Target: ₹1,325

CMP: ₹1,129.30

We hosted the Bharat Dynamics (BDL) management for a meeting with investors recently and the following are the key points: orders pertaining to several defence programmes are expected post FY25 in association with DRDO, BDL’s own R&D and collaboration with foreign players; the company is ready for QRSAM production as limited validation trials got over in April 2023; trials have been completed for NAG ATGM and an RFP is expected in FY24; PNC has been concluded for Konkur-M and Akash Prime systems; orders are expected in FY24; the company maintains its unwavering focus on exports.

BDL’s export order-book of ₹2,600 crore comprises more than 10 per cent of its total order-book – highest among PSUs. The strong order-book provides the company ample opportunity to diversify its earnings base. In the area of underwater weapons, the combat heavyweight torpedo has been fired successfully and it met all parameters. The company is expecting orders for ‘electrical heavyweight torpedo’ in FY26 and ‘advanced lightweight torpedo’ in FY27. We expect an enhanced revenue contribution from underwater weapons in the near future.

Despite revenue growth remaining elusive thus far, we see several bright spots for BDL as significant order inflow is expected from FY25. In our view, revenue pick-up is likely from FY26 and we expect revenue in FY27 at 2x FY24 levels.

While the current stock price factors in some of the future opportunities, we believe that successful testing in the near term and revenue growth in the medium term are key catalysts for stock performance. We prune our FY24/FY25 estimates by 21 per cent/8 per cent, as execution is likely to gain momentum from FY26. However, owing to earnings growth from FY27, our revised target price works out to ₹1,325 (earlier: ₹1,175) on DCF-based valuation methodology. Maintain BUY.

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