Joined: 23/Mar/2008
Location: United Kingdom
Online Status: Offline
Posts: 307
Topic: Bharat Electronics Ltd. Posted: 31/Mar/2008 at 9:11pm
Hello All,
I am planning to enter Bharat Electronics Ltd and therefore wanted to know your views on the same. Today it closed @ 1057 i.e. 4.34% down.... Also, it breached its 52 week low today....
Anyone among TEDies follow this scrip ? If yes, please advice with long term view.
Thanks & Regards,
Raj
Cheers,
Raj
"Que sera, sera,
Whatever will be, will be;
The future's not ours to see.
Que sera, sera,
What will be, will be.
Que Sera, Sera!"
Joined: 13/Feb/2008
Location: United Kingdom
Online Status: Offline
Posts: 626
Posted: 11/Sep/2008 at 2:41pm
Originally posted by Invest_in_India
Hello All,
I am planning to enter Bharat Electronics Ltd and therefore wanted to know your views on the same. Today it closed @ 1057 i.e. 4.34% down.... Also, it breached its 52 week low today....
Anyone among TEDies follow this scrip ? If yes, please advice with long term view.
Thanks & Regards,
Raj
Rohit Chauhan, who is also a member of TED, has analyzed this stock in his blog. It was on a public blog, so I guess I can paste that post here. Basant ji, if this is not allowed, please delete this post. This was posted on July 29, 2008.
"Bharat Electronics Limited (BEL) is the largest defense equipment company in India catering to Defense services electronic requirement. BEL enjoys near monopoly status in supplying high-tech defense products like radars, sonars, communication equipment, electronic warfare equipment to the armed forces. Other division manufacturing civilian products supplies communication equipment to the telecom industry, voting machines etc.
The defence sector contributed to 76% of the revenue and the rest was from the civilian sector.
The company has a government mandated near monopoly for the defence sector business. In addition foreign vendors as a part of localization are required to source from BEL
Financials
The company has shown considerable improvement in financial performance. Topline has grown by 10% p.a for the last 5 years. The net profit has however grown by almost 20% p.a during the same period.
The higher bottom line growth has been driven by an increase in net margins from 10% to around 17% in 2008. Total Asset ratios have improved from around 8.2 to around 9.2 in 2007. The Wcap is negative or zero and the inventory turns have also improved 2.1 to 3.3. Only the recievables ratio has dropped from 3.1 to 2.5 in 2007.
The management seems to be aware of this and in 2007 has indicated that this was mainly due to incomplete projects and should improve in the current year.
The company is a cash rich company with cash net of debt of around 2200 Crs which could improve further in the current year.
The ROE seems to be steady, however net of cash it has been improving and the Return on incremental invested capital has gone up a lot.
Positives
The financials have improved substanially in the last 5 years. The net margins and Return on capital has gone up. The company has considerable cash on books. In addition the company spends almost 3-4% on R&D.
The company has introduced almost 25 products and systems in 2007. The company plans to continue this pace of new products in the future too.
The company has an order book of almost 90000 million in 2007 which is equivalent to 3 years of revenue at the curent rate.
The company will also benefit from the mandatory offset clause where in foreign vendors have to procure some portion of the contract from BEL.
Risks
The margins have gone up from 10% to around 17% in the current year driven by Raw material cost reduction. I am not sure how sustainable this improvement is. The long term average is still around 10-12 % and the current rise could be temporary.
The defence spending dropped around 1996-1998 time period and the net profits were low during that period. It looks unlikely that the government would drop defence spending now, however the risk remains.
Competition is very low in the defence sector, however the other segments do have some competition.
Competitive analysis
BEL is one of those rare companies which have very substantial competitive advantages. These advantages are government mandated and I find it diffcult to see how these will go away. Across the world there is a preference for domestic companies for defence contracts, more so in india.
Valuation
With an assumption of current growth and margins, the Intrinsic value comes to around 2100 Rs/ share. However a senstivity analysis of margins and topline gives the following numbers
Topline 10%, margin 10-12 % (long term average): 1650
Topline 14%, margin 10-12% : 2200
Topline 14%, margin 17% : 3300
The central point for the intrinsic value seems to be around 2000-2200.
Conclusion
The company seems to be trading at 30-40% discount to instrinsic value. This is however not a sexy company. This is a company with substantial competitive advantages and will continue to be very profitable. However I dont expect the market to suddenly discover this company and give a higher valuation. Most likely one can expect decent returns in the long run.
=======================================
The more it changes, the more its the same thing.
Joined: 20/Oct/2008
Location: India
Online Status: Offline
Posts: 1997
Posted: 01/Nov/2008 at 5:59pm
If one looks at monopoly and financial numbers they do look outstanding but one threat remains that whole growth depends on DoD budget also due to PSU the mgmt is not as smart as of various other companies. If one wants to take risk here then good or else there are many safe avenues to explore.
You cannot post new topics in this forum You cannot reply to topics in this forum You cannot delete your posts in this forum You cannot edit your posts in this forum You cannot create polls in this forum You cannot vote in polls in this forum
Active Topics
Memberlist
Calendar
Search
Help
Register
Login
IP Logged
