Bharat Electronics reported yet another stellar quarter, continuing its legacy of guiding lower and delivering higher. For the quarter, the company reported revenues of Rs 3885 crore, up 7.7% YoY. EBITDA grew 16.7% YoY. EBITDA margins came in strong at 23.9% vs. 22.1% YoY due to gross margin expansion of 630 bps YoY. Higher gross margins were on account of execution of higher proportion of indigenous orders in the quarter. Employee & other expenses also grew sharply at 15.7%, 27.6% YoY, respectively. PAT grew 19.7% YoY to Rs 668.6 crore as other income jumped 3.6x YoY.
With a healthy order backlog of Rs 51,798 crore, we expect execution momentum to continue in FY20E-21E. Going ahead, BEL is likely to derive higher revenues from non-defence segment like homeland security, cyber security and smart cities. Order book from this segment is roughly at ~Rs 1500 crore. These newer areas have potential to contribute ~20% to topline albeit with lower margins over the next three to five years. Accordingly, we remain positive on the company and expect it to report revenue, EBITDA and PAT CAGR of 15.2%, 6.6%, 2.9%, respectively, in FY20E-21E. We value the company at 16x P/E on FY21E earnings to arrive at a target price of Rs 135 per share. We maintain our BUY recommendation on the stock.