Execution picking-up; Orders pipeline remains strong…
About the stock: Bharat Dynamics (BDL), one of the leading defence PSUs in India, is engaged in the manufacture of surface to air missiles (SAMs), anti-tank guided missiles (ATGMs), air to air missiles (AAMs), underwater weapons, launchers, countermeasures and test equipments
• Company’s revenue and PAT have grown at 14.1% & 16.9% CAGR respectively over the period FY21-23
• Order backlog is estimated to be at ~₹ 20000 crore
Q3FY24/9MFY24 performance: Operational performance in Q3FY24 has improved considerably on YoY basis (led by pick-up in execution) after seeing muted execution during Q3FY23-Q1FY24 on account of delays in receipt of some key components. Revenue was up ~30% YoY with EBITDA margin marginally improved to ~20%, translated into EBITDA increase by ~34% YoY. Revenue for 9MFY24 stands at ₹ 1515.2 crore (down 10% YoY) with EBITDA margin at 14.5% (vs 13.3% in 9MFY23)
Investment Rationale:
• Healthy order-book position with strong pipeline presents robust growth visibility: Company’s order backlog is estimated at ~₹ 20,000 crore (9x TTM revenue) provides healthy growth visibility. Orders pipeline also remains strong (in both domestic and exports) which includes various SAM (Surface to Air missile) variants including Akash NG, Quick Reaction (QRSAM) & Vertical launched Short Range (VLSRSAM), ATGM (Anti-Tank Guided Missile) like Helina/Dhruvastra, Nag, MPATGM, Smart Anti-Airfield Weapon (SAAW), Astra MK2, torpedoes etc. The strong pipeline provides more comfort on future growth visibility
• Expanding Capabilities to enhance market position: BDL has been investing in infrastructure, increasing capacity and expanding R&D activities, both in-house and in association with DRDO for various development and production programmes. BDL has also been focused on entering into various agreements with foreign OEMs, both for manufacturing in India as well as joint development programmes, catering to domestic customers and export markets. The products/projects under development includes Amogha-III ATGM, Drone fired missiles and bombs, LBRM (Laser Beam Riding Missile), Mistral short-range missile system, ASRAAM (Advanced Short Range Air-to-Air Missile), SPIKE ER2 etc
Rating and Target Price
• We believe BDL is strongly placed to benefit from increasing capital outlay for indigenised defence platforms like missiles, torpedoes & Counter measure dispensing systems. We estimate revenue, EBITDA and PAT to grow at 29.4%, 41.4% and 46.9% CAGR respectively over FY23-26E
• Valuation at 27.3x P/E on FY26E basis looks attractive given strong growth ahead led by multiple sectoral tailwinds. We recommend BUY on BDL with target price of ₹ 2010 per share (based on 33x FY26E EPS)
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