Bharat Dynamics Ltd - IPO Note - SUBSCRIBE - Kotak

- BDL is one of the 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. It is the sole manufacturer in India for SAMs, torpedoes, ATGMs (Source: F&S Report). Additionally, the company is also engaged in the business of refurbishment and life extension of missiles manufactured. BDL is also the codevelopment partner with the DRDO for the next generation of ATGMs and SAMs.

- BDL is a wholly-owned GoI company headquartered in Hyderabad and under the administrative control of the MoD, GoI and was conferred the 'Mini-ratna (Category -1)' status by the Department of Public Enterprises, GoI. Founded in 1970, the company has over four decades of experience in manufacturing missiles and countermeasures and its allied equipments.

- BDL currently has three manufacturing facilities located in Hyderabad, Bhanur and Vishakhapatnam. Its Hyderabad manufacturing unit is engaged in the manufacture of SAMs, Milan 2T ATGMs, countermeasures, launchers and test equipment. Its Bhanur unit is engaged in the manufacture of the Konkurs - M ATGMs, the INVAR (3 UBK 20) ATGMs, launchers and spares. The company's Vishakapatnam unit is engaged in the manufacture of light weight torpedoes, the C-303 anti torpedo system, countermeasures and spares.

- BDL is 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 Defence Missiles (VSHORADMs) respectively.

- Valuations: At the higher end of the issue price of Rs 428 per share, the stock is trading at 16.1x FY17 earnings. On an EV/EBITDA basis, the stock is trading at 10.8x FY17 EBITDA. The BDL is trading at a discount to listed peers like BEL (PE of 22x FY17 earnings and EV/EBITDA of 13.7x). However, BEL scores over BDL in terms of higher revenue visibility provided by its order book. BEL also has a good track record of profitability. The other positives with BDL is its high return ratios and attractive EBITDA margins. Given attractive valuations and good return ratios coupled with steady future growth, we advise investors to SUBSCRIBE to the issue.

Source : Equity Bulls

Keywords