MUTED EXECUTION IMPACTED REVENUES; MARGINS CAME BETTER THAN EXPECTATIONS

News:

  Revenue for the quarter increased by 6.1% YoY to Rs 534.8 crore; lower than our estimate of Rs 611.0 crore. Sequentially, the revenue declined by 23%. The sequential de-growth in revenues shows muted execution during the quarter in its existing contracts. H1FY23 revenue is up 94.4% YoY as the revenue increased significantly in Q1FY23 (+440.3% YoY) on lower base

·         Gross margins improved by 150 bps YoY to 55.4% (better than our estimate of 50.0%). Sequentially, gross margins improved from 36.6% level seen in Q1FY22 as raw material cost was significantly higher in Q1FY22

·         EBITDA margins came in at 17.5% (vs estimate of 15.0%); improved by 442 bps YoY led by lower others cost. Sequentially EBITDA margin improved significantly by 1150 bps. H1FY23 EBITDA margin is also up by 592 bps YoY at 11.0%. EBITDA increased by 41.9% YoY (+123.4% QoQ) to Rs 93.9 crore (vs estimate of Rs 91.6 crore). H1FY23 EBITDA is up significantly by 318.7% YoY to Rs 135.9 crore

·         PAT came in at Rs 75.8 crore; up 82.5% YoY led by improvement in margins and high other income. Other income was at Rs 45.0 crore (+122.2% YoY). H1FY23 PAT is up by 5.6x YoY to Rs 115.7 crore on account of significant growth witnessed in Q1FY23

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 Overall performance in Q2FY23 was better than estimates though revenue was bit impacted due to muted execution. We believe that some delay in finalising domestic suppliers for procurement of some of the key raw materials or components have impacted the execution. However, the increase in indigenisation of these raw materials would eventually lead to better execution in the coming period. Order book stood at Rs 12000 crore (3.5x TTM revenues) as of June-22 gives strong revenue visibility. As per the management, about Rs 20000 crore worth of orders are in the pipeline (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). Moreover, many products in missiles and torpedoes category are under development which are also expected to drive its orders inflow in the longer term. We believe that BDL would see strong earnings growth over the coming period led by expected pick-up in execution with sustained margins. BDL sees good opportunity in exports also from friendly countries in its products - missiles, torpedoes & counter measure dispensing system as the indigenisation levels are already very high in these products.

Impact:

Positive