Buy Centum Electronics; target of Rs 5150: Choice Institutional Equities

Moneycontrol • 1 day ago

Original source

Key Investment Pillars

  • BTS Business Growth: CTE's BTS business is gaining traction, supported by repeat orders for tactical air navigation systems, satellite electronics, and new export opportunities in electronic warfare, driving potential margin expansion of 100-200 bps over the medium term.
  • EMS Business Expansion: The EMS business benefits from rising semiconductor demand, customer diversification, and new engagements across defence, transportation, and industrial segments, strengthening long-term growth visibility.
  • Order Book and Revenue Visibility: The order book grew 38% YoY to ~INR 2,000 Cr, providing healthy revenue visibility, with the management confident of sustaining 25-30% medium-term revenue growth.
  • Margin Expansion: The company targets consolidated EBITDA margin of 12.5-13% in the near term, with an aspiration to reach 14-15% over the next 3-4 years, driven by a rising contribution from higher-value, system-level solutions and design-led manufacturing.

Thesis Validation Checklist

  • Order Book Growth: Monitor the growth of the order book, particularly in the BTS segment, to gauge revenue visibility and potential for margin expansion.
  • BTS Segment Margin: Track the BTS segment margin to assess the company's ability to deliver on its margin expansion targets.
  • Customer Diversification: Observe the progress of customer diversification in the EMS business to evaluate the sustainability of growth.
  • Supply-Chain Management: Watch for the company's ability to mitigate supply-chain constraints and manage working capital efficiently.