IPO Note | Defence
Mar 09, 2018
Bharat Dynamics Ltd
SUBSCRIBE
sue Open: Mar 13, 2018
Is
Issue Close: Mar 15, 2018
Incorporated in 1970, Bharat Dynamics Limited (BDL), a Government of India
(GOI) Enterprise under the Ministry of Defense (MOD) was established in
Hyderabad to be a manufacturing base for guided missiles and allied defense
Issue Details
equipment. BDL, a Miniratna Category-I Public Sector Unit (PSU), is amongst the
Face Value: `10
few industries in the world having capabilities to produce state-of-the-art guided
weapon systems.
Present Eq. Paid up Capital: `183.2cr
Healthy order book indicates strong revenue visibility: BDL current order book
Fresh issue: Nil
stands at `10,543cr, comprising the Akash Weapon System, LR SAM, MR SAM,
INVAR (3 UBK 20) ATGM and the Konkurs-M ATGM. This puts the revenue visibility
Post Eq. Paid up Capital: `183.2cr
for next two years at 2.2x (on FY17 revenues of `4,832cr). Going forward, the
strong order book will further help the BDL to boost its top-line.
Issue size (amount): `961cr
Offering wide Range of Products: BDL is one of the leading defence PSUs in India,
engaged in the manufacture of Surface to Air missiles, Anti Tank Guided Missiles,
Price Band: `413-428
under water weapons, launchers, counter measures and test equipment.
Lot Size: 35 shares and in multiple
Additionally, BDL is also involved in the business of refurbishment and life
thereafter
extension of missiles manufactured. BDL is co-development partner with the DRDO
Post-issue implied mkt. cap: *`7570cr -
for the next generation of ATGMs & SAMs, and capable of catering to India’s
**`7844cr
emerging guided missile and torpedo requirement.
Promoters holding Pre-Issue: 100.0%
BDL to benefit from Make in India initiative: The government’s new thrust towards
Promoters holding Post-Issue: 87.75%
Make in India seeks to fast-track defence procurements with indigenous
*Calculated on lower price band
manufacturing being given the highest priority. This would benefit the defence
players like BDL.
** Calculated on upper price band
Outlook & Valuation: In terms of valuations, the pre-issue P/E works out to 22.7x
Book Building
1HFY2018 annualized earnings (at the upper end of the issue price band), which is
QIBs
50% of issue
lower compared to BDL’s peers like Bharat Electron and Apollo Micro System
(trading at 33.6x and 40.7x of its 1HFY2018 annualized earnings respectively).
Non-Institutional
15% of issue
Further, BDL has a strong order book and revenue visibility, coupled with superior
Retail
35% of issue
return ratios compared to peers. Hence, considering the above positive factors
including growth in the defence industry, we recommend SUBSCRIBE on the issue.
Post Issue Shareholding Patter
Key Financials
Y/E March (` cr)
FY2015
FY2016
FY2017
1HFY18
Promoters
87.7%
Net Sales
2,841
4,079
4,833
1,806
Others
12.3%
% chg
-
43.6
18.5
-
Net Profit
444
562
490
173
% chg
-
26.7
(12.8)
-
OPM (%)
9.7
12.6
11.8
13.6
EPS (`)
24.2
30.7
26.8
9.4
P/E (x)
17.7
14.0
16.0
-
P/BV (x)
4.7
4.2
3.5
-
Amarjeet S Maurya
RoE (%)
26.8
30.4
22.2
-
+022 39357600, Extn: 6831
RoCE (%)
12.6
24.8
22.9
-
[email protected]
EV/Sales (x)
1.5
1.1
1.3
-
EV/EBITDA (x)
15.2
9.0
10.7
-
Angel Research; Note: Valuation ratios based on pre-issue outstanding shares and at upper end
of the price band
Please refer to important disclosures at the end of this report
1
Bharat Dynamics Limited | IPO Note
Company background
Incorporated in 1970, Bharat Dynamics Limited (BDL), a GOI Enterprise under the
MOD was established in Hyderabad to be a manufacturing base for guided
missiles and allied defence equipment. Nurtured by a pool of talented engineers
drawn from DRDO and aerospace industries, BDL began its journey by producing
the 1st Generation Anti -Tank Guided Missile (ATGM) - the French SS11B1. On
successful completion of the SS11B1 project, BDL embarked on production of 2nd
generation ATGMs - the French MILAN-2 and Russian Konkurs. Currently BDL has
been working closely with both the end-user and the OEMs in the upgradation of
ATGMs to the class of tandem warhead ATGMs. The lead taken by the Nation to
develop indigenous, sophisticated and contemporary missiles through the
Integrated Guided Missile Development Program (IGMDP), gave BDL an
opportunity to be closely involved in the program, wherein it was identified as the
Prime Production Agency.
