Shares of Bharat Electronics ended 4 percent higher today, after it bagged an order worth Rs 9,200 crore for supply and services of LRSAM (Long Range Surface to Air Missile) systems. The company has entered into contracts with Mazagon Dock Shipbuilders Ltd. (MDL), Mumbai and Garden Reach Shipbuilders and Engineers Ltd (GRSE), Kolkata​ to supply LRSAM systems for seven ships over a period of five years.

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BEL has lost 30 percent market capitalisation from the start of this year as the street was nervous about the revenue visibility and execution capability of the company. The order valued Rs 9,200 crore was initially expected to be awarded in FY17 and the the delay in order finalisation had cast a loom over the revenue visibility for coming years.

With this order in hand , the company's order inflows in first 5 months of the financial year 2019 stand at over Rs 12,500 crore compared the initial guidance of full year order inflow of Rs 15,000 crore. The management expects finalisation of another large order worth Rs 6000 crore for supply of Akash missiles in Q3 FY19. As a result, the management raised the order inflow guidance for FY19 to atleast Rs 17000 crore compared to Rs 15,000 crore earlier.

Delivery of LRSAM order is expected to be phased over next 5 years and the revenue booking is expected to be back ended .Hence factoring no revenue recognition from this order in FY19, the management maintained the revenue growth guidance for FY19 at 12-15 percent with an operating margin range of 17-19 percent. The management however expects 15 percent advance against this order over the next few months which would be used to fund company's capital expenditure plan, meet working capital requirements and generate additional treasury income .

​BOFAML believes that with this order win , fears around defense capital expenditure taking a back-seat prior to the upcoming federal elections stand allayed. Given the potential for operating leverage-led upside to street's margin estimates , they believe the recent order win should help re-rate BEL which as per them is still trading at its avg. multiples.

JPMorgan echoes similar views as they say that LRSAM order is the second positive development since last week when BEL reported an all-round beat in Q1 earnings. They believe BEL’s valuation/stock performance is highly correlated with order inflows and with this award , the recent under performance of the stock should reverse

First Published:Aug 8, 2018 8:57 PM IST