Hold BEL for target of 2144: ShareKhan

Bharat Electronics
Cluster: Apple Green
Recommendation: Hold
Price target: Rs2,144
Current market price: Rs2,066

New order wins likely to boost the order position

•Bharat Electronics Ltd (BEL)’s order book has increased substantially to Rs16,780 crore till date FY2010 versus Rs10,386 crore as on March 31, 2009. This was largely due to Rs4,280 crore order (34% of the current order book) from Indian Air Force for the supply of additional 750 Akash medium-range surface to air missiles. The order intake in FY2010 has also improved considerably to Rs9,774 crore versus Rs5,424 crore in FY2009.
•We do not see any business challenges for BEL in the near to medium term on account of the following: (1) a healthy order book, which provides strong revenue visibility; and (2) lower capital expenditure and working capital requirement. However, the potential long-term competition emerging from opening up of the sector for private participation is a key risk to the company.
•The intact business fundamentals and the expected new order wins could act as a trigger for the stock. However, we highlight here that lack of corporate announcement by the company remains a concern and makes it difficult to value the new orders. At the current market price, the stock trades at 16.5x FY2011 and 14.7x FY2012 earnings estimates. BEL is a cash-rich company with cash per share of Rs330 in FY2009. On an adjusted earnings (adjusted for cash) basis, the company trades at 12.7x FY2011E and 10x FY2012E. We maintain our Hold recommendation and price target of Rs2,144.