Incorporated in 1970, Bharat Dynamics Limited (BDL), a Government of India (GOI) Enterprise under the Ministry of Defense (MOD) was established in Hyderabad to be a manufacturing base for guided missiles and allied defense equipment. BDL, a Miniratna Category-I Public Sector Unit (PSU), is amongst the few industries in the world having capabilities to produce state-of-the-art guided weapon systems.
Healthy order book indicates strong revenue visibility: BDL current order book stands at Rs. 10,543cr, comprising the Akash Weapon System, LR SAM, MR SAM, INVAR (3 UBK 20) ATGM and the Konkurs-M ATGM. This puts the revenue visibility for next two years at 2.2x (on FY17 revenues of Rs. 4,832cr). Going forward, the strong order book will further help the BDL to boost its top-line.
Offering wide Range of Products: BDL is one of the leading defence PSUs in India, engaged in the manufacture of Surface to Air missiles, Anti Tank Guided Missiles, under water weapons, launchers, counter measures and test equipment.
Additionally, BDL is also involved in the business of refurbishment and life extension of missiles manufactured. BDL is co-development partner with the DRDO for the next generation of ATGMs & SAMs, and capable of catering to India's emerging guided missile and torpedo requirement.
BDL to benefit from Make in India initiative: The government's new thrust towards Make in India seeks to fast-track defence procurements with indigenous manufacturing being given the highest priority. This would benefit the defence players like BDL.
Outlook & Valuation: In terms of valuations, the pre-issue P/E works out to 22.7x 1HFY2018 annualized earnings (at the upper end of the issue price band), which is lower compared to BDL's peers like Bharat Electron and Apollo Micro System (trading at 33.6x and 40.7x of its 1HFY2018 annualized earnings respectively). Further, BDL has a strong order book and revenue visibility, coupled with superior return ratios compared to peers. Hence, considering the above positive factors including growth in the defence industry, we recommend SUBSCRIBE on the issue.