Bharat Dynamics Ltd - SUBSCRIBE - IPO Note - SSJ Finance

Bharat Dynamics Limited (BDL), a 'Mini-Ratna (Category-1)' company under the administrative control of Ministry of Defence, is one of India's leading defence PSUs, engaged in manufacturing Surface to Air Missiles (SAM) and Anti-Tank Guided Missiles (ATGM). BDL is the sole supplier of SAMs and ATGMs to Indian armed forces and is also engaged in the refurbishment and life extension of missiles.

Dominant player in a business with a large market opportunity

BDL is the sole supplier of SAMs and ATGMs to Indian armed forces. As a result, BDL receives orders from GoI on a nomination basis for some of its products. We believe BDL is a direct beneficiary of the Make in India policy, in which the government is seeking to reduce its dependence on imports and giving impetus to local defence manufacturing. Moreover, according to Frost and Sullivan, the Indian market for Guided Missiles and Torpedoes over 2017-2026 is estimated at USD24.5 bn, with SAM and ATGM contributing almost USD11.5 bn, a market BDL will have access to.

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

In order to give an impetus to the GoI's "Make in India" policy, company has implemented a vendor development policy in 2015. They believe that the implementation of this policy has enabled them to improve their supply chain management in order to meet their long-term commitments to their primary customer, the MoD and ensured transparency in identifying and developing new vendors. Further, company has also tie-ups with various domestic and international Original Equipment Manufacturers (OEMs) for the development of their existing and future products. Company has also achieved indigenisation of up to 75 - 90% of the KonkursM ATGM and Milan 2T ATGM. They are also constantly evaluating partnerships for transfer of technology to increase the indigenous content of their products. We believe, increase in indigenization will enable them to reduce reliance on imports and thus decreases the cost of products.

Strong order book, robust cash position & established financial track record

As of January 31, 2018, company's outstanding order book stands at Rs 10,543cr & this give revenue visibility for next two & half year. Further, company has also delivered consistent growth over the last five financial years both in terms of financial and operational metrics. In last five years i.e. FY13-FY17, company's revenue & profitability has grown at a CAGR of 46% & 15% respectively. Also, in last few years i.e. FY14-FY17, company's operating margin has improved from 4.6% in FY14 to 11.8% in FY17. Company has robust cash & bank position of Rs 1311cr as on H1FY18. Also, over last five years, company has announced a consistent dividend payout.

Valuation

BDL has reported a CAGR of 39.4% and 10.8% on revenue and net profit fronts respectively over FY2014-2017. On its upper band of price of Rs 428, the issue is priced at PE ratio of 22.7x of its H1FY2018 annualised EPS of Rs 10.8. Considering BDL is only company engaged in missile manufacturing in India and Make in India push by government should immensely benefit the company. Hence, we recommend to Subscribe the IPO.

Source : Equity Bulls

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