Buy Bharat Electronics

CMP: 1313.60                       Target price:1998

Armed for a re-rating; initiate at Buy

• Initiate at Buy. India’s expanding defence expenditure and the ‘off-set’ clause in import contracts make the resilient, defencefocused Bharat Electronics a prime candidate for a re-rating, with an expected 39% CAGR in order inflows over the next two years. We initiate coverage with a Buy and a target price of Rs1,998.

• Benefiting from the ‘off-set’ clause. India’s armed forces are expected to spend nearly US$40bn over the next five years to acquire state-of-the-art hardware. Based on the ‘off-set’ clause in import contracts, at least 30% of this would need to be sourced from Indian companies. Given its defence expertise and product range, we expect BEL to be in the driver’s seat in such cases.

BUY INDRAPRASTHA GAS

• CMP:131.70
• CNG price in Delhi higher by INR 2.1/kg

Indraprastha Gas (IGL) increased the retail price of CNG in Delhi from INR 18.9/kg to  INR 21.0/kg w.e.f. from June 16, 2009. The increase encapsulates an INR 2.0/kg  increase in CNG price and an INR 0.1/kg increment in applicable taxes. This implies an  average price of INR 20.56/kg for FY10 (as the older price of INR 18.9/kg has  prevailed for two-and-a-half months of the financial year). However, CNG retail prices
in Noida have been left unchanged at INR 22.1/kg.

• Price hike in CNG to mitigate impact of rise in input costs