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BDL reported very disappointed numbers for this quarter. Reported revenue for the quarter de-grew by 36.5% YoY to Rs 1.8bn (Our est. Rs 5.6bn) Vs last Rs 2.9bn in Q1FY24. Gross profit decreased by 8% YoY/-72% QoQ basis to stood Rs 1.6bn vs CEBPL est. 3.3bn, Gross margin improved by 2598bps YoY/ 1752 QoQ to 84.6% vs our est. 58.9%. EBIDTA came at Rs -523mn (vs our Est. Rs 456mn), Margin become worse for this qtr stood at -27.9% vs -11% last year same period (vs Est. of 8.1%). APAT came at Rs 72mn (-82.7% YoY/-97.5% QoQ) vs Rs 418mn in Q1FY24

* Significant A2A missiles systems triggers near to medium term: We are expecting the company will get Rs 60-70bn worth Astra weapon system contract for supplying of nearly 450-500 nos Astra Mk-1 BVR missile system, which is the best in its class of weapon systems in the world, in the category of air-to-air missiles with a formidable range exceeding 100 kilometers. Additionally, an agreement with European missile manufacturer MBDA will establish a facility in India for the final assembly, integration, and testing of the ASRAAM missile. Expecting significant order from the IAF in the coming year FY26-27, specially to arm the LCA-Tejas Mk1A fighter jet. The Jaguar aircraft of the IAF were the first to be equipped with this cutting-edge missile. Now it replace the ageing Matra Magic R550 missiles. The IAF is envisions the ASRAAM to its entire fleet includes Sukhoi30MKI, Rafale, Tejas for close quarter defence capabilities. ASRAAM presents a lucrative export opportunity for India. The combination of advanced technology, local manufacturing & competitive pricing could make it a compelling option for the nations.

* 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 other countries like Brazil, Egypt, etc.

* Huge order inflow to pick up from FY25-26: BDL is inline with capability building to carter future growth. We expect order execution to pick up from FY25 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 FY25 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 like to ascribe “REDUCE” rating due to expensive valuation on the stock with a target price of Rs 1,501 (60x of FY26E EPS).

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