Bharat Electronics’ (BEL’s) 1QFY17 revenue declined by 21% YoY and was the primary driver of the earnings miss of 53%. Moreover, other expenses increased by 27% YoY and contributed to the poor performance. The redeeming feature was the 920bps expansion in gross margins to 46%. The poor growth this quarter belies the strong order book accretion in FY16 (up 48%). In previous years, there have been odd-quarters of revenue declines mainly due to customer led delays. Whilst management commentary is not typically forthcoming, we will try and seek further clarity. However, as 1Q typically contributes a small proportion of revenue/PAT (15%/4% in FY16) we are unlikely to change our estimates materially
Ambit Analysts recommend,
Valuations of 18x FY18E EPS are reasonable given the company’s scale, repertoire and track record in the fast growing defence electronics sub-segment. Maintain BUY.
