If we take a look the first quarter results of Bharat Electronics (BEL), the impression created is rather negative. In Q1FY09 its net sales declined by 5.1 per cent
to Rs 381 crore. In addition, higher operating costs dented the profitability and resulted in an operating loss of Rs 32.56 crore. However, favourable other income enabled the company to report a net profit of Rs. 2.52 crore. But one should note that, historically, the first
half of every year has been weak for BEL, with most of the revenue booking coming in the latter half.
• There are certain events we need to mention while recommending the scrip. As per its memorandum of understanding (MoU) with the Ministry of Defence, BEL’s revenue target for FY09 stands at Rs 4,800 crore. The strong order book of Rs 9,450 crore, 2.2x FY08 revenues,
provides a healthy revenue booking potential. To meet the growing competition, BEL is looking towards adding new products to its portfolio. It has appointed consulting
firm KPMG to help identify future market opportunities and to suggest a restructuring plan accordingly. BEL eyes opportunity in the nuclear power sector as it is exploring instrumentation opportunities in the nuclear power sector.
• BEL also plans to enter into a 50:50 joint venture with Bharat Heavy Electricals Limited (BHEL) to set up a polycrystalline silicon (polysilicon) manufacturing unit.
This capacity is equivalent to 250 MW of solar power. The management has given a revenue guidance of Rs 10,000 crore for FY2012, implying a CAGR of 25 per cent over FY08 gross revenues, which seems to be a challenge for the company.
• As regards the capital expenditure for FY09, it is estimated at Rs 200 crore. At its CMP of Rs 883.15, the scrip discounts its FY08 earnings by just 8.66x. Hence we recommend the investors to buy the scrip at current levels with a target price of Rs 1,100 in the next two
quarters.
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