IGI Logo

Supply chain woes to delay execution

Supply from Israel hit till Q4, disbalance from Russia-Ukraine steadies

The management of Bharat Dynamics (BDL IN) indicated that supply chain concerns led by the Russia-Ukraine war have largely mitigated as of now and complete normalization may be expected by Q1FY25. However, supplies from Israel may only begin to improve from Q1FY25, thus delaying the execution for medium-range surface-to-air missile (MRSAM).

Steady run rate expected in FY25E-26E, margin eyed at 20%

Amid supply chain concerns from Israel, BDL pared revenue guidance to INR 29-30bn from INR 32bn in FY24 versus our estimates of INR 31.8bn, implying a 21% growth versus FY22. BDL expects revenue to grow 33% to INR 40bn in FY25E and 25% to INR 50bn in FY26E, led by execution of Astra Mk1 Beyond Visual Range Air-to-Air Missile (BVRAAM), ATGM, Akash, and exports. EBITDA margin guidance was pared to 20-21% from 20-23% versus our estimates at 21.7%.

Orderbook at INR 201bn, inflow pipeline INR 200bn in three years

Orderbook was INR 201bn as of January 2024, flat over last year. Order inflows through April 2023-January 2024 were INR 17.7bn. Key order wins were: 1) ATGM order worth INR 7.5bn from the Army, 2) upgraded version of Akash missiles worth ~INR 2.5bn from the Army, 3) laser beam riding missile (LRBM) worth INR 2.5bn, 4) unmanned aerial vehicle (UAV) launched precision guided missile (ULPGM) at INR 1.1bn.

BDL expects inflows of INR 30bn in Q4FY24, of which 60% may comprise SAM, 30% ATGM, and the balance 10% others. During FY25- 27, BDL eyes a strong order pipeline of INR 200bn, including exports opportunities, comprising MRSAM order for the Navy and the Air Force, quick-range surface-to-air missiles (QRSAM), Helina and Nag ATGM, smart anti-air field weapon (SAAW), advanced light torpedoes, and ULPGM. Further, the recent Acceptance of Necessity (AoN) approval from the Defence Acquisition Council (DAC) opens up medium-term opportunities for heavyweight torpedoes and Canister Launched AntiArmour Loiter Munition System.

Valuation: Revise to Sell with TP pared to INR 1,500

We trim FY24E/25E/26E EPS 5%/2/%/7% due to lower topline amid execution challenges in MRSAM and management’s revised guidance. We pare TP to INR 1,500 from INR 1,600 on 25x December FY25E P/E (unchanged). We revise BDL to Sell from Reduce as the stock has outperformed Nifty 40% in the past three months. Expect an earnings CAGR of 81% in FY23-26E and ROE/ROCE of 23%/11% in FY24E-26E. Key risks are lower spending in defence capital budget, less allocation to procurement, increased competition from private sector, and sharp rise in commodity price.

Please refer disclaimer at Report
SEBI Registration number is INH000000933