Exhibit 1: Journey of the company
Source: Company, Angel Research
Mar 09, 2018
2
Bharat Dynamics Limited | IPO Note
Issue details
BDL is raising ~`961cr through offer for sale of equity shares in the price band of
`413-428. The company will dilute 12.3% (at upper price band) of its post-offer
paid-up equity share capital.
Exhibit 2: Pre and Post IPO shareholding pattern
No of shares (Pre-issue)
% No of shares (Post-issue)
%
Promoters
18,32,81,250
100.0%
16,08,29,297
87.7%
Others
-
-
2,24,51,953
12.3%
18,32,81,250
100.0%
18,32,81,250
100.0%
Source: Source: RHP, Note: Calculated on upper price band
Note: A discount of `10 per equity share is offered to Retail Investors & Employees.
Objectives of the Offer
Company’s objectives of the offer are:
to achieve the benefits of listing the Equity Shares on the Stock Exchanges.
general corporate purposes
Outlook & Valuation
In terms of valuations, the pre-issue P/E works out to 22.7x 1HFY2018 annualized
earnings (at the upper end of the issue price band), which is lower compared to
BLD’s peers like Bharat Electron and Apollo Micro System (trading at 33.6x and
40.7x its 1HFY2018 annualized earnings respectively). Further, BDL has a strong
order book and revenue visibility, coupled with superior return ratios compared to
peers. Hence, considering the above positive factors including growth in the
defence industry, we recommend SUBSCRIBE on the issue.
Key Risks
Delay in order inflow or execution of current order book can impact both
the top-line and bottom-line.
Increase in competition from other players can impact the business of
BDL.
Mar 09, 2018
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Bharat Dynamics Limited | IPO Note
Income Statement
Y/E March (` cr)
FY2015
FY2016
FY2017
1HFY18
Total operating income
2,841
4,079
4,833
1,806
% chg
-
43.6
18.5
-
Total Expenditure
2,566
3,566
4,265
1,561
Raw Material
2,000
2,818
3,222
1,132
Personnel
312
326
448
222
Others Expenses
253
421
594
206
EBITDA
275
513
568
245
% chg
-
86.7
10.7
-
(% of Net Sales)
9.7
12.6
11.8
13.6
Depreciation& Amortization
67
53
62
30
EBIT
208
460
506
215
% chg
-
120.9
10.0
-
(% of Net Sales)
7.3
11.3
10.5
11.9
Interest & other Charges
3
4
4
2
Other Income
439
385
230
75
(% of PBT)
68.2
45.7
31.4
26.0
Share in profit of Associates
-
-
-
-
Recurring PBT
644
841
732
288
% chg
-
30.6
(13.0)
-
Tax
200
279
242
115
(% of PBT)
31.1
33.2
33.0
40.1
PAT (reported)
444
562
490
173
% chg
-
26.7
(12.8)
-
(% of Net Sales)
15.6
13.8
10.1
9.6
Basic EPS (`)
24.2
30.7
26.8
9.4
Fully Diluted EPS (`)
24.2
30.7
26.8
9.4
% chg
-
26.7
(12.8)
-
Source: Company, Angel Research
