Nuvama prefers BEL shares over HAL stock, shares price targets

Nuvama Institutional Equities has come out with a report on the defence sector where it prefers  shares of Bharat Electronics Ltd (BEL) over Hindustan Aeronautics Limited (HAL). The brokerage cites better execution, higher operating margins and returns on equity (RoE), faster cash conversion, higher asset turnover going forward and lower risks for picking BEL stock. 

"Given Bharat Electronics is a relative short-cycle player in defence electronics than the mighty Hindustan Aeronautics (large systems integrator), we argue BEL should continue to trade at a premium to HAL’s valuation," said Nuvama 

The brokerage has initiated coverage on two stocks assigning a price target of Rs 385 to BEL with a buy call. 

"BEL consistently beats revenue and margin targets, benefits from indigenisation, and is expected to maintain premium valuation due to its short-cycle business model," said Nuvama.

The brokerage went on to say that HAL stock has been trading at a premium to BEL until now due to realisation of large-ticket size order intake over past two–three years (which we expect to continue) and MRO mix touching 50% of revenue, which is not only marginaccretive but also requires lower working capital and has faster conversion rate. 

It assigned a price target of Rs 5150 on HAL, an upside of 22% from April 17 closing price. 

In the current session, the BEL stock was trading at Rs 300.90 against the previous close of Rs 295.10 on BSE. Market cap of the firm stood at Rs 2.19 lakh crore. 

On the other hand, HAL stock was trading 2.5% higher at Rs 4,324 against the previous close of Rs 4,218.60 on BSE.