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Guided missile systems to drive orderbook and profitability

BDL reported better than expected Q4FY22 print, with revenue up by 21.5% and 71.8% on YoY and QoQ respectively. Reported EBIDTA margins were 29.3% in Q4FY22 as against 30.3% in Q4FY21. Net profits of the company were up 1.5% and 24% on YoY and QoQ basis. Net profits of Q4FY22 includes exception item of Rs335.85mn. BDL is the key domestic supplier of SAMs and ATGMs to the Indian Armed Forces. While current orderbook stands at ~Rs114bn (~3.6x book to bill), management has reiterated the possibility of orderbook expanding to Rs230bn over next two years. We believe large part of the accretion is expected from Akash 3rd and 4th squadrons (Indian Army) and ‘Astra beyond visual range' (air-to-air missiles). We maintain ADD with DCF-based target price of Rs803/share revised from Rs717/share earlier.

* Indian Army to acquire two Akash Prime missile regiments: The India Army has sent a proposal to the Union Government to acquire two regiments of Air Defence System. Akash Prime is the latest version of indigenously developed medium range, surface to air missile (SAM) system Akash. Akash Prime is capable of simultaneously engaging multiple targets in group mode or autonomous mode, the Akash missile system has built-in electronic counter-counter measures (ECCM) features and has been configured for a mobile platform. The missile system was developed by DRDL in collaboration with other DRDO laboratories under mission and strategic systems. It is manufactured by BDL and BEL.

* Bharat Dynamics signs MoU with Tawazun Economic Council, UAE: Tawazun Economic Council (Tawazun) is the UAE Defence and Security acquisition authority for the UAE armed force and also manages the procurement and contract of the UAE armed forces, covering administrative, technical, contractual and functional aspects. Under the MoU, both companies will work together to identify different business opportunities and assess the viability and feasibility of jointly implementing business opportunities in the field of co-development, coproduction, establishment of Joint Ventures, setting up of Maintenance, repair, refurbishment, life extension facilities, supply of military products as well as licensed production.

* Exception item reported in P&L: The exception item of Rs335.85mn reported in P&L represents recognisation of impairment of right to use asset and infrastructure created thereon. The right to use was acquired in 2014 for a specific project of Government of India. The lessor has exercised its option to repossess the asset due to non-compliance. BDL is pursuing with the lessor for extension of timeline and it has recognised impairment pending the extension.

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