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Q2FY25 Financial Performance: BDL reported decent set of numbers with better than our expectations on revenue front. Revenue for the quarter de-grew by 12.2% YoY and improved +185.2% on QoQ basis to Rs 5.4bn (Our estimates Rs 4.3bn) Vs last Rs 6.1bn in Q2FY24, led by robust topline executions. Gross profit is de-grew by -7% YoY and improved +102% QoQ basis to stood Rs 3.2bn vs CEBPL estimates RS 2.6bn. Gross margin improved by 350bps YoY to 60.0% vs our estimates 59.7%. EBIDTA came at Rs 0.988bn to -26% YoY (vs our estimates Rs 0.735bn), Margin improved significantly on sequential basis at 18.5% vs our estimates of 17.2%). Margins are improved because cost control measures. APAT came at Rs 1.22bn (de-grew -16.7% YoY, and significantly improved in sequential basis to 1598% QoQ) (vs our estimates Rs 1.1bn) and led by higher other income.

* Empowering India's defense with indigenously developed missile systems: Bharat Dynamics Limited (BDL) plays a vital role in India's defense sector, particularly as the primary producer of guided weapon systems for the Indian Armed Forces. It is the exclusive supplier of indigenously developed missile systems like the Akash surface-to-air and Konkur anti-tank guided missiles, making it central to the Government of India's (GoI) push for self-reliance in defense production under its Atmanirbhar Bharat initiative. BDL benefits from strong government support, with consistent order flow and financial backing, reflected in its , as of April 1 st , 2024 oderbook stands Rs 195bn unexecuted order book which translate to ~8.2x of FY24 revenue. The company has also built a robust vendor network, enabling the indigenization of nearly 90% of major missile systems. This high level of indigenization, along with BDL's established market position, ensures sustained demand for its products, reinforcing its strategic importance to India's defense capabilities.

* Rising Export Opportunity: Bharat Dynamics Limited (BDL), with over five decades of manufacturing expertise, has expanded its wings into the international defense market. The company offers a diverse range of advanced weapons systems, including the Akash Surface-to-Air Missile, Astra Air-to-Air Missile, Smart Anti-Airfield Weapon, Helina Air-to-Surface Weapon, and various torpedoes and anti-tank guided missiles like Nag, Konkurs-M, and Milan-2T. Having successfully exported Light Weight Torpedoes, BDL is now attracting global interest for its other advanced products, showcasing its growing role in international defense supply and its capability to meet diverse global defense needs. In recent times the company has signed a contact with Armenia to supply Akash Air Missile Systems with worth of INR 50-60bn, and also the company receives interest from friendly countries etc.

* Huge order inflow to pick up from H2FY25-FY26: BDL is inline with capability building to carter future growth. We expect order execution to pick up from H2FY25 onwards led by various order execution such as in the near term, the company expects execution of program such as Astra Mk-1, SAAW, ULPGM, Drone fired Bombs, SPIKE ER, 70MM LGR orders by FY25, and QRSAM, NAG ATGM, Advanced Torpedo, MIGM, GRAD Rockets by FY26. Post that the company expects Akash NG, VLRSAM, MPATGM, Heavy weight Torpedo, AMOGHA III ATGM, MISTRAL, ASRAAM orders in FY27, supported by association with DRDO and in House R&D and Foreign Collaboration.

* View & Valuation: We have a positive outlook on BDL, as it is catering the strategic needs of the MoD & Indian defence forces, supported by 1) Sole supplier of offensive, as well as defensive systems domestically, 2) Upcoming big-ticket project are in the pipeline & it is expected to materialize from H2FY25 onwards, 3) increasing exports opportunity, talks are under way with 4-5 friendly countries, 4) Diversified product portfolio across armed forces, 5) The company's humongous order book, which stood at ~Rs. 195bn as on 1 ST April 2024 (~8.2x of FY24 revenue) will support the the growth story of the company. We expect BDL to registered a healthy revenue/EBIDTA/PAT growth of 28/31/24% CAGR over FY24-27E. We ascribe a multiple of 45x on FY27E EPS to arrive at a TP of Rs 1445 with a rating of “BUY”.

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