NAMO’s “Mooh Tod Jawab” To Pakistan Makes Vijay Kedia’s Fav Stock A Must Buy: Experts

Brave heart jawans died due to official apathy and “jugaad”

The report by Lt. General (Retd) Syed Ata Hasnain on how four heavily armed terrorists were able to walk undetected into a supposedly heavily guarded army camp at Uri and open fire on the jawans sleeping in the barracks makes for chilling reading.

The General has exposed the woeful level of un-preparedness even at so-called nerve centers which are known to be targets for terrorists.

“The budget for operational works (hardened bunkers, weapon emplacements, trenches) is so limited that it will take another fifty years before our defenses at the LoC are sufficiently hardened” the General says, without any trace of exaggeration in his tone.

The army camp at Uri does not even have a security wall despite its proximity to the LOC is the shocking disclosure of the General.

The camp also lacks basic equipment such as “thermal imagers” which helps detect intruders at night. Even the few that are around have weak or dead batteries. The equipment is somehow made to work using “Jugaad”, the General says with sadness in his voice that precious lives could have been saved had it not been for the apathy of the Government.

Obsolete equipment in the Air Force and Navy

“The deeper malaise of obsolescence has afflicted the military for over a decade, and the situation hasn’t changed in the last two-plus years,” Commodore C Uday Bhaskar (retd) said.

He is referring to the fact that Russian-origin MiG-29Ks, which are used by the Navy, are riddled with engine and airframe problems, deficiencies in fly-by-wire system and often require maintenance.

In addition to capability gaps in the Navy’s submarine fleet, the other worries include ship-borne utility helicopters, multi-role choppers for anti-submarine and anti-ship warfare, weapons, maritime fighters and minesweepers. There are also serious problems of technology transfer that haven’t been addressed by the Government.

(Image Credit: HT)

Flying Coffins (Mig) & Sukhoi vs. F-16

The Air Force has obsolete Soviet era Jets (Mig-26 and Sukhoi-35). These are woefully inadequate in comparison to the state-of-the-art F-16s owned by the Pakistani Air Force, according to aviation experts.

The recent deal to buy 36 Rafale Jets from France has brought some cheer. However, it is believed that at least 90 more Rafale Jets are required on an emergency basis to combat the threats posed by Pakistan. In addition, mid-air refueling aircraft coupled with AWACS are also urgently required according to military experts.

(Image Credit: HT)

Namo vows revenge from Pakistan

NAMO has made it clear that Pakistan’s active encouragement of terrorism will no longer be tolerated but that it will meet with a befitting response.

“Pakistan ko apni bashaa mein jawab dena chaiye” NAMO said, his eyes glistening with steely determination.

Incursion into the LOC and destruction of terrorist camps

We saw an example of what NAMO meant when ace commandos of the Indian Army stormed into the LOC and slaughtered a number of dreaded terrorists.

Jo 25 saal mein nahi hua, wo ab hua. Mera Bharat Mahan.

— Vijay Kedia (@VijayKedia1) September 29, 2016

Multiple #SurgicalStrikes across #LoC will send #Pakistan a loud and clear messagehttps://t.co/6C9N4rACw2 pic.twitter.com/kPcjObSqmt

— Firstpost (@firstpost) September 29, 2016

Proud of the Indian Army for successfully carrying out the anti-terrorism operation.Glad the Government took this bold step,was about time!

— Akshay Kumar (@akshaykumar) September 29, 2016

Bharat Electronics is ideally poised to take advantage of escalation of India’s defense preparedness

At this stage, we have to note that there is bound to be reforms in the manner in which the Country views its defense preparedness. Official apathy and “Jugaad” will make way for professional and speedy decision making.

War special stocks Bharat electronics, it makes akash missile. and Premier explosive

— Aßhishek Shukla (@abhishek25) September 22, 2016

Bharat Electronics to set up Rs 300 crore advanced night vision products factory at Nimmalur in Krishna dist of #AndhraPradesh in two years.

— C.R. Sukumar (@crsukumarET) September 19, 2016

Vijay Kedia recommended Bharat Electronics

It is well known that Vijay Kedia has a penchant for investing in “safe stocks” where the prospects of gains are high and the risks are low.

In an interview to ET Now, Vijay Kedia recommended several top-quality stocks, one of which was Bharat Electronics.

Later, Vijay Kedia admitted that he had sold Bharat Electronics probably because the “cease fire” which was then in effect had dampened the growth prospects of the Company. However, his buy recommendation assumes great significance now in the light of the heightened geo-political tensions which creates demand for Bharat Electronics.

