Fundamental Analysis of Bharat Dynamics: The defense stocks have been investors’ favorites since the hon’ble PM Narendra Modi announced initiatives to modernize and upgrade India’s defence capabilities, in the process giving a push to the indigenous supply of equipment. Bharat Dynamics Ltd. (BDL), a Mini-Ratna small-cap stock is one such beneficiary company. In this article, we’ll conduct a fundamental analysis of Bharat Dynamics, and see if it is a good defence pick.
Fundamental Analysis Of Bharat Dynamics
We shall start off our fundamental analysis of BDL by learning about the business. Next, we shall read about the defence industry landscape and the recent developments. Then, we’ll race through the financials of the stock to see how the company has fared in the last few years. A section on the future plans and a summary conclude the article in the end.
Company Overview
Bharat Dynamics Ltd. (BDL) is a defence public sector company under the Ministry of Defence, Government of India. It was set up over 5 decades ago in 1970 and presently has a market capitalization of Rs 16,500 crore.
This public sector undertaking (PSU) is involved in the manufacturing of a broad range of defence equipment: surface-to-air missiles (SAM), air-to-air missiles, anti-tank guided missiles (ATGM ), torpedoes, and allied defence equipment.
BDL is headquartered in Hyderabad, Telangana, and has three production facilities located across Telangana and Andhra Pradesh. As of March 2022, the government company employed a total of 2,674 people.
Lately, the management has taken three key actions toward the expansion of the company:
- establishing more manufacturing sites in Maharashtra, Uttar Pradesh, Telangana, etc.
- overseas sale of some defence products
- forming strategic alliances with other PSUs and private sector companies
Industry Overview
Recent years have been a boon for the nation’s defence sector. The Union Government has announced multiple initiatives to propel the growth of the sector. This includes procuring domestically produced defence equipment, putting selected products on the list of banned imports, and higher defence spending.
As recently as in February this year, Finance Minister Nirmala Sitharaman announced the government has earmarked a large Rs 5.94 lakh crore towards the nation’s defence needs for 2023-24. This is 13% higher than the previous year’s allocation of Rs 5.25 lakh crore.
This figure includes the salaries of personnel, modernization of armed forces, production facilities, maintenance costs, and research & development establishments.
But it is not only that India’s defence spending is increasing. The allocation to capital expenditure has risen as a percentage of the total defence budget. The capital expenses which are incurred for the modernization and development of infrastructure have grown by 57% since 2019-20 to Rs 1.62 lakh crore in 2023-24.
Thus, we can say that overall the recent developments have put the nation’s defence sector in a sweet spot.
Bharat Dynamics – Financials
Revenue & Net Profit Growth
Over the last six years, the operating revenue of Bharat Dynamics Ltd. has decreased from Rs 4,887 crore in FY17 to Rs 2,817 crore in FY22. During the same period, the net profit has largely remained flat due to improvement in profit margins.
The table below shows the operating revenue and net profit of Bharat Dynamics for the last five financial years.
| Fiscal Year | Operating Revenue | Net Profit |
| 2022 | 2,817 | 500 |
| 2021 | 1,914 | 258 |
| 2020 | 3,095 | 535 |
| 2019 | 3,069 | 423 |
| 2018 | 4,588 | 528 |
| 2017 | 4,887 | 524 |
Operating & Net Profit Margins
We can see from the data below that the operating profit and net profit margins have considerably improved for the company over the last few years. This has helped the business to sustain its bottom line.
The figures below highlight the profit margins of BDL for the last five fiscals.
| Fiscal Year | OPM | NPM |
| 2022 | 21.25 | 17.74 |
| 2021 | 12.87 | 13.47 |
| 2020 | 20.24 | 17.29 |
| 2019 | 17.44 | 13.77 |
| 2018 | 14.87 | 11.51 |
| 2017 | 12.3 | 10.72 |
In the next section on the Fundamental analysis of Bharat Dynamics, we’ll see how profitable is the business by analyzing the return ratios of the stock: RoCE and RoE.
Return Ratios: RoCE & RoE
The return ratios: Return on Capital Employed (RoCE) and Return on Equity (RoE) have sharply fallen over the years as the equity base of the BDL has expanded due to past profits but the bottom line growth has been nil. Thus, we can conclude that the management is finding it tough to invest profits to earn higher returns for its shareholders.
The table below highlights the declining return ratios of Bharat Dynamics.
| Fiscal Year | RoE | RoCE |
| 2022 | 17.6 | 25.2 |
| 2021 | 9.8 | 13.2 |
| 2020 | 22.2 | 30.9 |
| 2019 | 20.2 | 32.3 |
| 2018 | 25.8 | 37.9 |
In addition to the reduction in return ratios, we can also note that RoE is lower than RoCE across all the years. This tells us that the management has employed little or no financial leverage in the business, thus decreasing the net returns for the investors as the cost of debt is cheaper than the cost of equity for the company.
We’ll read more about this by studying the debt of the stock in the next section.
Debt / Equity & Interest Coverage
We’ll quickly race through the debt analysis of Bharat Dynamics as it is a debt-free stock with a high-interest coverage ratio. We can see in our table below on debt/equity and interest coverage ratios that the company has remained debt free for a considerable number of years.
| Fiscal Year | Debt / Equity | Interest Coverage |
| 2022 | 0.0 | 245 |
| 2021 | 0.0 | 112 |
| 2020 | 0.0 | 160 |
| 2019 | 0.0 | 160 |
| 2018 | 0.0 | 237 |
Future Plans Of Bharat Dynamics
So far we looked at the previous fiscals data for our fundamental analysis of BDL. In this section, we’ll try to get a sense of what lies ahead for the company and its investors.
- As of March 2023, the order book of the company stood at Rs 13,708 crore, almost 5 times its FY22 revenue providing strong revenue visibility.
- The management has projected a CAPEX of Rs 80 crore during the FY23 period, which is lower than Rs 103 crore it had spent in FY22.
- BDL is also exploring export opportunities and has created an assortment of Rs 2,688 crore products that can be sold overseas. In line with this, it has generated leads from various entities from 21 countries for the supply of its defense equipment.
- As mentioned above, BDL is also in the process of setting up additional production sites and export capabilities.
Key Metrics
We are almost at the end of our fundamental analysis of Bharat Dynamics. Let us take a look at some of the key metrics of the stock.
| CMP | ₹906 | Market Cap (Cr.) | ₹16,500 |
| EPS | ₹25.3 | Stock P/E | 34.1 |
| RoCE | 17.6% | RoE | 25.2% |
| Promoter Holding | 74.9% | Book Value | ₹171 |
| Debt to Equity | 0.0 | Price to Book Value | 5.32 |
| Net Profit Margin | 17.74% | Operating Profit Margin | 21.25% |
In Conclusion
The shares of Bharat Dynamics have rallied by almost 60% in the last twelve months in the hopes of brighter prospects for the defence PSU. Even though the company has not grown a lot previously, the broader sentiment is bullish toward future performance. Thus, investors of BDL should keep a close eye on the quarterly results and progress on the export revenue of the company.
Do you think this recent share price in the price of BDL is justified? Will the company be able to earn higher sales and profits in the near future? How about we continue this conversation in the comments below?
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