Bharat Electronics gets Jefferies buy

The defence ministry issued a regulation reducing margins to 7.5% from 10 per cent- 12.5 per cent earlier on new projects won on a nomination basis. The management of Bharat Electronics in its analyst meeting highlighted that margin impact would be seen post FY21E and will be limited to 50- 150 basis points. This is on the back of the new margins being applicable to bought- out components also, allowance of project management fees, and nominated projects being only 34 per cent of order book. Management mentioned they should see margins of 17- 19 per cent in FY19E, as against 20 per cent in FY17. BEL’s order book has risen at 23 per cent CAGR during FY15- 18 to Rs 40,200 crore, with a sharp 48 per cent YoY jump seen in FY16. Current pipeline indicates sufficient visibility for annual order flow of 14,000 crore – 15,000 crore. FY19E should see order flow of 20,000 crore, as 14,000 crore is achieved already including sizeable 9,200 crore LRSAM missile orders.

Broking firm: Jefferies Rating: Buy Closing price: 80.20