Strong margins add a spark to Bharat Electronics in March quarter

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MUMBAI: Defence equipment maker Bharat Electronics Ltd impressed the Street with strong performance for the March quarter. The stock gained 3% in Tuesday morning trade.

Total revenues grew 49% from the year ago quarter. Operating profits jumped 59% as profit margins expanded 1.6 percentage points to 25.5%.

The performance is notably better than Street estimates. Provisional turnover numbers released in April indicated a revenue growth of 39-40% for the March quarter.

“Bharat Electronics Ebitda margins surprised by 450 basis points at 25.5%, driving the 22% profit beat. Thermal imaging cameras, integrated air command and control systems and part supply of long-range surface-to-air missiles were the revenue contributors,” analysts at Jefferies India Pvt. Ltd said in a note.

Order inflows during FY20 are down 43%. But order backlog at 51,970 crore, amounting to four times the previous fiscal year revenues, provides strong visibility. Akash missile and coastal surveillance systems are some of the major orders the company received in FY20.

The order pipeline looks encouraging, especially with the government stepping-up focus on domestic production. “Avionics package for light combat aircraft, smart city business, electronic warfare systems and spares/services are expected to be the major orders in the pipeline for FY21E,” add analysts at Jefferies India.

But performance in the near term can be volatile. The covid-19 pandemic has disrupted business operations.

The lockdown affected operations in the last week of March, April and partially in May, Bharat Electronics said in a business update earlier this month. The company warned about temporary disruption to supply chain and delay in product delivery schedules.

Consequently performance in current quarter (Q1 FY21) can be adversely impacted. “The profitability during the first quarter of FY 2020-21 is likely to be impacted when compared to the corresponding period of previous year due to COVID 19 impact. However, the company expects that the situation will normalize during the second half of FY 2020-21,” Bharat Electronics said in the business update report on 10 June.

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