Bharat Dynamics IPO opens at Rs 413-428 a share: Should you subscribe?

The company aims to raise Rs 927.27 crore at lower end of price band and Rs 960.94 crore at the higher band through the issue

State-owned Bharat Dynamics has opened its initial public offering for subscription on Tuesday, with a price band of Rs 413-428 per share. The IPO of 22,451,953 equity shares is an an offer for sale by the promoter, The President of India, acting through the Ministry of Defence.
 
The company has reserved a portion of 458,203 equity shares for allotment to eligible employees. The issue will close on March 15. Employees and retail investors will get shares at a discount of Rs 10 per share on offer price.
 
The bids can be made for a minimum lot of 35 equity shares and in multiples of 35 shares thereafter.

 

Equity shares are proposed to be listed on the BSE and the National Stock Exchange (NSE). The book running lead managers to the offer are SBI Capital Markets, IDBI Capital Markets & Securities and YES Securities (India).
 
The company aims to raise Rs 927.27 crore at lower end of price band and Rs 960.94 crore at higher band through the issue.
 
Should you subscribe? Here’s what brokerages say:
 
Geojit Financial Services
 
Bharat Dynamic’s focus on increase in indigenisation of products, strong focus on R&D and exports is expected to boost revenue visibility and profitability going forward. BDL’s ability to efficiently produce, deliver the products and services in a timely manner makes them stand out of the crowd. At an upper price band of Rs428, BDL is available at a reasonable valuation of 16x on FY17 EPS. As Indian defence industry is poised for growth, we recommend ‘Subscribe’ to the issue, with a long term perspective.

 
Centrum Broking
 
At the higher end of the price band of Rs428, the issue is priced at P/E of 16x (post dilution) on FY17 and 22.7x on H1FY18 (annualized) basis. The company has no listed peers engaged in the similar line of business (manufacturing missiles). At this valuation, the issue seems reasonably priced.
 
The opportunities that are expected to arise in the defence space given the government focus along with upcoming orders from the Akash Weapon System and need for equipment modernisation are likely to be positive for BDL. Given the reasonable valuations and growth prospects, investors can subscribe to the issue from a long term perspective. It must be noted that, owing to the current market volatility listing gains may be capped. 

 
HEM Securities
 
The co is bringing the issue at p/e multiple of 24-25 on annualized H1FY18 eps at price band of Rs 413-428/share. Co with its modern facilities and infrastructure to deliver quality products in a timely manner has strong order book and established financial track record of delivering growth with experienced board and senior management team. Looking after strong future prospects of co with decent fundamentals, we recommend “Subscribe” on issue.    
 
Choice Broking
 
On valuation front, at higher price band, the company is demanding a P/E valuation of 16x as compared to peer average of 23.4x. With respect to its FY18E and FY19E earnings of Rs 27.3 and 32.4 per share, respectively, it is demanding a P/E valuation of 15.7x and 13.2x, respectively, as compared to peer average of 20.9x and 17.9x. The issue seems to be attractive in terms of valuation, amid concerns relating to long gestation period of the defence projects and stringent regulations.

 
Reliance Securities
 
We believe that Bharat Dynamics is well-placed to cash in the huge opportunities in India, which is one of the fastest-growing global defence markets on the back of strong management bandwidth with rich experience, world-class infrastructure facilities and limited competition coupled with JVs and offset collaboration for critical technologies. We believe that the Company would continue to deliver higher revenue and profit given the strong growth potential across business verticals.