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IPO Note: Bharat Dynamics Ltd.

Issue Snapshot

Company Name Bharat Dynamics Ltd.

Issue Opens March 13, 2018 to March 15, 2018

Price Band Rs. 413 to Rs. 428

Bid Lot 35 Equity Shares and in multiples thereof.

DiscountRs. 10 per shares to retail investors and eligible

employees

The Offer Public issue of 22,451,953 Equity shares of Face value

Rs. 10 each, (Comprising of Offer for Sale).

Issue Size Rs. 960.9 Crore

IPO Process 100% Book Building

Face Value Rs. 10.00

Exchanges NSE & BSE

BRLM SBI Capital Markets Limited, IDBI Capital Markets &

Securities Limited and Yes Securities (India) Limited

Registrar Alankit Assignments Limited

Industry: Defence Reco: Subscribe Date: March 09, 2018

1008, Raheja Centre, 214, Nariman Point, Mumbai-400 021, Ph- 022 – 6611 1700, Extn. - 704 www.ashikagroup.com

Company Highlights

Bharat Dynamics Ltd. (BDL) is a wholly-owned Government of India (GoI) company headquartered in Hyderabad

and under the administrative control of Ministry of Defence (MoD). It was conferred Mini-Ratna (category-1)

status by GoI's Department of Public Enterprises. Founded in 1970, the company has over four decades of

experience in manufacturing missiles and countermeasures and its allied equipments.

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 in India. Additionally,

it is engaged in the business of refurbishment and life extension of manufactured missiles. BDL is also the co-

development partner with the DRDO for the next generation of ATGMs and SAMs.

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 is also in

the process of setting up two additional manufacturing facilities at Ibrahimpatnam (near Hyderabad) and

Amravati in Maharashtra which shall be used to manufacture SAMs and Very Short Range Air Defence Missiles

(VSHORADMs) respectively.

Issue Break up

Issue Size Allocation Equity Shares*

QIB 50% 10,996,875

HNI 15% 3,299,063

RII 35% 7,697,813

Total Public 100% 21,993,750

Employee 458,203

Total 22,451,953

Equity Share Pre Issue (Nos. Cr.) 18.3

OFS Share (Nos. Cr.) 2.2

Equity Share Post Issue (Nos. Cr.) 18.3

Market Cap (Rs. Cr.) 7,844.4

Dilution 12.2%

* Based on Higher Price Band @ 428

Objects of the Offer

Offer for Sale

The Company will not receive any proceeds of the Offer for Sale by the Selling Shareholder. The objects of the

Offer are to achieve the benefits of listing the Equity Shares of the Company on the Stock Exchanges. The listing

of the Equity Shares will enhance the Company’s brand and provide liquidity to the existing Shareholders.

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21008, Raheja Centre, 214, Nariman Point, Mumbai-400 021, Ph- 022 – 6611 1700, Extn. - 704 www.ashikagroup.com

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. 22.7 crore for FY15 to Rs. 34.7 crore for FY17. It has established the

missile development group with the objective of designing and developing missiles.

As on January 31, 2018, the company’s order book stood at Rs. 10,543 crore, which is almost 2.5 times the revenue

generated in FY17. The company's revenue and net profit for the year has increased from Rs. 2,840.8 crore and Rs.

443.5 crore, respectively, in FY15 to Rs. 4,832.7 crore and Rs. 490.3 crore, respectively, in FY17, showing growth of

30.43% and 5.14% CAGR, respectively. The company has consistently declared dividends for the last five years. It

has delivered RoNW of 26.8%, 30.4% and 22.2% for FY15, FY16 and FY17 respectively.

View

Bharat Dynamics ltd. (BDL) is government owned leading defence company, primarily engaged in the manufacturing

of Surface to Air missiles (SAMs), Anti- Tank Guided Missiles (ATGMs), underwater weapons, launchers,

countermeasures and test equipment. Company is sole supplier of SAMs and ATGMs to Indian armed forces.

Company has its headquarter in Hyderabad and under the administrative control of the Ministry of Defence (MoD).

BDL has bestowed the ‘Mini-ratna (Category -1) status by the Department of Public Enterprises, Government of

India. Company operates through 3 manufacturing facilities located in Hyderabad, Bhanur and Vishakhapatnam.

Further, company is in process of setting up two additional manufacturing facilities at Hyderabad and Maharashtra

which would be used to manufacture SAMs and Very Short Range Air Defence Missiles (VSHORADMs) respectively.

BDL owned modern updated manufacturing facilities equipped with robotic welding machines, four axis machines,

flow forming machines, vacuum furnace for heat treatment, automated electroplating shop, 3D coordinating

measuring machine, climatic chambers and 800G acceleration measuring fixture. Technologically, updated

manufacturing facilities help the company to compete with its global peers. Government’s Make in India initiative

would provide impetus to the company to manufacture in house defence products and gradually reduce the import

dependency. In sync with government’s Make in India policy, company has developed a vendor development policy

in 2015 which has enabled BDL to improve its supply chain management in bid to meet the long term commitments

to its primary customer, MoD and ensured transparency in identifying and developing new vendors. Company has

strong order book of Rs 10,543 crore which gives revenue visibility for the next two years. In bid to remain

competitive, company would continue to invest in infrastructure by expanding its manufacturing facilities in

Hyderabad & Maharashtra and automating its production systems in its existing Hyderabad facilities in aim to

increase the production of SAMs. BDL intends to focus on export in aim to expand its business operations on

overseas markets and government has been encouraging the company for that. Company intends to offer products

such as Akash SAM, light weight torpedoes and countermeasure dispensing system to the international markets.

