Domestic order inflows in the defence sector are set to grow multifold over at least next two years. The Acceptance of Necessity (AoN), which is a prerequisite to awarding stood approved at Rs 2.6 lakh crore in FY23, representing 74 percent of the cumulative AoN over FY18-22.
Bharat Dynamics is one amongst the many beneficiaries of the defence indigenization theme playing out in the country. While the company's revenue growth is expected a few years further, its order wins have been strong. The company's orders pertaining to several defence programmes are expected post FY25 in association with Defence Research and Development Organisation (DRDO). The orderbook at May 2023-end is at Rs 20,400 crore, implying a healthy bill to book ratio. The order inflow in initial two months of the ongoing financial year 2023-24 was Rs 520 crore. Bharat Dynamics expects QRSAM, HELINA ATGM and NAG ATGM orders in FY26 and Akash NG, VLRSAM and MPATGM orders in FY27 in association with DRDO.
Furthermore, this defence products manufacturer is company is actively engaged with IAF to finalise the contract for procurement of an indigenously-developed smart anti-airfield weapon (SAAW). For this, the DRDO has conducted tests for two different configurations of the SAAW and Bharat Dynamics expects the order in FY27. With foreign collaborations, the company is expecting orders pertaining to LBRM, Spike ER2 and 70MM LGR.
What provides further impetus is its large export order book. Bharat Dynamic's export orderbook of Rs 2,600 crore comprises more than 10 percent of its total orderbook, which is the highest among PSUs. The strong orderbook provides the company ample opportunity to diversify its earnings base.
The company has guided for a target revenue of Rs 3,200 crore and earnings before interest, tax, depreciation and amortisation (EBITDA) margin of 20-23 percent in FY24. In FY23 the net profits declined 30 percent to Rs 352 crore, while revenues slid 12 percent to Rs 2,469 crore, compared with the management's earlier guidance of Rs 3,200 to 3,500 crore. It is noteworthy that the company clocked Rs 1,691 crore revenues in the initial nine months of FY23 and hence to achieve the target Rs 3,200 to Rs 3,500 crore revenue for full year, the ask rate for fourth quarter was very high. Due to the Russia-Ukraine war, there were delays in receipt of certain electronic components and explosives from foreign OEMs which impacted the performance during FY23. The company said it is exploring alternatives to mitigate the impact.
ICICI Securities says, despite revenue growth remaining elusive thus far, expect several bright spots for Bharat Dynamics as significant order inflow is expected FY25 onward. Owing to earnings growth from FY27, the brokerage has revised the target price to Rs 1,325 from Rs 1,175.
Bharat Dynamics is trading 3.7 percent higher at Rs 1,147 on the exchanges at 11 am on 15th June.
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