Motilal Oswal Securities has recommended 'Buy' on Bharat Electronics with target price of Rs 3,950 against market price of Rs 3,217 with upside potential of 23% in its report.
Commenting on the investment rationale, the broking firm said, "3QFY15 operating performance meaningfully above estimates, with revenues at Rs 16.9 billion (up 24% YoY) vs estimates of Rs 14.1 billion and EBITDA at Rs 2.7 billion (up 56.5% YoY) vs estimates of Rs 1.98 million. EBIDTA margins at 17.3%, was up 250bps YoY as strong execution led to better operating leverage.
We raise our FY15E, FY16E and FY17E earnings estimates by 26%, 25% and 18% respectively to reflect margin expansion on account of operating leverage driven by robust execution. BHE is well positioned to benefit from the rising defense expenditure supported by a) strong manufacturing base (Capacity utilization of ~60%) and execution track record, b) relationship with defense and government agencies, c) strategic collaboration with foreign technology partners for new products development d) in-house R&D capabilities (R&D spend at 7.6% of revenues) and e) Increased focus on exports to friendly countries. We maintain Buy, with a revised Price Target of Rs 3,950/share (20x FY17E) which is near to its peak historical valuation of 22x to factor the improved pace of decision-making in defense and higher FII limit."