Mar 09, 2018
4
Bharat Dynamics Limited | IPO Note
Exhibit 3: Balance Sheet
Y/E March (` cr)
FY2015
FY2016
FY2017
1HFY18
SOURCES OF FUNDS
Equity Share Capital
115
98
122
92
Reserves& Surplus
1,538
1,753
2,090
1,539
Shareholders’ Funds
1,653
1,851
2,212
1,631
Total Loans
-
-
-
-
Deferred Tax Liability
-
18
-
-
Total Liabilities
1,653
1,870
2,212
1,631
APPLICATION OF FUNDS
Net Block
525
698
767
760
Capital Work-in-Progress
135
125
130
176
Investments
3
3
3
4
Current Assets
7,689
8,738
7,546
7,148
Inventories
1,476
2,058
2,251
2,159
Sundry Debtors
335
145
356
130
Cash
3,669
3,242
1,738
1,311
Loans & Advances
6
6
6
6
Other Assets
2,204
3,286
3,194
3,541
Current liabilities
6,759
7,771
6,388
6,654
Net Current Assets
930
967
1,158
493
Deferred Tax Asset
60
77
155
197
Total Assets
1,653
1,870
2,212
1,631
Source: Company, Angel Research
Mar 09, 2018
5
Bharat Dynamics Limited | IPO Note
Exhibit 4: Cash Flow Statement
Y/E March (` cr)
FY2015
FY2016
FY2017
1HFY18
Profit before tax
644
841
732
288
Depreciation
67
53
62
30
Change in Working Capital
(747)
(61)
(506)
754
Interest / Dividend (Net)
3
4
4
2
Direct taxes paid
(220)
(278)
(335)
(148)
Others
(347)
(275)
19
(50)
Cash Flow from Operations
(599)
284
(23)
876
(Inc.)/ Dec. in Fixed Assets
(291)
(216)
(136)
(70)
(Inc.)/ Dec. in Investments
354
365
139
65
Cash Flow from Investing
62
149
3
(4)
Issue of Equity
-
-
-
-
Inc./(Dec.) in loans
0
(199)
0
(451)
Dividend Paid (Incl. Tax)
(61)
(125)
(124)
(1)
Interest / Dividend (Net)
0
0
(42)
0
Cash Flow from Financing
(61)
(324)
(166)
(451)
Inc./(Dec.) in Cash
(598)
109
(186)
420
Opening Cash balances
722
124
233
46
Closing Cash balances
124
233
46
466
Source: Company, Angel Research
Mar 09, 2018
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Bharat Dynamics Limited | IPO Note
Exhibit 5: Key Ratios
Y/E March
FY2015
FY2016
FY2017
Valuation Ratio (x)
P/E (on FDEPS)
17.7
14.0
16.0
P/CEPS
15.4
12.7
14.2
P/BV
4.7
4.2
3.5
Dividend yield (%)
0.0
0.0
0.0
EV/Sales
1.5
1.1
1.3
EV/EBITDA
15.2
9.0
10.7
EV / Total Assets
2.5
2.5
2.8
Per Share Data (`)
EPS (Basic)
24.2
30.7
26.8
EPS (fully diluted)
24.2
30.7
26.8
Cash EPS
27.8
33.6
30.1
Book Value
90.2
101.0
120.7
Returns (%)
ROCE
12.6
24.8
22.9
Angel ROIC (Pre-tax)
(10.3)
(33.0)
107.3
ROE
26.8
30.4
22.2
Turnover ratios (x)
Inventory / Sales (days)
190
184
170
Receivables (days)
43
13
27
Payables (days)
66
120
113
Working capital cycle (ex-cash) (days)
167
77
84
Source: Company, Angel Research
Mar 09, 2018
7
Bharat Dynamics Limited | IPO Note
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
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