Bharat Dynamics, whose shares have risen 127 per cent this calendar, could potentially deliver 27 per cent return going ahead on strong domestic inflow pipeline, said Elara Securities in its latest note.
On Wednesday, the scrip fell 4.7 per cent to a low of Rs 880 level. With this, the stock is off 14 per cent from its 52-week high of Rs 1,026 hit on October 27. While Elara Securities has also trimmed its price targets on the stock of late, it stayed positive on the stockтАЩs prospects.┬а ElaraтАЩs target price of Rs 1,120 suggests a 27 per cent potential upside for the stock.
A correction in the Bharat Dynamics stock may provide a good entry for the long term, Elara Securities said, adding that it remains optimistic on the defence indigenisation story, led by the unexplored exports market in the missile space.
Key risks to its price target, Elara said, are lower spend in defence capital budget, lower allocation toward procurement in the defence capital budget, increased competition.
Bharat Dynamics’ domestic inflow pipeline, Elara Securities said, looks strong as new product developments are under development or trial stages.
New products where request for proposal (RFP) are awaited and likely to see inflows over next two years are QRSAM (order value of Rs 12,000 crore), the HELINA (air-to-surface missile; helicopter launched) and the NAG (third- generation ATGM). New products, under the development stage and are likely to see inflows over next five years, are the VL-SR-SAM (vertically launched short-range SAM), SAAW, MP-ATGM (man portable, anti-tank guided missile), the Amoga-III (ATGM), the Rudram and Astra Mk II.
Net-net, Elara Securities sees revenue for Bharat Dynamics at Rs 3,200-3,300 crore in FY23E, rising 15 per cent YoY. Revenue growth would be driven by strong execution in surface-to-air missile (SAM) and anti-tank guided missiles (ATGM) portfolios, it said.
Ebitda margin may remain in the range of 22-23 per cent in FY23E on revenue mix and higher raw material cos .
“We expect a revenue CAGR of 22 per cent over FY22-25E, led by an orderbook of Rs 11,900 crore┬а as on September 2022 and large inflows from the Akash and QRSAM,” it said.
“We lower our EPS by 1 per cent in FY23E and 7 per cent in FY24E on lower revenue and margin. We have not built in any export inflows, which may revise up our estimates over FY24-25E. We lower our target by 3 per cent to Rs 1,120 on 23 times (unchanged) P/E as we roll forward to December 2024E. We reiterate Buy,” Elara said.
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