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Bharat Dynamics Limited (BDL), a Government of India Enterprise under the Ministry of Defence was established in Hyderabad in the year 1970 to be a manufacturing base for guided missiles and allied defence equipment. Nurtured by a pool of talented engineers drawn from DRDO and aerospace industries, it began its journey by producing the first Generation Anti -Tank Guided Missile (ATGM) - the French SS11B1.

Investment Rationale

* Almost Monopoly In Missile Manufacturing: Bharat Dynamics Ltd controlled by Central Govt of India is the sole manufacturer Missiles and Anti-Tank Guided Missiles (ATGM) to the Indian Armed Forces. The opportunity size for missiles and torpedoes is expected to reach $ 24.5 Bn by CY26. In First half of CY 2022, Government of India announced third positive indigenization list where missile Govt planned to ban import of Anti-ship missiles, Unmanned aerial and manufacture it in India. BDL being a dominant player in the space to benefit largely from the move and has an order book of Rs 12,000 Cr (As of June 2022)

* Newer Products Development to Accelerate Revenue Growth: BDL plan to develop new product such as Anti-Tank Guided Missile, Surface to air missile weapon system, Air to air missile weapon and under water torpedoes and Missiles, which company believed that will have increased in revenue. The Ministry of Defence, Government of India have signed (MoU) every year with BDL. BDL is also the joint partner production agency with the DRDO for the next generation of ATGMs, air to Air missile and SAMs.

* Expansion is in Line to fuel Growth via New Plant Set up: company to strengthen its manufacturing capability and it is setting up 3 new plants at Amravati in Maharashtra, Jhansi in UP and Ibrahimpatnam in Telangana, in addition to its existing three. The Amravati unit will produce Very Short-Range Air Defence Missile (VSHORAD), Jhansi will manufacture components for ATGMs and the Ibrahimpatnam unit will establish the new generation SAM Defence Project.

* Outlook and Valuations: We estimate a 15% CAGR in Topline over FY22-25E, which implies a forward PE (x) of 21.3 for FY 25E. We value it with a earnings multiple of 26.5x to FY25 earnings estimate which results per share value of Rs 1190. We recommend BUY on BDL at CMP of Rs. 956 with Target price of Rs. 1190 (24%).

Observation

* After a spectacular uptrend from February 2022 to April 2022 while giving almost 122.6% return, the stock did not corrected while getting into Lower Low, Lower High formation this shows the strong Relative strength of the stock.

* In the latest week prices have given a breakout of last 4 Weeks range. The stock prior to this had successfully attempted the breakout of ascending triangle which illustrates beginning of the trend on the upside.

* The 16 Week EMA has acted as a variable support to the prices on every dip, while in the formation of Ascending triangle pattern the Average acted as the proxy to rising trend line.

* Looking at the ratio charts versus NIFTY50, we can observe a clear breakout indicating that the stock still can Outperform from the current Levels.

* RSI plotted on the weekly timeframe have shown a positive reversal which reflects the rising momentum in the prices.

Inference & Expectations

* The breakout is in sync with indicators and the trend.

* Going ahead we expect the prices to rise higher till the level of 1200.

* We recommend a strict stop loss of 840, strictly on the closing basis.

Buy at CMP: Rs 956 | Target: Rs 1190 (24%)| SL: Rs 840

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