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Thursday, December 17, 2009

Bharat Electronics Ltd:Buy/sell/hold,growth prospects and recomendation,news and results,target price and analysis

Scripscan:Bharat Electronics Ltd

Story: Bharat Electronics (BEL) is a public sector enterprise with 76% government ownership. The Bangalore-based company is country’s premier manufacturer More Pictures of electronics products and components for the defence sector. Considering the growth potential, its expertise and recession proof nature of its order book, the company can be reasonably expected to record profit growth of 25-30% over the next few years.The company net profit grew at a compounded annual rate (CAGR) of 22% during three years ending March 2008, much faster than 10% CAGR growth in its net sales. While it managed to grow sales by nearly 13% in FY09, profitability took a knock leading to 9.6% decline in net profit. This was mainly due to 47% increase in raw material cost, impacted due to depreciation in rupee, as 70-80% of its raw material is imported.However, it has managed a turnaround in H1’FY10 recording sales of Rs 2219 core, an impressive increase of 88% year-on-year. With relatively lower growth of 62% in raw material cost, the company managed to improve its operating margin by as much as 10 percentage point. With a marginal growth of 1% in total other costs; company managed to register profit of Rs 310 core, an impressive growth of 146%.While the profit growth of 150% in H1’10 is not sustainable, but it has enough capability to sustain growth rate of 25%, at least over the next few years. Since, the defence continues to remain a priority for successive government, its core business area remains unaffected by the economic ups and downs. Further, the diversification into non-defence market will help it shore up the volume further, even though the margins may not be as good as in the defence market. The stock is trading at an attractive priceearnings ratio of 15 times its trailing earnings and is an attractive proposition for investors with a medium term outlook.A great buy.

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