Bharat Electronics: Look beyond the temporary blip

FY15 revenues below estimates; order book expected to double in two years

Bharat Electronics’ provisional results were a disappointment, with FY15 annual revenues at Rs 6,670 crore, up eight per cent year-on-year but lower than estimates by about 10 per cent. Revenue growth came on the back of execution of missile systems such as Akash for the air force and the army, tactical control radar, night vision devices and missing warning system. Additionally, exports, which constitute about five per cent of revenues, were up 38 per cent to $58 million for FY15.

The March quarter revenues, extrapolated from nine months and full-year provisional numbers, are pegged at Rs 2,860 crore down 8.5 per cent and probably dragged down overall performance, as the quarter's sales were lower than analysts’ estimates by about 15 per cent. The performance was impacted on account of constrained execution. Lower revenues reflected on operating profit.

Thanks to a low base, order inflow in FY15, pegged at Rs 5,570 crore, is up 32 per cent year-on-year. Order inflow, which was weak for the first nine months (about Rs 2,340 crore) of the financial year, spurted in the March quarter to Rs 3,200 crore, up about 85 per cent year-on-year. The March quarter typically is a strong one for order inflows. However, delay in receipt of certain large orders in FY15 meant that order backlog was down five per cent year-on-year to Rs 22,100 crore at the end of the financial year.

Going ahead, though, Motilal Oswal analysts estimate order intake will likely surge from Rs 9,000 to Rs 9,500 crore in FY16/FY17 from Rs 4,200 crore to Rs 5,500 crore levels in FY14/FY15. And, there are many reasons to believe so. Orders are expected to be finalised in the integrated air command and control system (worth about Rs 7,000 crore), Akash missiles (Rs 3,000 crore), electronic warfare systems for fighter aircraft (Rs 3,500 crore) and the Himshakti electronic warfare system for the army (Rs 2,000 crore).

Hence, even as the results were lower than expected, the stock had corrected about 20 per cent from the February highs of Rs 4,000 to Rs 3,100 on March 27 due to lower-than-expected allocation in the FY16 Budget.

Since then, it has reduced some losses and is down about 11 per cent from the highs. While the street may see lower order intake and earnings misses as worries, the correction is a good opportunity to add the stock to your portfolio given the potential growth opportunity.