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Bharat Dynamics IPO: Subscribe with a longer term perspective

SPA Securities | 13 Mar, 2018  | Follow Author | Add to my Favourites 
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Bharat Dynamics Limited (BDL) is a mini-ratna company, wholly owned by GoI (HQ in Hyderabad), is leading defence PSUs in India engaged in the manufacture of Surface to Air missiles (SAMs), Anti-Tank Guided Missiles (ATGMs), underwater weapons, launchers, countermeasures and test equipment. BDL is the sole manufacturer of SAMs, torpedoes, ATGMs in India and sole supplier to Indian armed forces. Company engaged in the business of refurbishment and life extension of missiles manufactured, co-development partner with the DRDO for the next generation of ATGMs and SAMs.Currently BDL has 3 manufacturing facilities. Hyderabad manufactures of SAMs, Milan 2T ATGMs, countermeasures, launchers and test equipment. Bhanur unit manufactures the Konkurs - M ATGMs, the INVAR (3 UBK 20) ATGMs, launchers and spares. Vishakapatnam unit manufactures light weight torpedoes, the C-303 anti torpedo system, countermeasures and spares. And also in the process of setting up two additional manufacturing facilities at Ibrahimpatnam (near Hyderabad) and Amravati in Maharashtra which shall be used to manufacture SAMs and Very Short Range Air Defense Missiles (VSHORADMs) respectively.

·         Modern facilities and infrastructure to deliver quality products in a timely manner

·         Increase in indigenization of products and implementation of the "Make in India" policy

·         Quality control of products

·         Strong order book and established financial track record of delivering growth


Outlook & Valuation

The revenue/EBITDA of BDL has grown at a CAGR of 37.7%/232.6% from FY14 to FY17. EBITDA margin expanded by 834 bps over FY14- 17 to 9% in FY17. PAT has grown at a CAGR of 12.4% in the same period due to sharp decline in other income in line with fall in cash balances. At higher price band, the company is demanding a P/E valuation of 16x its FY17 earning. ROE for FY17 stood at ~24.1%. BDL's dominant position as a Government owned enterprise, strong order book, robust return ratios, superior working capital management, established growth track and superior balance sheet (net debt -INR 17.4 bn) are key positives. While opportunity size is huge, order inflow could be bumpy, given the nature of the defence industry. Thus considering the above observations, we assign a "SUBSCRIBE" rating for the issue with a longer term perspective.

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About SPA Securities

SPA Securities was promoted by a team of finance professionals in 1995 with an objective to provide value added financial services. Initially, the Group focused as a niche financial solutions provider in corporate finance and wealth management to Indian companies and high net worth individuals. In January 2000, the Group expanded its operations and the range of services. Today, SPA provides services for securities broking, merchant banking, wealth management, financial advisory, corporate finance , risk management and insurance broking.


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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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