5 key points for a smart investor before they start trading in stocks

5 key points for a smart investor before they start trading in stocks
16/11/2018

Benjamin Graham, known as the Father of Value Investing, once described how an “intelligent investor” should invest in the share market. “A great deal of brain power goes into this field, and undoubtedly some people can make money by being good stock market analysts. But it is absurd to think that the general public can ever make money out of market forecasts,” Graham said.

In a market that is constantly changing at a rapid pace, what you require is not just intelligence but also smartness, pragmatism, and fleet-footedness. Stock market investing is not just about stock tips and market tips. True investors focus on how to invest in the share markets with a smart strategy.

Here are five key points for the smart investor to keep in mind before embarking on his investing journey.

1. Don’t try to experience everything; rather learn from the experience of others

There is much wisdom in the market but if you plan to experience all of it by yourself, it will take you a long time. A smart investor should ideally learn from the mistakes and experiences of others. When NBFCs crashed, the learning was not to bet on companies with liquidity problems. Similarly, there were stocks like Manpasand Beverages that got belted due to corporate governance issues. You must immediately draw your lessons from such situations.

2. Keep an ear on the grapevine, but trade with your own conviction

On any given trading day, the markets are deluged with information, making it very difficult to differentiate between information, insight, and noise. Rule number one is never to ignore any news or information unless you are convinced it is just a rumour or hearsay. Most rumours are based on some truth and could possibly give you clues about your future trade. For example, the WhatsApp flows on Dewan Housing Finance (DHFL) and Infibeam were doing the rounds even before the stocks corrected, giving people a good opportunity to crosscheck the data and take action. So keep an ear to the ground but base your decisions on your conviction.

3. Time and tide wait for none; so make the best of NOW…

In the stock markets, one cannot wait forever just to be fully sure about something. The stock markets are volatile and uncertain. Logic and analysis will only take you so far, but beyond that, you must take a leap of faith and leave to your risk management framework to take care of the rest.

If you are looking at a phased approach to investing, then a few higher price points don’t make a big difference. The sooner you start the investment process, the better it is. You can only wait up to a point. Also, don’t consult too many sources. Your conviction works best as you have no one to blame if your trade goes sour, and only yourself to praise when it goes well. If you have done your homework and think you can go ahead with a trade, then believe in yourself and take the plunge.

4. Spread your risk, but be smart about it

In the stock markets, the best way to enhance returns is to reduce risk. That is managed by spreading risk. The most important thing that a smart investor does is spread risk. You can call it diversification or you can call it tweaking your portfolio ahead of key events. The bottom-line is that you are trying to reduce your risk to the extent possible. There are two aspects to spreading risk. When you spread risk, there is a cost in terms of forsaken returns; you need to be prepared for that. Secondly, spreading risk beyond a point is meaningless as it leads to risk substitution rather than risk mitigation.

5. Ask yourself: Is the company doing something different or something differently?

Some call it an entry barrier, some call it innovation, and others call it a moat. What smart investors need to constantly ask themselves is whether a company is bringing something new to the market or innovating any of its existing products. Hero Moto took a different approach to the transport business just as HDFC and ICICI Bank started off with technology-driven banking. Similarly, you need to identify a new niche and cater to it. Unless the company is able to do that, it is likely to lose value in the future. In fact, Jio shows the ability of Reliance to create an innovative delivery even with such stiff competition in the sector. Focus on stocks that really have a niche and you’ll be well-off for most parts.

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Invest in these stocks before Union Budget 2018-19

Invest in these stocks before Union Budget 2018-19
by Nikita Bhoota and Gautam Upadhyaya 01/12/2018

Union Budget 2018-19 is the most widely discussed topic these days. Everyone has high expectations from this budget particularly, as it is the first budget post GST era and the last full budget of the NDA Government for its term from 2014-19. It is expected that this budget will continue to focus on infrastructure development, job creation to stimulate the economy and improving rural income. The major topics likely to be discussed in the upcoming budget are, change in long-term capital gain tax norms and increase in the tax exemption limit from Rs2.5 lakh to Rs.3 lakh p.a.  It may also introduce new policies and reforms to uplift the rural economy, thus resulting in improving the rural consumption.

