Bharat Dynamics Limited IPO: Should You Invest or Pass?

26 November 2019
8 min read

Started in 1970, Bharat Dynamics Ltd is Hyderabad based wholly owned Government of India company involved in the production of Surface to Air missiles (SAMs), Anti-Tank Guided Missiles (ATGMs), underwater weapons, launchers, countermeasures and test equipment. Bharat Dynamic have three production plants situated in Hyderabad, Bhanur and Vishakhapatnam.

Bharat Dynamics is the sole manufacturer in India for SAMs, torpedoes and ATGMs. The company is also the sole supplier of SAMs and ATGMs to the Indian Armed Forces.

Additionally, the company is involved in the business of refurbishment and life extension of missiles produced. The company is planning to roll out products such as Akash SAM, lightweight torpedoes and countermeasure dispensing system to the international markets in the upcoming years.

Bharat Dynamics have over 3165 full-time employees, which includes 863 engineers.


Bharat Dynamics IPO Issue Details

IPO Opens on: March 13, 2018
IPO Closes on: March 15, 2018
Issue Type: Book Built Issue IPO
Issue Size:  the Net Offer shall constitute 21,993,750 Equity Shares amounting to Rs. 941.33 crores
Face Value: INR 10 per Share
Price Band: INR 413-428 Per Equity Share*
*Employee and Retail Discount of  INR 10 per share
Minimum Order Quantity: 35 shares
Listing at: NSE, BSE

Objects of Issue: Bharat Dynamics

(i) to carry out the disinvestment of [Ï%] Equity Shares by the Selling Shareholder and
(ii) to achieve the benefits of listing the Equity Shares on the Stock Exchanges.

Financials of Bharat Dynamics

Total Income of 2016-17: INR 51,980.7 Millions
Total Income of 6M 2017-18: INR 21,902.51 Millions
Earnings per Share (EPS): INR.43.13
Earnings per Share (EPS) 6M: INR.14.42
Equity Capital as on 30.9.2017: INR 916.41 Million
Upper Price Band/last EPS: 19.84
Book Value of the Share As on September 30, 2017: INR 88.96**
**NAV adjusted for bonus shares  in ratio of 1:1
Upper offer price/Book Value Ratio: 4.81

Lead Managers: Bharat Dynamics

SBI Capital Markets Ltd
IDBI Capital Markets & Securities Ltd
Yes Securities India Ltd

3 lead managers have handled 26 public issues in the past 3 years out of which 7 IPOs closed below the issue price on listing date.

Registrar to the IPO:

Alankit Assignments Ltd, New Delhi

Bharat Dynamics Limited Financials

Particulars For the year/period ended (in Rs. million)
31-Mar-17 31-Mar-16 31-Mar-15
Total Assets 86,007.92 96,406.32 84,119.70
Total Revenue 51,980.73 46,013.75 32,532.28
Profit After Tax 4,903.19 5,620.69 4,435.48

Bharat Dynamics IPO Details

Bharat Dynamics Ltd (BDL) on 7th March 2018 informed it will come out with its Rs 960 crore Initial Public Offering (IPO) on 13th March 2018.

The company has set a price range of Rs 413 to 428 per share for the public issue. The issue will close on 15th March 2018.

The scrip sale is an offer for sale that will see the government sell a sum total of 22.45 million scrips, showing a holding reduction of approx 12%. The face value of the shares is Rs 10. The government is giving an employee discount and retail discount of Rs 10 per share. The minimum bid size is 35 equity shares and in multiples of 35 thereafter.

The Hyderabad based company has three manufacturing facilities located in Hyderabad, Bhanur and Visakhapatnam. It is also setting up two more production plants at Ibrahimpatnam, near Hyderabad and Amravati, which will be used to produce SAMs and very short range air defense missiles, respectively.


Other Information

The Bharat Dynamics stake sale is part of the government divestment programme. The government has raised a record Rs 91,250 crore so far this year against its FY18 target of Rs 72,500 crore, of which Rs 36,700 crore is through strategic sales in HPCL.

The Cabinet in April 2017 had passed the disinvestment of 4 public sector companies which comprised of Bharat Dynamics and Mishra Dhatu Nigam, under the defense ministry.

Bharat Dynamics filed its draft prospectus to the stock market regulator, Securities and Exchange Board of India (SEBI) in January 2018.

Bharat Dynamics scrip sale is part of the Union government’s divestment program under which the Department of Investment and Public Asset Management (DIPAM) wants to sell government holding in many central public sector enterprises through various ways such as IPOs, offers for sale and strategic sales.

One more defense sector company Hindustan Aeronautics Ltd (HAL) is also planning an IPO in March. The company plans to raise approx Rs 4,000 crore through its issue.

