OPERATIONAL PERFORMANCE WORSE THAN EXPECTED ON MUTED EXECUTION - BHARAT DYNAMICS LATEST QUARTERLY RESULT

Bharat Dynamics – Q3FY23 First Cut

(CMP: Rs 875: MCap: Rs 16032 crore)

Q3FY23 Earnings Summary

Revenue for the quarter declined by 42.6% YoY to Rs 461.6 crore; significantly lower than our estimate of Rs 862.6 crore. Sequentially, the revenue declined by 13.7%. The de-growth in revenues on both YoY and QoQ basis shows muted execution during the quarter in its existing contracts. 9MFY23 revenue is up 17.8% YoY as the revenue was significantly up during Q1FY23 (+440.3% YoY) on lower base

Gross margins improved by 619 bps YoY and 1436 bps QoQ to 69.8% as raw material cost declined considerably on both YoY and QoQ basis. EBITDA margins came in at 19.3% (vs estimate of 27%); contracted by 1674 bps YoY led by significantly higher others cost (25.1% of sales in Q3FY23 vs 8.6% of sales in Q3FY22). Sequentially EBITDA margin improved by 171 bps. 9MFY23 EBITDA margin is also down by 911 bps YoY at 13.3%.

EBITDA declined by 69.3% YoY (-5.3% QoQ) to Rs 88.9 crore (vs estimate of Rs 232.9 crore). 9MFY23 EBITDA is down significantly by 30.1% YoY to Rs 224.8 crore

PAT came in at Rs 83.7 crore; down 61.1% YoY led by decline in revenues and contraction in margins. 9MFY23 PAT is down by 15.5% YoY to Rs 199.4 crore

View: Overall operational performance during Q3FY23 was significantly lower than estimates, likely due to muted execution during the quarter. The performance is worse than expectations considering the company’s revenue guidance for full year. We had been expecting some delay in procurement of domestic raw materials by the company which can impact execution but we will wait for more clarification on the same. Long term outlook looks strong considering the Rs 20000 crore worth of orders in pipeline like Akash surface to Air missile, medium range surface to air missiles, Mistral man portable air defence system, Advanced Short Range Air-to-Air Missile etc and many products under missiles/torpedoes under development phase. Order book stood at Rs 11906 crore (3.8x TTM revenues) as of Nov-22 end gives strong revenue visibility

Impact: Negative