Union Budget 2018-19 is expected to be the next big trigger for the Stock market. Almost all the stocks are likely to benefit from the announcements to be made in the forthcoming budget. Based on the fundamentals, management outlook, growth prospects and technical charts we have cherry picked the below mentioned stocks for investing before the Union Budget 2019.

DB Corp

Fundamental View

DB Corp is the largest print media company with an added presence in radio and digital media. Its revenue consisted of printing & publishing (91%), Radio (6%) and Others (3%) in FY17. The company enjoys leadership position in radio listenership in cities of Rajasthan, MP and Chhattisgarh.  We expect revenue CAGR of 7.5% over FY17-19E on account of traction in local print media and increase in circulation revenue backed by increasing copies in existing markets and launch of new edition in Surat in Q1FY18E. Additionally, company's foray into radio business is seeing good traction.  Its acquisition of 13 stations to further augment the radio revenue albeit on a small base. Due to better realizations, we expect EBITDA CAGR of 8.3% over FY17-19E. Consequently, PAT would register CAGR of 11.6% over FY17-19E.

Year Net Sales (Rs Cr) OPM (%) Net Profit (Rs Cr) EPS (Rs) PE (x) BVPS (Rs) P/BV (x)
FY17 2,258 28.4 374 20.4 18.6 87.0 4.4
FY18E 2,425 28.3 403 22.0 17.3 104.3 3.6
FY19E 2,608 28.8 466 25.5 14.9 124.9 3.0

Source: 5 Paisa Research

Technical View

Stock DB CORP
Recommendation

The stock has managed to give a breakout above the declining trend line on the daily chart backed by a surge in volumes. The stock has also managed to give a close above its 200 day EMA. We expect the positive momentum to continue in the stock. 

Buy/Sell Range Target Stop Loss
Buy (cash) 372-376 414 348
NSE Code Market Cap(Rs in Cr) 52-week High / low 200 M.A
DBCORP 6,899 395/338 367

Texmaco Rail

Fundamental View

Texmaco’s acquisitions, Kalindee Rail Nirman (track work and signaling) and Bright Power Projects (railway electrification) have positioned it as a ‘Total Rail Solutions’ company. The company now operates in three segments - Heavy Engineering (wagons/freight cars), Steel Foundry and Rail EPC, contributing ~ 49%, 15.9% and 35.4% respectively to FY17 sales. We expect finalization of tender for 9,500 wagons by Indian Railway may help strengthen its wagon division order book. The RAIL EPC division’s sales and profitability is improving on back of completion of legacy contracts. Further, speedy electrification and completion of Dedicated Freight Corridor (DFC) projects will be positive for the company. The company’s foray into international markets - South East Asia, West Asia, Middle East Asia and Africa are likely to aid future growth in all the segments. Thus, we project revenue CAGR of 20% over FY17-19E. The present order book is ~Rs3,800cr (2.8xFY17 sales) providing strong sales visibility. We expect incremental sales to result in EBITDA margin expansion by 490bps by FY19E. PAT is expected to grow (led by improving operating performance and decline in interest) at 83% over the same period.

Year Net Sales (Rs Cr) OPM (%) Net Profit (Rs Cr) EPS (Rs) P/BV (x)
FY17 1,154 5.0 34 1.6 2.5
FY18E 1,000 4.0 2 0.1 2.5
FY19E 1,650 9.9 114 5.2 2.3

Source: 5 Paisa Research

Technical View

Stock Texmaco Rail & Engineering Limited
Recommendation

The stock is in a higher top higher bottom chart structure on the daily chart and has managed to take support along the rising trend line. The trend and strength analysis indicates that the current momentum is likely to continue further.

