Bharat Electronics Limited (BEL) is the manufacturer of a wide array of products, which can be broadly classified into 8 core business groups —radars and sonars, communication, electronic warfare systems, electro optics, tank electronics, telecommunication & broadcasting, components and turnkey solutions.
Though BEL is the market leader in this segment still it is increasingly facing difficulty in procuring advanced technology in defense space as the foreign companies are more keen to come into this segment themselves by tying up with local partners. Though there might not be any mass flight of customers (defense establishment is under government control), but lack of advanced technology would compromise its future growth.
Being in a niche sector, and protected by barriers raised by the government, BEL has flourished over the years. Over the past 5 years the company had seen a steady rate of growth in profits of 20 per cent per annum. It is virtually a debt-free company, with very low capital expenditure. A limited working capital requirement has allowed it to operate with a positive cash flow. At the end of the previous fiscal it had close to Rs 3,700 crore in its reserves. The weakness outlined by the company in its annual report, which plagued all PSU companies at one point of time or other, may be a matter of concern for investors.
Over the past 5 years the stock has given gains of 21 per cent per annum. With an yield of 1.35, the stock is trading at a PE of 12.57. Its 5-year median PE is 14.31, that is, the stock is trading 12 per cent below its historic trading level. With pending orders close to Rs 10,000 crore, the company is assured of earnings visibility in coming quarters. Coupled with cash on its books of Rs 330 per share, (which is almost 25 per cent of its current market price) and a market dominance of over 57 per cent, the stock can be considered as a value pick at these levels.
BEL was set up by the Government of India under aegis of Ministry of Defence in 1954 to manufacture transreceivers. Today, it has evolved into a multi-product, multi-technology, multi-unit company in the field of defense and electronics.
This article was previously published in October 2009 issue of Wealth Insight