The Hindu Business Line : Bharat Electronics: Buy

The stock trades at 13 times its expected FY06 per share earnings assuming 20 per cent growth in earnings for the year. Valuation levels appear attractive considering the sizable orders on hand, fairly stable and consistent business growth record over the last three to four years, aggressive cost cutting in the past few quarters and increasing cash flow.

The order book at Rs 6,108 crore is two times the turnover for 2004-05. Fresh order flow has remained strong as the company booked orders worth Rs 2,466 crore, about 76 per cent of the turnover for 2004-05. Close to 87 per cent of the revenues come from the defence sector and the revenue model is quite stable and dependant on the order book.

The company has improved its operations substantially by reducing inventory levels, debtor days and staff. This is reflected in the sharp improvement in operating margins. Operating profit margins have improved from 20 to 25 per cent. Better working capital management could also lead to higher cash flows for the already cash rich company. The company has a track record of paying liberal dividends.

Sowmya Sundar

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