INSUBCONTINENT EXCLUSIVE:
NEW DELHI: Shares of this listed missile maker halted its sharp downslide on Monday, but was still down for the 10th consecutive session in
a row.
This, despite the company having bagged a whopping Rs 9,200 crore order for supply of seven long range surface-to-air missile (LRSAM)
The new order bolstered the bill-to-book ratio of the firm to 5 times FY2018 revenue.
The company is also expected to bag big orders for
electronic voting machines (EVM) from the Election Commission of India ahead of state and general elections next year.
Despite such earnings
visibility, the stock is down in the dumps
fallen 22 per cent in 10 sessions till Friday and another half a per cent on Monday.
Bharat Electronics generates 80-85 per cent of its
revenues from the defence segment
It is estimated to take a 200-300 basis points hit on margins/RoCE in the wake of the latest guideline.
What has come as relief for the
company is the fact that guidelines do not impact the mega contract bagged this week.
The new guidelinesThe Ministry of Defence (MOD) has
slashed the benchmark margin on prospective contracts awarded on a nomination basis to 7.5 per cent for both value-added and bought-out
components compared with 12.5 per cent permitted for value-added earlier.
Brokerage Edelweiss Securities noted that nomination contacts form
sustainability of their future margins
This warrants a P/E de-rating
for Bharat Electronics stock to Rs 110 from Rs 175 earlier.
PhillipCapital, which has downgraded the stock to neutral, said that the
upcoming large orders such as Coastal Surveillance radars and Samyukta EW will be awarded under the old terms
Brokerage Sharekhan said even though the cap would be applicable to new projects, it will surely impact earnings estimates beyond 2021E, as
severely owing to increasing competitive intensity in the defence industry with foreign participants forging alliances with private business
houses and the latest notification from Defence Ministry
said the PBT margins would fall by 250-350 bps over next 5 years, as share of new orders rises.
The brokerage expects five-year EPS
(FY18-23) of the company to decline to 9 per cent compounded annually from 12 per cent
