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Bharat Electronics Equity Research

HomeCompanyBharat Electronics Equity Research

Date of Research – 28 January 2016

Price – Rs. 1215.00

About the Company

Founded in 1954, Bharat Electronics Limited (“Bharat Electronics” or the “Company”) is a Government of India undertaking engaged in the manufacture and supply of strategic electronic products primarily the defence services. The Bharat Electronics products include high frequency (HF) communication sets, very high frequency (VHF) transreceivers, ultra high frequency (UHF) handheld radios, UHF radio relays, fire control systems, surveillance radar elements, thermal imager based integrated observation equipment, 3D central acquisition radars and related products.

In addition, the Company provides e-governance systems; homeland security products, including surveillance systems, access control systems, jammers, and X-ray baggage inspection systems; doppler weather radars; solar cells, photo voltaic modules, home and street lighting systems, traffic management systems; telecom and broadcast systems. The Company has one subsidiary, BEL Optronic Devices Limited which was established for conducting research, development and manufacture of Image Intensifier Tubes and associated high voltage Power Supply Units for use in military, security and commercial systems.

Key Financial Figures

Consolidated (Rs. Cr)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations 6,273.02 6,517.86 7,092.63  7,548.54  9,206.34
Expenses 5,616.25 5,595.67 5,917.27  6,007.57  7,433.73  
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit) 656.77 922.19 1,175.36  1,540.97  1,772.61  
Depreciation 136.49 149.88 166.15  199.57  211.63  
Finance Costs 0.84 3.52 2.68  6.17  12.88  
Other income 625.46 437.28 506.74  533.49  434.47  
Exceptional items (2.56) –  – 
PBT 1,147.45 1,206.07 1,513.27  1,868.72  1,982.57  
Tax 236.26 254.40 316.22  475.03  485.54  
PAT (before Minority Interest and share of Associates) 911.19 951.67 1,197.05  1,386.49  1,497.03
Profit/ (loss) attributable to Minority Interest 0.42 0.36 (0.16)  (0.64)  (26.34) 
Consolidated Profit / (Loss) for the year 910.78 951.31 1,197.21  1,387.13  1,523.37  

Profitability Analysis

Consolidated (%)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Operating Profit Margin Ratio 10.47 14.15 16.57  20.41  19.25 
Net Profit Margin Ratio 14.53 14.60 16.88  18.37  16.26 

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015  FY 2016
Share Capital 80.00 80.00 80.00 80.00  240.00 
Reserves & Surplus 5,705.50 5,821.95 7,140.26 8,036.84  8,746.06 
Net worth (shareholders funds) 5,785.50 5,901.95 7,220.26 8,116.84  8,986.06 
Minority Interest 3.01 3.01 3.77 6.11  4.76 
Government Grants 177.32
Long term borrowings 0.35 0.35 0.27 0.35  0.25 
Current liabilities 8,827.41 8,827.41 7,166.41 6,966.19  8,839.48 
Other long term liabilities and provisions 424.69 424.69 585.00 636.13  516.62 
Total Liabilities 15,040.96 15,040.96 14,975.70 15,725.60  18,524.50 

 

Application of Funds / Assets (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015  FY 2016
Fixed Assets 676.92 676.92 1,152.96 1,213.34  1,664.45 
Non-Current Investments 242.15
Current assets 13,817.65 13,817.65 13,358.77 14,005.89  16,052.74 
Long term advances and other noncurrent assets 316.01 316.01 162.46 167.89  193.80 
Deferred Tax Assets 230.38 230.38 301.52 338.43  371.36 
Total assets 15,040.96 15,040.96 14,975.70 15,725.60  18,524.50 

Efficiency Analysis

 
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
ROCE 11.35 15.62 16.27  18.97 17.14 
ROE / RONW 15.75 16.12 16.58  17.08 15.43 

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

Consolidated
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations (Rs. Cr.) 6,273.02 6,517.86 7,092.63  7,548.54  9,206.34 
Growth (%) 6.05 % 3.90 % 8.82 %  6.43 %  21.96 % 
PAT (Rs. Cr.) 910.78 951.31 1,197.05  1,386.49  1,497.03
Growth (%) 7.49 % 4.45 % 25.83 %  15.83%  7.97 %
Earnings Per Share – Basic (Rs. ) 3.80 3.96 4.99 5.78 6.53 
Earning Per Share – Diluted (Rs. ) 3.80 3.96 4.99 5.78 6.53 
Price to Earnings 10.09 14.40 8.15  21.10  25.64 

Dividend History

The Company has maintained an average dividend yield of 1.38 % over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. Bharat Electronics’s average current ratio over the last 5 financial years has been 1.61 times which indicates that the Company has been maintaining sufficient cash to meet its short term obligations.

Long Term Debt to Equity Ratio

Companies operating with high debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

Bharat Electronics’s average long term debt to equity ratio over the last 5 financial years has been zero which indicates that the Company is operating with a zero level of debt.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

Bharat Electronics’s average interest coverage ratio over the last 5 financial years has been 1,261.82 times which indicates that the Company has been generating enough for the shareholders after servicing its debt obligations.

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, Bharat Electronics reported a promoter holding of 68.19 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 18.70 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.

 

One Response to “Bharat Electronics Equity Research”

By Jamar Gumbert - 23 June 2016

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