29 Aug , 2021 By : Kanchan Joshi
Bharat Dynamics (BDL) is a leading Defence PSU in India manufacturing guided missile systems. It has a product portfolio consisting of Surface-to-Air Missiles (SAMs), Anti-Tank Guided Missiles (ATGMs), underwater weapons, launchers, counter-measures, and test equipment. Currently, it is the key domestic supplier of SAMs and ATGMs to the Indian Armed Forces.
Brokerage firm ICICI Securities has initiated coverage on the stock with a ‘Buy’ recommendation. While July 2021 orderbook stands at Rs87 bn the management has reiterated the possibility of orderbook expanding to Rs230 bn over next two years, the brokerage said.
“We believe this is the single biggest investment thesis for BDL and can potentially increase the book to bill ratio 5x by FY23E. The biggest component of the orderbook as expected are Akash 3rd and 4th regiment orders for the Indian Army and ‘Astra beyond visual range air-to-air missiles’ (both these projects combined will lead to accrual of Rs130 bn in order inflow in the medium term). The expected execution on these missiles is also 2-3 years, which, we believe, allows for a much more constructive stance on possible medium-term revenues," it said in a note on August 22.
The stock currently trades at around over Rs381 level and the brokerage sees potential upside of around 57% in the stock as it has a target price of Rs600. Though, the brokerage said its key risks include delay in execution, higher LDs accruing because of the same, lower than expected orderbook accretion, and higher material costs.
ICICI Securities also expects Bharat Dynamics to play leading role in achieving Indian defence export target of Rs350 bn by CY25. BDL is in the process of setting up two additional manufacturing facilities at Ibrahimpatnam (near Hyderabad) and Amravati in Maharashtra, which will be used to manufacture SAMs and Very Short-Range Air Defence Missiles (VSHORADM), respectively.
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