Currently, BDL exports its light weight torpedoes to international markets.

On financial front, BDL has reported strong financial growth in past 4 years. Since FY14, revenue registered a CAGR

of 39%, while EBITDA grew at a CAGR of 90% with average EBITDA margin maintained at 9.7% in past 4 years. Net

profitability during the same period grew at a CAGR of 11% with average PAT margin maintained at 14.9%. Better

net profitability led the company to sustain an average RoE of 27% in past 4 years, though RoE has been reduced

since FY15. BDL is a virtually debt free company with ability to generate stable cash flows. Government would

divest 12.2% in BDL, hence there would be no equity dilution. On valuation front, at upper price band company is

valued at P/E multiple of 16x on its FY17 EPS, which looks reasonable in absence of peers in domestic market. We

recommend our investors to “SUBSCRIBE” the issue from long term investment perspective given its monopolistic

nature of business in domestic market, Mini Ratna government PSU, strong balance sheet and immense opportunity

in defense segment due to government’s focus to manufacture indigenous defence products.

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31008, Raheja Centre, 214, Nariman Point, Mumbai-400 021, Ph- 022 – 6611 1700, Extn. - 704 www.ashikagroup.com

(In Rs. Cr) FY13 FY14 FY15 FY16 FY17 H1FY18

Cash flow from Operations Activities (555.1) 214.9 (599.1) 284.3 (23.2) 875.8

Cash flow from Investing Activities 269.6 225.2 62.3 148.6 3.1 (4.5)

Cash flow from Financing Activities (47.4) (135.8) (60.8) (324.3) (166.2) (451.4)

Net increase/(decrease) in cash and cash equivalents (332.8) 304.3 (597.6) 108.6 (186.3) 419.9

Cash and cash equivalents at the beginning of the year 4295.1 3962.3 721.5 123.9 232.5 46.2

Cash and cash equivalents at the end of the year 3962.3 4266.5 123.9 232.5 46.2 466.1

Source: RHP

Comparison with listed industry peers

Financial Statement

Cash Flow Statement

(In Rs. Cr) FY13 FY14 FY15 FY16 FY17 H1FY18

Share Capital 115.0 115.0 115.0 97.8 122.2 91.6

Net Worth 1051.2 1276.0 1652.7 1851.2 2212.5 1630.6

Total Long Term Liabilities 109.7 45.0 1917.5 1271.8 533.3 427.7

Total Current Liabilities 6089.7 6924.7 4841.8 6517.6 5855.0 6226.6

Fixed Assets 346.1 430.3 660.0 823.0 896.7 936.4

Non Current Assets 86.6 57.6 133.8 172.8 240.7 280.6

Current Assets 6818.0 7757.8 7618.2 8644.9 7463.3 7068.0

Total Assets 7250.6 8245.7 8412.0 9640.6 8600.8 8285.0

Revenue from Operations 1076.4 1783.5 2840.8 4078.8 4832.8 1805.7

Revenue Growth (%) 65.7 59.3 43.6 18.5

EBITDA (12.5) 82.2 274.9 513.3 568.2 245.0

EBITDA Margin (%) (1.2) 4.6 9.7 12.6 11.8 13.6

Net Profit 278.8 360.1 443.5 562.1 490.3 172.6

Net Profit Margin (%) 25.9 20.2 15.6 13.8 10.1 9.6

Earnings Per Share (Rs.) 20.0 25.8 31.8 40.3 40.1 14.2

Return on Networth (%) 26.5 28.2 26.8 30.4 22.2

Net Asset Value per Share (Rs.) 91.4 111.0 143.7 189.4 181.1 177.9

Source: RHP, Ashika Research

There are no listed companies in India that engage in the similar line of business. Hence, it is not possible to provide an

industry comparison in relation to the Company.

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41008, Raheja Centre, 214, Nariman Point, Mumbai-400 021, Ph- 022 – 6611 1700, Extn. - 704 www.ashikagroup.com

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Name Designation Email ID Contact No.

Paras Bothra President Equity Research paras@ashikagroup.com +91 22 6611 1704

Krishna Kumar Agarwal Equity Research Analyst krishna.a@ashikagroup.com +91 33 4036 0646

Partha Mazumder Equity Research Analyst partha.m@ashikagroup.com +91 33 4036 0647

Arijit Malakar Equity Research Analyst amalakar@ashikagroup.com +91 33 4036 0644

Tirthankar Das Technical & Derivative Analyst tirthankar.d@ashikagroup.com +91 33 4036 0645

Research Team