Bharat Dynamics Ltd (BDL) saw its shares falling over 30 per cent in the past six months. Weak execution has been a major overhang on the defence company's performance over the past two years, as despite a strong order backlog of Rs 19,000 crore, BDL has not been able to smoothly execute orders in hand, thanks to supply chain challenges pertaining to the non-availability of critical components.
Things may improve, said Antique Stock Broking as it sees better execution in H2FY25. Bharat Dynamics is prioritising its order delivery where the supply chain is in place and pushing back orders that are facing supply challenges to a later date. This should help BDL achieve its revenue guidance of Rs 3,000 crore for FY25, Antique Stock Broking said.
Considering the company is DRDO’s production agency, it will maintain a steady inflow of orders and growth will be uninterrupted, the brokerage added.
"Exports, which are 13 per cent of the order book currently, have the potential to grow meaningfully as the Cabinet Committee on Security has approved the export of Akash missiles to nine countries. We therefore continue to maintain an optimistic stance on the stock and retain BUY rating with a target price of Rs 1,357 (40 times FY27E EPS)," Antique Stock Broking said.
BDL’s 1HFY25 revenue booking declined 19 per cent YoY on lower supply of critical components that was importing from Russia and Israel. BDL is putting in place an alternate supply chain so as to ensure smooth execution of incremental orders that it anticipates to materialise in the near to medium term.
"We believe normalisation of the supply chain and development of an alternate supply chain would help BDL smoothly execute the large order backlog it has accumulated over the last three years. BDL has retained its FY25 revenue guidance of Rs 3,000 crore despite registering weak revenue booking in 1HFY25," Antique said.
The brokerage noted that despite targeting a revenue booking growth of 30 per cent YoY in FY25, BDL’s operating margin is expected to remain steady YoY at 15 per cent, as the company has substantially ramped up its R&D spend to ensure continuous refinement and upgradation of its existing product portfolio.
"BDL’s R&D expenditure has increased from 1.7 per cent of sales in FY22 to 3.8 per cent in FY24. It is focusing on new product development like Amogha III, a third generation man portable fire-and-forget ATGM, which is being approved by the army and BDL is developing a prototype for validation trials. BDL is also working on next generation ATGM. Thus, given the emphasis on R&D, operating margin is expected to remain stable YoY," Antique said.