Bharat Electronics Ltd. is poised to benefit from the Narendra Modi government's growing outlay on defence, focus on import substitution and modernisation, according to JPMorgan.
The brokerage firm initiated coverage on the stock with an "Outperform" rating, and a target price of Rs 185, which indicates an upside of 19 percent from Monday's closing price. The consensus target price of 25 analysts tracking the stock stands at Rs 192, according to data available on Bloomberg. 17 of those analysts have a "Buy" rating on the stock, while three have a "Sell" rating.
"BEL's position benefits from its strong research and development focus, improving indigenisation levels, growing manufacturing footprint and solid execution track record. A sizable non-defense and export opportunity could augment future growth," JPMorgan analysts wrote in a report dated March 5.
Over FY18-20E, we expect BEL to deliver compounded annual growth rate of 13 percent in revenues, 15 percent in EBITDA (earnings before interest, taxes, depreciation, and amortisation) and 17 percent in profits.JPMorgan Report
BEL's organic growth prospects, higher margin profile, and scope for further return on equity expansion merits a 15 percent valuation premium to the estimated FY20 average price-to-earnings of global defence majors, according to the brokerage.
The defence electronics equipment maker trades at 26.5 times trailing 12-month earnings per share and 22 times its estimate for the coming year.