Bharat Dynamics IPO Review by Rudra Shares (Apply)

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Review By Rudra Shares & Stock Brokers Ltd on March 14, 2018

VALUATION

Company's two additional manufacturing facilities which is in process of setting up at Ibrahimpatnam (near Hyderabad) and Amravati in Maharashtra which shall be used to manufacture SAMs and Very Short Range Air Defence Missiles (VSHORADMs) respectively , expected to be operational by FY2021 & its current order book as of January 31, 2018, at Rs 10,543cr with additional capital expenditure that the company would incur next year combined with the advantage that it has being the sole manufacturer for SAMs, torpedoes, ATGMs and also the sole supplier of SAMs and ATGMs to the Indian armed forces, with a CAGR growth of around 30% attracts the company.

Moreover, taking into consideration, the current market opportunities in defense and Government of India's initiative, ‘Make in India' aims to boost the nation's domestic manufacturing sector as well as to create market by targeting international market. Considering all these factors, we recommend to SUBSCRIBE the IPO.

THE OFFER

Issue Open : 13 Mar 2018 to 15 Mar 2018

Issue Type: Book Built Issue IPO

Issue Size: Offer for Sale 22,451,953 Equity Shares @ Rs 10 aggregating up toRs 960.94Cr

Face Value: 10 Per Equity Share

Issue Price: Rs413 - Rs 428 Per Equity Share

Market Lot: 35 Shares

Minimum Order Quantity: 35 Shares

Listing At: NSE, BSE

CAPITAL STRUCTURE

The share capital of Company, is set forth below(Amount in Rs except share data)

Authorized Share Capital: 200,000,000 Equity Shares @10 Aggregate value 2,000,000,000

Issued, subscribed and paid up capital before the Issue :- 183,281,250 Equity Shares @10 Aggregate value 1,832,812,500

Present Issue: Offer for Sale 22,451,953 Equity Shares @ Rs 10 aggregating up to Rs960.94Cr

OBJECT OF THE OFFER

The objects of the Offer are

• To carry out the disinvestment of Equity Shares by the Selling Shareholder.
• To achieve the benefits of listing the Equity Shares on the Stock Exchanges.

COMPANY OVERVIEW

Bharat Dynamics is a wholly-owned Government of India (GoI) company headquartered in Hyderabad and under the administrative control of Ministry of Defence (MoD).

The company is engaged in the manufacture of Surface-to-Air Missiles (SAMs), Anti-Tank Guided Missiles (ATGMs), underwater weapons, launchers, countermeasures and test equipments.

It is the sole manufacturer for SAMs, torpedoes, ATGMs and sole supplier of SAMs and ATGMs to the Indian armed forces.

Additionally, it is engaged in the business of refurbishment and life extension of manufactured missiles

It currently has three manufacturing facilities located in Hyderabad, Bhanur and Vishakhapatnam.

• The Hyderabad manufacturing unit is engaged in the manufacture of SAMs, Milan 2T ATGMs, countermeasures, launchers and test equipments.
• The Bhanur unit is engaged in the manufacture of the Konkurs – M ATGMs, the INVAR (3 UBK 20) ATGMs, launchers and spares.

The Vishakhapatnam unit is engaged in the manufacture of light-weight torpedoes, the C-303 anti-torpedo system, countermeasures and spares.

The company intends to increase the R&D activities to provide novel and better products to its customers. The R&D expenses have grown at 23.60% CAGR from Rs 22.72cr for FY15 to Rs 34.71cr for FY17.

STRENGTHS

• Modern facilities and infrastructure to deliver quality products in a timely manner.
• Increase in indigenization of products and implementation of the 'Make in India' policy.
• Quality control of products.

Strong order book and established financial track record of delivering growth.

FINANCIAL PERFORMANCE

Total Revenues stood Rs2190.2cr, Rs 5198.0cr, Rs 4601.3cr and Rs 3253.2cr, in six months period ended September 30, 2017, Fiscal 2017, Fiscal 2016 and Fiscal 2015 respectively.

EBITDA improved marginally by 10 % to Rs568 Cr, EBITDA margin dropped to 11.8 % from 12.6 %.

Incurred a total capital expenditure of approximately Rs600 cr in the last four years and is planning an additional capital expenditure of Rs90 cr.

PBT was Rs 288.0cr, Rs 732.1cr, Rs 841.2cr and Rs 643.9cr, in six months period ended September 30, 2017, Fiscal 2017, Fiscal 2016 and Fiscal 2015 respectively.

Trade receivables nearly doubled to Rs356 cr, & has a working capital of around six months.

PAT was Rs 172.5cr, Rs 490.3cr, Rs 562.0cr and Rs 443.5cr, in six months period ended September 30, 2017, Fiscal 2017, Fiscal 2016 and Fiscal 2015 respectively

SNAPSHOT – CONSOLIDATED

PAT fell 13% Y-o-Y (FY17 as compared to FY16) as advances utilized into operations. However, profit from operations is increasing, though negative cash flows- not a concern as Rs 1600 crores cash available.

RISK FOR THE BUSINESS

• Company is primarily dependent on a single customer, the Indian armed forces through the Ministry of Defence, Government of India ('MoD'). A decline of the Indian defence budget or termination of contracts will have a material adverse impact on business.
• Business operations are based out of three units in Telangana and Andhra Pradesh. The loss of, or shutdown of, operations at any of units in Telangana and Andhra Pradesh will have a material adverse effect on business
• Company is subject to a number of procurement rules and regulations of the MoD, Government regulations and other rules and regulations. Business and reputation could be adversely affected if company fail to comply with applicable rules.
• Business could be adversely affected by an adverse outcome of an audit by the Comptroller Auditor General of India ('CAG').

Restrictions on current and future export of products and other regulations could adversely affect business, results of operations and financial conditions.