Home >Markets >Mark To Market >Strong profit margin in fourth quarter adds sparkle to Bharat Electronics

MUMBAI : Defence equipment-maker Bharat Electronics Ltd’s (BEL’s) Q4 results impressed the Street. Its revenue shot up 49% from a year ago. Its operating profit jumped 59%, with the profit margin expanding 1.6 percentage points to 25.5%. The performance is markedly better than Street estimates.

Provisional turnover figures released in April indicated 39-40% growth in the March quarter. “Bharat Electronics’ Ebitda margins surprised by 450 basis points at 25.5%, driving the 22% profit beat. Thermal imaging cameras, integrated air command and control systems and part supply of long-range surface-to-air missiles were the revenue contributors," Jefferies India Pvt. Ltd analysts said in a note. Ebidta, which stands for earnings before interest, taxes, depreciation and amortization, is a measure of profitability.

The balance sheet shows a notable reduction in trade receivables in FY20, indicating improvement in payments from the government. Order inflows during the year were down 43%. But an order backlog of 51,970 crore, amounting to four times the previous fiscal year’s sales, provides revenue visibility.

The Akash missile and coastal surveillance systems are some major orders the company received in FY20. The business prospects look encouraging, especially given the government’s focus on ‘Make in India’ and indigenization of defence manufacturing. “Avionics package for light combat aircraft, smart city business, electronic warfare systems and spares/services are expected to be the major orders in the pipeline for FY21E," added Jefferies India analysts. But performance can deteriorate in the near term. Covid-19 has disrupted business operations and adversely impacted revenues of the government, the biggest customer of BEL. This could delay payments.

The lockdown hit operations in the last week of March, all of April and part of May. This could stretch delivery schedules.

Q4 reflected the hit as some products dispatched by BEL did not reach customers in time, delaying approvals. Consequently, the Q1FY21 earnings could be hit. “Profitability during the first quarter of FY21 is likely to be impacted compared to the corresponding period of previous year due to covid-19 impact," BEL said. The stock reflects these concerns. It is still down 18% from its highs in January.

With all offices and manufacturing units resuming operations, BEL expects normalcy in the second half. Recovery and impact of the lockdown on the current quarter’s finances will be tracked. “We expect the healthy revenue growth to sustain, reflected in the strong order book and a run rate of 13,000-15,000 crore for new orders annually. With better systems integration capabilities, BEL is capable of delivering a much larger turnover yielding better cash flows/returns over two-three years," Edelweiss Securities Ltd analysts said in a note.

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