Reduce Bharat Dynamics Ltd for Target Rs 1,360 by Elara Capital
Execution pickup; margin up on operating leverage
Bharat Dynamics (BDL IN) revenue jumps on low base in Q1FY27, after a delay in execution of Akash surface-to-air missile (SAM). We believe SAM and Astra missile, an air-to-air missiles (AAM) will have been delivered. It had a closing orderbook of ~INR 260bn as on FY26, which has likely increased further, due to order wins for Helina missile launchers and counter-measure dispensing systems Line Replaceable Units (LRU) worth INR13.5bn in Q1FY27. Orderbook is likely to be executed in the next 3-4 years, thereby providing robust sales visibility. However, margin is likely to be lower than FY25 levels of 18.3%, owing to product mix and higher research & development (R&D) spend. Further, increased efforts to grow private participation in missile areas presents a long-term risk for BDL. We raise our TP to INR 1,360 on 38x June FY28E P/E as we roll forward by a quarter but retain Reduce, due to slower-than-expected pickup in Q1FY27, looming margin headwinds, threat from the private sector, and the stock outperforming Nifty by 15% in the past six months. Faster execution and receipt of large export orders would be triggers for rerating.
Revenue up 145% YoY in Q1FY27:
Revenue surged 145% YoY to INR 5.7bn in Q1, as execution picked up likely for SAM and AAM. However, sales growth was 20% lower than our estimates. Their deliveries may have commenced from Q1, and management expects faster execution in FY27. The company’s robust orderbook and inflow potential provide healthy revenue visibility despite temporary challenges on execution.
Profit spikes on operating leverage:
EBITDA rose to INR 831mn in Q1FY27, from a loss of INR 454mn in Q1FY26, led by low 3% growth in employee expenses and a decline in Other expenses, along with higher sales. Profit surged 547% YoY to INR 1.2bn, led by operating leverage and increased Other income. However, we expect margin to remain under pressure, likely lower than FY25 levels of 18.3% (our estimates at 16.3% for FY27).
Robust inflow pipeline to propel growth:
We expect BDL to be a key beneficiary of a robust order pipeline, which includes quick reaction surface-to-air missile (QRSAM) worth INR 100- 120bn, Astra missile order, MRSAM for the Navy, exports order for Akash, and small-ticket orders for Nag & Dhruvastra missiles. During the quarter, it received large order for Helina missile launchers and counter-measure dispensing systems LRU worth INR 13.5bn from Hindustan Aeronautics. However, there has been increased efforts by the government to increase private sector participation in areas like missiles, which is a long-term risk for BDL.
Retain Reduce with a higher TP of INR 1,360:
We retain our estimates during FY27-29. We raise our TP to INR 1,360 from INR 1,315 on 38x (unchanged) June FY28E P/E as we roll forward by a quarter. However, we retain Reduce, due to slower-than-expected pickup in Q1FY27, looming margin headwinds, threat from the private sector, and the stock outperforming the Nifty by 15% for the past six months. We expect an earnings CAGR of 51% during FY26-29E with an average ROE of 23% during FY27-29E. Faster execution and receipt of large export orders would be triggers for rerating
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SEBI Registration number is INH000000933
