Riding On Make In India, Bharat Dynamics Has Given 78% Return This Year. Should You Buy Now?

In the first half of 2022, when most stocks painted the domestic indices red, there was one unlikely stock that defended its investors' interests. Bharat Dynamics, the state-run defence equipment maker, has been handsomely rewarding investors after it surged a whopping 78 per cent or Rs 303 to Rs 693 on the back of Make in India, production-linked incentive (PLI) scheme and other catalysts. 

The public sector undertaking, which was incorporated in 1970 under the Ministry of Defence of the Government of India, has emerged as top gainer in the Nifty Smallcap 100 index even when the benchmark index went through a phase of sharp correction. 

To give you the full picture, so far this year, Nifty has corrected 7 per cent on the back of foreign outflow, drying liquidity and rising interest rate scenario. Negative return for the Nifty 50 index came after it rewarded investors with a 15 per cent gain in 2020 and a 24 per cent surge in 2021. The rally was much sharper in the smallcap basket of shares to which Bharat Dynamics belongs. The measure of top 100 small-cap shares on Nifty climbed 21 per cent in 2020 and skyrocketed to 59 per cent in 2021 before falling to 23 per cent year-to-date. 

When one charts the steady performance of Bharat Dynamics over the last few years, it becomes easier to join the dots.

Bharat Dynamics’ Climb 

In the quarter ended March 2022, Bharat Dynamics clocked a net profit of Rs 264 crore. Its net profit has been consistently registering a strong uptick. 

From a net loss of Rs 78 crore posted in the first quarter of 2020, the company returned to profit with Rs 43 crore in the second quarter of 2021. Its profits saw a massive jump of Rs 213 crore in the December quarter of 2021.  

In FY22, the company, which is the manufacturing base for guided missile systems and allied equipment for the Indian Armed Forces, achieved a sales turnover of Rs 2,817 crore—up 47 per cent from Rs 1,914 crore posted during the previous financial year. 

Its earnings before interest, taxes, depreciation, and amortization (EBITDA) margin nearly doubled to 40 per cent in December 2021 as compared to a year ago. 

The company also has a strong order book with export orders from foreign nations for its indigenously developed Akash Weapon System. As on April 1, 2022, Bharat Dynamics’ order book stood at Rs 10,170 crore and the orders are set to be executed over the next two-three years, Bharat Dynamics said in a May press release. 

Apart from Bharat Dynamics, other defence companies have also outperformed the benchmark index. Hindustan Aeronautics Limited, which makes light combat aircraft Tejas, has so far this year rallied 43 per cent and government-owned Bharat Electronics, which makes defence electronics and aerospace systems, has climbed 13 per cent.  

Make In India Push

Analysts say that Bharat Dynamics has been a beneficiary of the government’s focus on the defence sector to make India self-reliant and a defence manufacturing hub which is luring investors towards companies in space.   

The Centre has approved the PLI scheme for drones and drone components. That, along with the new drone rules, is intended to catalyse growth in the upcoming drone sector, a space that the PSU is also exploring. 

There has also not been a dearth of investment when it comes to defence and the manufacturers involved. Between 2014 and 2019, the Ministry of Defence signed more than 180 contracts with the Indian companies functioning in the defence industry. These contracts were valued over $25.8 billion, according to the ministry. 

“Defence-related investment themes are in focus as the government is working towards making India a defence manufacturing (hub). Globally, there is interest that India could at least be a major defence manufacturing hub in southeast Asia. Moreover, our indigenously developed missiles like BrahMos and light combat aircraft Tejas have been in demand as their maintenance is cheap as compared to their Russian, American or European counterparts,” says Vijay Chopra of Enoch Ventures. 

Chopra also points out how things are working in the favour of Bharat Dynamics. "After the Russia-Ukraine war, countries will increase their defence spending and in modern day warfare, reliance upon air defence systems and machinery is increasing, which also augurs well for Bharat Dynamics," Chopra says, adding that he has a target price of Rs 850 on the stock in the near term.