Motilal Oswal's research report on Bharat Electronics
BHE's 4QFY21 earnings were 39% above our estimate, with the surprise entirely led by higher than expected EBITDA margin (28.5% v/s our estimate of 21.3%). The EBITDA margin expansion was largely attributable to lower employee costs (-17% YoY), other expenses (-10% YoY) and higher domestic outsourcing by BHE. Margin depends on the sales mix between deliverables and hence tends to be volatile on a quarterly basis. BHE’s current order book is strong at INR534b, with an OB/revenue ratio of 3.9x. The company raised its margin guidance to 21-22% from 18-19% in FY22.
Outlook
BHE ended FY21 with a 9%/17%/15% increase in revenue/EBITDA/PAT, which is commendable given the COVID-led disruptions. We increase our FY22E/FY23E EPS by 17%/14%, led by higher EBITDA, due to a revised margin guidance. Our revised TP stands at INR195/share (18x FY23E EPS). Maintain Buy.
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