NEW DELHI: Most public sector undertakings (PSU) are notorious on the Street for disappointing investors as their share prices seldom move. But that does not mean they escape attention.
Bharat Dynamics, a state-owned defence company, is one such company that has come under the spotlight. After ICICI Securities recently initiated coverage on the PSU’s stock, it has been projected to move up 60 per cent in 12 months. The stock is tracked by just two other analysts. They are also bullish on the counter.
Abhijit Mitra, an analyst at ICICI Securities, said: “We believe
has the potential to benefit from India’s focus on defence exports. We initiate coverage on the stock with a buy rating and DCF-based target price of Rs 600, implying 15 times FY23 estimated earnings.”
Bharat Dynamics is a manufacturer of guided missile systems. It also undertakes life-extension as well as refurbishment work on missile systems. Currently, it is the key domestic supplier of surface-to-air and anti-tank missiles to the Indian Armed Forces. Under the Make in India initiative, the government is trying to cut down its defence import bill. The Centre has said it would not import a number of defence equipment, including some missile systems. This is set to benefit Bharat Dynamics.
The orderbook of the PSU has the potential to reach Rs 23,000 crore in two years. This is the single biggest investment thesis for Bharat Dynamics. Analysts said it can potentially increase the book-to-bill ratio five times by FY23.
The biggest components in the orderbook are — as expected — orders for the 3rd and 4th regiment of Akash missiles for the Indian Army and for air-to-air missiles. Both these projects will lead to an accrual of Rs 13,000 crore in order inflow in the medium term.
Another growth avenue that analysts point out is exports, though this has never been the forte of Indian defence companies.
Bharat Dynamics can play a leading role in achieving the Indian defence export target of Rs 35,000 crore by 2025, said ICICI Securities. “The extent of MoUs with global players — including with Roxel, MBDA, Thales, Almaz-Antey — suggests increasing indigenous production, with more and more export opportunities coming Bharat Dynamics’ way in the near future. IAI Israel has placed an order for integration of missiles,” said ICICI Securities, the largest traditional broker in the country.
The ministry of defence has cleared the Akash weapon system for export. Underwater weapon exports to friendly countries continue. Third-gen anti-air guided weapon systems and heavyweight torpedoes are among the potentially exportable products, noted analysts.
Shares of the company have been relatively flat. They are down 14 per cent in the last one year, and up 5 per cent in the past three years. But this may change soon. The Refinitiv database shows besides ICICI Securities, the two analysts covering the PSU have given strong buy and buy ratings on the counter. They have a median price target of Rs 460.