Broker’s Call: Bharat Dynamics (Buy)

Target: INR 1325

CMP: INR 1129.30

we hosted Dynamic spices (BDL) to meet with investors recently, the main points are as follows: Orders related to several defense programs are expected after fiscal year 25 jointly with DRDO, BDL’s own research and development and cooperation with foreign players; The company is ready to produce QRSAM as the limited validation trials ended in April 2023; NAG ATGM trials completed and RFP submission expected in FY24; PNC concluded for Konkur-M and Akash Prime systems; orders expected in fiscal year 24; The company maintains its unwavering focus on exports.

BDL’s export order book of Rs.2,600 crore comprises more than 10 per cent of the total order book – the highest among PSUs. The company’s strong order book provides ample opportunity to diversify its earnings base. In the field of underwater weapons, a heavy combat torpedo has been successfully launched and complies with all standards. The Company anticipates orders for “Heavyweight Electric Torpedo” in FY26 and “Advanced Lightweight Torpedo” in FY27. We expect an enhanced revenue contribution from underwater weapons in the near future.

Although revenue growth remains elusive so far, we see several bright spots for BDL as significant influx of orders is expected from FY25. In our view, revenue is likely to be collected from FY26 and we expect revenue in FY27 at 2x levels for FY24.

While current stock prices factors in some future opportunities, we believe that successful testing in the near term and revenue growth in the medium term are key drivers of stock performance. We trimmed our estimates for FY24 / FY25 by 21% / 8%, as execution is likely to gain momentum from FY26. However, due to earnings growth from FY27, our adjusted target price is up to 1 325 EUR (previously: INR 1,175) on discounted cash flow based valuation methodology. Keep buying.