Competitive Strengths

  1. Modern facilities and infrastructure to provide with high-quality products in a timely manner.
    2. Increase in indigenization of the company’s products and execution of the ‘Make in India’ policy.
  2. Strong order book and established financial track record of delivering growth.

The Promoters

The president of India, Acting through the Ministry of Defence, Government of India.

Bharat Dynamics IPO Highlights

  • The company’s order book was at Rs 10,543 crore as of 31st January, 2018.
  • Earnings before interest taxes depreciation and amortisation got better by 10 % to Rs 568 crore. EBITDA margin lowered to 11.8 % from 12.6 %.
  • Its net worth increased 19.5 % to Rs 2,212 crore while the return on net worth decreased to 22.2 % relative to 30.4 % a year ago.
  • Total assets decreased by 11 percent to Rs 8,601 crore owing to a 80 percent drop in cash and cash equivalents and 44 percent decline in bank balances.

Future Plans of Bharat Dynamics

The company also plans to automate production systems at its production plant in Hyderabad to raise the production of SAMs.

The company is also in the process of starting a test fire range in Rachakonda, Telangana which will result in operational benefits and cost saving. The company will also concentrate on Research & Development.

The company has established the missile development group with the goal to design and develop missiles. It has also set up many technological labs such as RF labs, laser labs, aerodynamic labs and seeker labs to make seeker technologies.

The company mainly caters to the needs of the Indian armed forces. Its objective is to better their market position by expanding their capabilities, capitalising on chance both in domestic and international markets.

BDL Chairman and Managing Director V Udaya Bhaskar told that they believe their ongoing investment in infrastructure in terms of their future production facilities at Ibrahimapatnam in Telangana and Amravati will help them to cater to the growing demand of our customers.

Our Company is engaged in the business of manufacturing missiles. There are no listed peers in India which are engaged in a similar line of business as the Company, hence comparison with industry peers is not applicable

Reasons to Invest in Bharat Dynamics IPO

  • Strong revenue growth is seen as its revenue grew from 3253 crores in 2015 to 5198 crores in the past 2 to 3 years.
  • Good chance to invest in leading defense Public Sector Unit.
  • Retail investors and employees would get Rs 10 discount
  • The issue is available at cheap price.

Reasons to not Invest in Bharat Dynamics IPO

  • For last three to four years, profit are on a falling trend.
  • The company is mainly relying on only one client i.e the Indian Armed Forces through the Government of India. There will be an adverse impact on the company because of the decrease in orders, reprioritization of the Indian defence budget and changes in the short and long term policies of the armed forces.
  • The company’s future growth expansion is restricted by its manufacturing capabilities.
  • The company gets its revenue from MoD contracts, which might be terminated in future

IPO vs Mutual Funds

If you have no knowledge of the equity markets but are looking to gain from the equity markets, mutual funds are ideal. Investments can be made in Mutual Funds since they provide a wide variety and also the amount of investment can vary as per investor’s preference.

Many mutual funds invest in IPOs – many times at discounted rates that are not available to retail investors.

It is necessary to not get carried away by the hype surrounding IPOs. Don’t jump into IPO if you do not have the necessary skills.

In a mutual fund, a skilled and trained professional handles all investments for you and therefore, you can benefit from the equity markets without spending too much time gaining the skills needed to understand the markets.

Different Funds:

  • Large Cap Funds– Here the investment is made in large cap companies. These companies offer 12-18% return. Moderate risk is involved and it is suggested to invest here for 4 years or more.
  • Mid Cap Funds– Here the investment is made in mid cap companies. These companies are offer 15-20% return. Moderately high risk is involved and it is suggested to invest here for 5 years or more.
  • Small Cap Funds– Here the investment is made in small cap companies. These companies offer 15-20% return. High risk is involved and it is suggested to invest here for 6 years or more.
  • Balanced Fund– This fund is a combination of equity and debt in its portfolio. Depending on the proportion of investment made in Equity and Debt, the risk and returns are accordingly determined. It is suggested to invest here for 2 to 3 years. Returns in this fund range from 11-14%.

Investment can be made via lump sum investment or through SIP (Systematic Investment Plan) mode in any of these funds.

Moreover return is something that cannot be promised but these return estimates have been given on the basis of past performance.

Mutual Funds for 2018

Large Cap Fund:

These funds invest in large companies that have a history of good performance and stable balances.

Mid Cap Fund:

These are funds that are high risk – high return. They’re a bit riskier than large cap funds.

Small Cap Fund:

These are the funds that you can invest in if you want very high growth. They are a very high risk too.

Happy investing!

Disclaimer: the views expressed here are of the author and do not reflect those of Groww. 

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