Centum Electronics is trading at a market capitalization of INR 1,900 CRORE (approx.) at a P/E of 143 times. The stock is very expensive and doesn’t offer a good entry point at the current levels in my opinion.
Key points:
- Management expects EBITDA to be around 10% for FY24 and around 13-15% over the next few years, meaning that it is not going to generate SIGNIFICANT PROFITS and the stock would remain expensive unless it corrects atleast 30-40% from here.
- Management expects EV / Cleantech to be growth drivers of the future
- EMS business is growing well, on the back of China + 1 strategy with a lot of businesses looking to de-leverage their supply chains.
- BTS is a high margin segment (20% margins) but has a long execution period (>2 years). Margins from EMS hover around 9-12% with project execution of 6-12 months. R&D is lagging behind due to loss making subsidiaries, management expects margins from R&D segment to be 10-11% in the long term with project execution of 6 months.
- Order book is INR 1,548 CRORE as at 30 September 2023.
- In general management has not given detailed breakdown of order book, clients, growth drivers, new initiatives / deals. No comment on deals with Indra OR Rafael, apart from the fact that they are in progress and such deals take time to come to fruition.
I’ve done a detailed breakdown in this article - Betting on Space [Part 2]: Centum Electronics and MTAR Technologies
Disclosure: Tracking, would invest only if the stock correct atleast 30% from the current levels