Bharat Dynamics Limited IPO Review, Should You Invest?

Bharat Dynamics Ltd (BDL), the Hyderabad based wholly-owned GoI company, as a part of disinvestment is coming up with Rs. 960 Crore IPO.  The Government will raise the money by selling 12 percent stake, which means the sale of about 22.5 million shares. The Bharat Dynamics Limited IPO is offered in a price band of Rs.  413 to Rs. 428 a share and will open on March 13th, 2018. The IPO will close on Mar 15th, 2018

Currently, the company is the sole supplier of SAMs and ATGMs to the Indian Army. Further, BDL is a Miniratna company and is under the administrative control of the Ministry of Defence.

Bharat Dynamics IPO is managed by SBI Capital Markets, IDBI Capital Markets and Yes Securities.

Bharat Dynamics’s Competitive Advantage

• The company has modern facilities and infrastructure to deliver quality products in a timely manner.
• BDL will benefit from Make in India initiative as the government’s new thrust towards it. The company seeks to fast-track the defence procurement, and increasing the indigenous manufacturing is given the highest priority.
• The company has strong order book and established financial track record of delivering growth. BDL current order book stands at Rs. 10,543cr, that comprise of the Akash Weapon System, LR SAM, MR SAM, INVAR (3 UBK 20) ATGM and the Konkurs-M ATGM. This gives the revenue visibility for next two years at 2.2x (on FY17 revenues of Rs. 4,832cr). Going forward, the strong order book will add to the company’s top-line.

Purpose of the issue

The objects of the IPO are

• to carry out the disinvestment of equity Shares
• to get the benefits of listing the Equity Shares on the Stock Exchanges.

However, BDL will not receive any proceeds from the IPO.

Bharat Dynamics Limited IPO Details

• Face Value: Rs 10 Per Equity Share
• Market Lot: 35 Shares
• Minimum Order Quantity: 35 Shares
• Listing At: BSE, NSE

Retail & Employee Discount

The company’s employees and retail investors will be given a discount of Rs. 10 per share in the IPO.

Valuation

BDL is consistently paying dividends and had more than Rs 1,300 crore in cash as of September 30th, 2017. At the upper end of the issue price band, the pre-issue P/E works out to 22.7x 1H FY18 annualized earnings. This is lower compared to BDL’s peers like Bharat Electron and Apollo Micro System (trading at 33.6x and 40.7x of its 1H FY18 annualized earnings respectively). Moreover, BDL has a strong order book and revenue visibility, compared to the peers. The long term investors can definitely “subscribe” to the issue.