Accumulate BEL CMP: Rs..3,335.65; Target: Rs.4,115

Key takeaways from BEL are as follows:  

• Sales are expected to grow at a CAGR of 8-10 per cent over the next five years.
• Decision-making in Defence procurement has seen improvement.
• Looking at order inflow of Rs.10,000 crore in FY16 against a run-rate of about Rs.5,000 crore over the last few years. 
• Looking to maintain margin at FY15 levels (16.5 per cent).
• Planning to increase outsourcing to reduce costs.
• To increase R&D spend to 10 per cent of sales from the current level of  8.2 per cent.
• Capex of Rs.1,500 crore lined up over the next few years for expansion and modernization.

We continue to believe that BEL will be the prime beneficiary of government focus on modernisation of current defence fleet and procurement of new capital equipment. Increased focus on R&D, move towards being a system integrator and increased focus on outsourcing are steps in the right direction to increase long-term sustainability of business. 

We continue to believe that BEL offers good investment opportunities to investors who want to invest in the Indian Defence sector with a long-term view. We expect the stock to deliver earnings at a CAGR of 15 per cent over FY14-17E. Maintain ‘Accumulate’.