Bharat Electronics: A Strong Defence Against Uncertainties

Bharat Electronics (BEL), a Navratna PSU, has reported a net profit of Rs 198 crore for the December quarter of 2012 against Rs 174.64 crore it had earned during the same period last year. Its total income increased from Rs 1589 crore in the December quarter of 2011 to Rs 1595 crore for the quarter ended December 31, 2012.

BEL's stock price reacted quite positively to the result. It was up by 3.2% and what also helped was a dividend of Rs 6 per share that the company announced along with its results.

The company's profit growth was primarily aided by the improvement in the EBIDTA margins. These saw an improvement of 200 basis points to around 11% during the quarter as against what it earned last year. This margin enhancement happened due to a 5% drop in employee cost and a 2% higher stock-in-trade that the company carried during the quarter.

The current order book of the company is around Rs 250000 crore, which is almost five times of its FY12 earnings and gives good earnings visibility for it.

At its CMP, BEL’s stock discounts its 9MFY13 annualised EPS of Rs 49.25 by 25 times. which looks fairly valued. However, looking at the strong order book of the company and the company being a major player in the defence sector with a market share of almost 60%, the stock does definitely have good long term prospects of value creation.

It has a strong order book, which provides immense confidence on its future growth capacity. The stock looks fairly valued at its current levels and offers a good long term opportunity of value creation given the bright growth prospects of the company.