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Bharat Dynamics IPO: Leading Defence PSU with Sound Fundamentals; SUBSCRIBE

Reliance Securities | 12 Mar, 2018  | Follow Author | Add to my Favourites 
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State-owned defence equipment maker, Bharat Dynamics (BDL) – a ‘Mini-ratna (Category -1)’ company founded in 1970 and headquartered in Hyderabad – has four decades of experience in manufacturing missiles and countermeasures and allied equipment. BDL manufactures Surface-to-Air missiles (SAMs), Anti-Tank Guided Missiles (ATGMs), Underwater Weapon Launchers, Countermeasures and test equipment for the defence sector. As per F&S, it is the sole manufacturer of SAMs, torpedoes, ATGMs in India. Additionally, BDL is also engaged in refurbishment and life extension of missiles. The Company is also the co-development partner of DRDO for next generation of ATGMs and SAMs. BDL is expanding its manufacturing capabilities by setting up 2 new units in Ibrahimpatanam (Telengana for SAMs) and Amaravati (Maharashtra for and SAMs & VSHORADMs). The Company has demonstrated its ability in manufacturing new age jointly developed air defence systems i.e. MRSAM. It is also entering into technology transfer agreements with established global players in SAM space i.e. Thales.

BDL is coming up with an Initial Public Offering (IPO) to raise ~Rs9.6bn. The Issue is an Offer-for- Sale from the Government of India (promoter), which seeks to sell over 22.45mn equity shares at face value of Rs10 representing ~12% stake in the Company. The price band is fixed at Rs413- 428/share with Rs10/share discount for retail investors and employees. The IPO will open on March 13, 2018 and close on March 15, 2018.

Key Positives

  • Leading defence PSU in India, which manufactures guided missile systems.

  • Increase in indigenisation of products in the wake of Govt’s thrust on “Make in India”.

  • Strong order book and established financial track record.

Key Risks

  • Solely dependent on single customer i.e. Indian armed forces.

  • Susceptible to any decline/reprioritisation of defence budget, reduction in orders, termination of contracts or failure to succeed in tendering projects and deviations in the short-term and long-term policies of Defence Ministry.

  • Cost overruns/delays in delivery may lead to loss under fixed-price contracts.

Outlook & Valuation

We believe that BDL is well-placed to cash in the huge opportunities in India, which is one of the fastest-growing global defence markets on the back of strong management bandwidth with rich experience, world-class infrastructure facilities and limited competition coupled with JVs and offset collaboration for critical technologies. We believe that the Company would continue to deliver higher revenue and profit given the strong growth potential across business verticals. At upper price band of Rs428, the issue is available at 16 P/Ex FY17 (diluted EPS). Based on our back-of-the-envelope calculation, the Issue is available at 13.7x P/E FY20 at its upper price band, which looks attractive. Thus, we recommend SUBSCRIBE to the issue.

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About Reliance Securities

Reliance Securities, the broking arm of Reliance Capital, is one of the India’s leading retail broking houses, providing customers with access to equities, derivatives, currency, IPOs, mutual funds, bonds, and corporate FDs amongst others. The large array of financial offerings helps customers fulfilling their investment objectives on one platform. Focus on timely & error-free execution represents its core strength. Their best in class research offerings, high degree of compliance with stock exchange regulations, ethical business standards, & strong risk management capabilities; Reliance Securities positions itself amongst strong & innovative brands in the financial services space.

For more information please write in to [email protected]

Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor accept any liability whatsoever arising from the use of any of the above contents.


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