEL is attractively placed at EV/EBITDA of ~19x FY16E. Considering the above aspects, we rate the stock as ‘BUY’ at a target price of Rs 3,917, with a potential upside of ~19% for the coming 12 months.