Stock Views on BHARAT ELECTRONICS, OBEROI REALTY

MORGAN STANLEY on OBEROI REALTY

Oberoi Realty's March 2011 quarter results were below estimates. Total income was up 58% year-on-year but it fell 33% sequentially due to lumpy recognition of the Exquisite I project. Its operating margin compressed 1,000 basis points (down 760 basis points sequentially) to 54%. Net profit was up 30% year-on-year to 136 crore (down 33% q-o-q). This was below our estimate of 150 crore (largely on account of lower sales in Splendor - six units sold in Q4 versus 91 units of unsold inventory). Splendor, Splendor Grande (28% recognised, 29% sold), Exquisite I, and investment assets were the key drivers of the topline. Income from lease assets remained flat sequentially while income from hospitality (Westin) grew 21%. We retain our 'Outperform' rating on the stock in view of its preparedness to unlock value in its quality land bank, strong balance sheet, and reasonable valuation (25% discount to estimated net asset value).

ROYAL BANK OF SCOTLAND on BHARAT ELECTRONICS

Bharat Electronics (BEL) reported a turnover of 5,630 crore in FY11. This was 5% lower than our forecast of 5,800 crore. The company's net profit for FY11 was 800 crore, up 8% year-on-year. BEL doubled its order book in the past year from 1,1400 crore to 2,3600 crore. The company's largest recent order was the 3,600 crore order for Akash missiles. BEL says it is looking for an order book worth 70,000 crore in the next three years. Even if half of that materialises, it would mean orders worth 35,000 crore over the next three years. The company expects orders of 10,000 crore in FY12, including an additional Akash order of 12,000 crore (along with an order from Bharat Dynamics Ltd, an unlisted defence public sector unit). We believe BEL is the best way to play the Indian defence story and we maintain our 'Buy' rating.