In fact, a number of brokerages have now recommended a buy of Bharat Electronics

Buy recommendation of Citi

Citi has recommended a buy on the basis that Bharat Electronics will benefit from the USD 245 billion that will be spent on defense manufacturing over next decade. Citi has also stated that Bharat Electronics is the market leader in India and has significant competitive advantages.

The company will deliver 15 percent EPS CAGR (earnings per share compounded annual growth rate) over FY16-19, Citi opined. Citi also opined that the valuation at P/E of 16.7x FY18 are reasonable.

Citi has increased the target price for Bharat Electronics to Rs 1735 from Rs 1557.

Buy recommendation of Motilal Oswal

Motilal Oswal has recommended a buy on the basis that faster decision making and accelerated indigenization in defense will enable Bharat Electronics to report EPS of INR62 in FY17 and INR69 in FY18. The target price is INR1,450 (21x FY18E EPS) and the key triggers are accelerated decision making toward large defense procurements and increased indigenization, it says.

Buy recommendation of Geojit BNP Paribas Financial Services

Geojit has recommended a buy on the basis that Bharat Electronics will be a substantial beneficiary of the “Make in India” reform in defense. It also states that the current order book is robust at Rs32,333 crore, 551% up from last year and that on a conservative basis, a 15% CAGR in earnings over FY16-FY20E is expected. More potential in earnings growth will emerge as per the progress of the modernization & indigenization programme, it claims.

Other buy recommendations

The views expressed by other leading brokerages are as follows:

Prabhudas Liladhar:

“Order book at the end of Q1FY17 stood at ~Rs321bn, up 53% YoY. Export order book stood at ~US$103m. BEL expects order inflow run rate of Rs100‐150bn per annum for the next few years. Major orders expected in FY17 include Akash Missile Systems (7 Sqdn), Early warning suite for Fighter Aircraft, Mobile cellular Communication systems, Advanced Composite Communication Systems, Ship Data network, Tactical communication systems, Commander TI Sights etc. Radars, Missile Systems, Communication and Network Centric Systems, Tank Electronics, Gun Upgrades, Electro‐Optic Systems, Electronic Warfare and Avionics Systems are the key areas that will drive BEL’s growth in the medium term.”

Emkay

– The company expects to post revenues of Rs100bn in next 2-3 years, provided orders worth ~Rs120bn are received for the next couple of years. If the company continues to get ~Rs120 -150bn worth of orders for the next 3-4 years, then the turnover can probably reach Rs120bn in the next 4-5 years. ~ 80 – 85% of the revenues for a particular year are generated from existing order backlog while 15-20% are attributable to current year orders.

– Revenue growth for the next 3-4 years are likely to be driven by missile systems like Akash, new missile systems like QRSAM, LRSAM etc., Currently only the Akash missile systems are in production. The production orders for LSRAM and QRSAM programs could probably come in next 2-3 years. The value of these new missile programs will be similar to existing Akash missile systems (~Rs50 -100bn).

Sharekhan

BEL remains our preferred defence play on account of its strong manufacturing and R&D base. Robust order book, healthy order pipeline, ramp-up of systems integration capabilities and enhanced R&D spend will aid earnings growth over FY2016-FY2018. We believe that BEL has significant competitive advantages to capture the large chunk of growing defence spend, given its leadership position in Indian defence electronics. At CMP, BEL is trading at 20.5x and 17.6x of its FY2017E and FY2018E earnings, respectively. We reiterate ‘Buy’ with an unchanged price target (PT) of Rs1,450.

ICICI Direct

BEL also has a strong balance sheet with near nil debt and cash balance of Rs 7332 crore. Accelerated order inflows and BEL’s consistent track record in execution, give us reasonable confidence on the robust prospects of the company. Accordingly, we expect BEL to deliver sales and PAT CAGR of 19.1% and 5%, respectively, in FY16-18E. We value BEL at Rs 1560 i.e. 25x P/E on FY18E EPS of Rs. 62.4 and retain BUY recommendation on the company.

Conclusion

We have to compliment Vijay Kedia for yet another stellar stock pick. Bharat Electronics has all the virtues that a discerning investor seeks in a stock such as top-quality management, strong balance sheet, debt free status, market dominance, accelerated order inflows, consistent track record, strong revenue visibility etc. One can confidently say that it deserves to be given pride of place in the portfolio of every patriotic India!