Bharat Dynamics Ltd(BDL) – Buy-Order book provides visibility

BDL is one of the leading defence PSUs in India engaged in the manufacture of Surface to
Air missiles (SAMs), Anti-Tank Guided Missiles (ATGMs), underwater weapons, launchers,
countermeasures and test equipment. BDL is also the sole manufacturer in India for SAMs,
torpedoes, ATGMs apart from being the sole supplier of SAMs and ATGMs to the Indian
armed forces). Additionally, the company is also engaged in the business of refurbishment
and life extension of missiles manufactured. BDL is also the codevelopment partner with the
DRDO for the next generation of ATGMs and SAMs.
BDL currently has three manufacturing facilities located in Hyderabad, Bhanur and
vishakhapatnam. The company’s Hyderabad manufacturing unit is engaged in the
manufacture of SAMs, Milan 2T ATGMs, countermeasures, launchers and test equipment
while Bhanur unit is engaged in the manufacture of the Konkurs – M ATGMs, the INVAR (3
UBK 20) ATGMs, launchers and spares and the Vishakapatnam unit is engaged in the
manufacture of light weight torpedoes, the C-303 anti torpedo system, countermeasures and
spares. BDL is also in the process of setting up two additional manufacturing facilities at
Ibrahimpatnam (near Hyderabad) and Amravati in Maharashtra which shall be used to
manufacture SAMs and Very Short Range Air Defence Missiles (VSHORADMs)
BDL’s current order book as of October 31, 2017 is Rs.11,164 crores and the company has
posted profits continuously in the last five Fiscals. BDL’s revenue from operations and profit
for the year has increased from Rs.2840.82 crores and Rs.4,43.55 crores respectively, in
Fiscal 2015 to Rs.4832.76 million and Rs.4,90.32 million, respectively, in Fiscal 2017 at a
CAGR of 30.43% and 5.14% respectively.
The recent changes to the government policies allowing private sector companies to
participate in defence contracts will provide significant competition to the company. In order
to address these challenges, the company intends to increase their R&D activities in order to
provide novel and better products to their customers. BDL also intends to carry out process
improvements, in order to improve their productivity and efficiency of their operations and
thereby lower costs. BDL’s R&D expenses have grown at a CAGR of 23.60% from Rs.22.72
crore for the financial year 2015 to Rs.34.71 crore for the financial year 2017. BDL has
established the missile development group with the objective to design and develop missiles.
BDL has also established various technological labs such as RF labs, laser labs,
aerodynamic labs and seeker labs to develop seeker technologies.
BDL intends to leverage their experience to develop new products such as new generation
SAMs, ATGMs, and heavy weight torpedoes which will enable them to further increase their
revenues. BDL is also the joint development partner with the DRDO for the next generation
of ATGMs and SAMs. The MoD has identified them as the production agency and the lead
integrator for one of the new generation of SAMs and the nominated agency for the third
generation of ATGMs. BDL has also entered into several MoUs and non-disclosure
agreements with various companies for developing new products and transfer of

The stock at the CMP of Rs.406 trades at about 14x its FY20 EPS. With increase in defense
spending the opportunity for defense manufacturers are huge and we believe the company
has the skills to tap the same. We recommend a BUY on the stock for medium term
investors considering the attractive valuations and strong order book which provides visibility
for the business.