Bharat Electronics IS A good buy for next 18 months

India is one of the largest importers of defence equipment in the world, with most of her defence needs being met through imports. The government is also trying to develop a strong self reliant domestic industry in the defence sector with substantial participation from the private sector including MSMEs and start ups to reverse the trend of imports to a large extent in the near future. The government has taken several initiatives to enable the Make in India vision a reality in the defence sector space by creating an ecosystem for development of technologies through innovation and delivering quality products, systems and services to the defence forces. The Ministry of Defence has introduced a Strategic Partnership Model with the Indian private sector for participation in the manufacture and assembling of fighter aircraft, helicopters, submarines and armoured fighting vehicles, including main battle tanks. The best part is that the strategic partner could tie up with global OEMs to seek technology transfer to set up domestic manufacturing infrastructure and supply chains for major systems. This would aim to progressively build indigenous capabilities in the private sector to design, develop and manufacture platforms. To give a further impetus, the government is planning to further increase the foreign direct investment limits from the present 49% to encourage increased participation of foreign OEMs to set up facilities in the country. Even the DRDO developed technologies are now being made available to Indian industry players for inclusive partnership in the defence sector. Bharat Electronics Ltd is a key player in the Indian defence sector space, set up in 1954 to manufacture basic communication equipment. Today, the company produces a wide range of equipment like radars, naval systems, weapon systems, homeland security, telecom and broadcast systems, electronic voting machines, solar powered traffic signals and control systems. The company has major facilities across the country at Pune, Bangalore, Navi Mumbai, Kotdwara, Chennai and Ghaziabad. The company has achieved a turnover of Rs 8016 crore for the nine-month period ending December 2018, registering a growth of 20% over the turnover of Rs 6,578 crore recorded in the corresponding period of the previous year. Profit after tax also stood at Rs 1,258 crore against PAT of Rs 840 crore for the same period of the previous fiscal. Meanwhile, the order book currently stands at Rs 48,402 crore and hence analysts are betting on this Navratna company to deliver higher profits in the near future. Higher profits also result in a higher dividend by the company as it paid a whopping 200% dividend in 2018. Analysts are hoping for a higher dividend for the current fiscal. The Bharat Electronics Ltd stock, currently quoting at Rs 78 on the bourses is an excellent strong fundamental buy for a 50% price appreciation in the next 18 months.

Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.