Buy/Sell Range Target Stop Loss
Buy(cash) 117-119 136 108
NSE Code Market Cap (Rs in Cr) 52-week High / low 200 Day M.A
TEXRAIL 2,609 128/84 103

Ingersoll- Rand Ltd

Fundamental View

Ingersoll Rand (IRIL) manufactures and sells air compressors, which include reciprocating compressors, centrifugal compressors and system components. IRIL enjoys strong market positioning in domestic compressors market. We believe that pick up in user industries (automotive, metals, pharmaceuticals and textile) along with introduction of new products and development of Naroda as an export base for large reciprocating compressor packages and parts is likely to drive future sales. Thus, we see revenue CAGR of 12.5% over FY17-19E. Indigenization of most of its products and high realization from new products is likely to help the company maintain EBITDA margin despite pricing pressure. Hence, we project PAT CAGR of 12.5% over FY17-19E. The company’s debt free status and unencumbered promoter holding of 74% adds further stability. 

Year Net Sales (Rs Cr) OPM (%) Net Profit (Rs Cr) EPS (Rs) PE (x) P/BV (x)
FY17 664 19.0% 77 24.4 35.7 2.6
FY18E 730 18.9% 85 26.9 32.4 2.4
FY19E 840 19.0% 97 30.9 28.2 2.2

Source: 5 Paisa Research

Technical View

Stock INGERSOLL RAND LTD
Recommendation

The stock is on the verge of witnessing a symmetrical triangle breakout on the monthly chart and has also witnessed a smart uptick in volumes. The positive strength shown by the stock on the weekly MACD Histogram affirms our bullish view on the stock. 

Buy/Sell Range Target Stop Loss
Buy(cash) 858-868 998 784
NSE Code Market Cap(Rs in Cr) 52-week High / low 200 Day M.A
INGERRAND 2,841 940/645 795

Cera Sanitaryware

Cera Sanitaryware is a pioneer in the sanitaryware segment in India. It is the third largest player in the organised sanitaryware business with market share of ~23%. It generates revenue from sanitaryware (~62%), faucets (~21%) and tiles (~17%) business. We see revenue CAGR of 23% over FY17-19E as company’s tie-up with Italian luxury brand ISEVA will help company to tap premium sanitaryware market. New innovative launches in faucet segment as well as commissioning of tiles plant in south, where presence of organised players is limited will also boost the revenues. Further, the replacement demand in India forms only 10-15% of total demand, whereas worldwide it contributes around 75-80%. Hence, with rising standard of living, the replacement demand for sanitary ware and faucet is expected to witness northward movement. Consequently, we expect ~23% CAGR in revenue over FY17-19E. The entry into premium segment, GST implementation and improving operating performance would drive PAT at ~27% CAGR over FY17-19E.

Year Net Sales (Rs Cr) OPM (%) Net Profit (Rs Cr) EPS (Rs) PE (x) P/BV (x)
FY17 1,006 17.0% 99 76.2 49.6 9.4
FY18E 1,172 17.00% 120 92.3 40.9 7.9
FY19E 1,383 17.0% 144 110.8 34.1 6.6

Source: 5 Paisa Research

Technical View

Stock Cera Sanitaryware Limited
Recommendation The stock is in a higher top higher bottom chart structure on the monthly and weekly chart. The stock has also formed an ascending triangle formation on the daily chart; we expect the stock to breach its upper resistance trend line and head higher.
Buy/Sell Range Target Stop Loss
Buy(cash) 3,770-3,790 4,210 3,490
NSE Code Market Cap(Rs in Cr) 52-week High /low 200 M.A
CERA 4,912 4,300/2,023 3,150

Reliance Industries Ltd

Fundamental View

Reliance Industries (RIL) is one of the largest private sector enterprises in India. RIL is a vertically integrated company with business interests in energy and materials value chain. Its revenue in FY17 comprised of refining business (64%), petrochemical business (24%) and others (12%). The company has rapidly grown its broadband business (4G) through RJio owing to strong operating competitiveness and healthy consumer traction. We estimate revenue CAGR of 18.2% over FY17-19E on account of expansion of RJio and strong refining margin outlook.  Jio’s RMS (revenue market share) is expected to be ~30% over next few years. Company’s margins are expected to remain robust due to firm demand and improving utilization in polyester segment. Refinery off-gas cracker (ROGC) has been commissioned and will be ramped up to full utilization by FY18E. In addition, company has commissioned 4 of its 10 petcoke gasifiers, which will ramp up over FY18-19E. Our outlook on refining remains strong with growth in petro-product demand outpacing supply additions. This should keep RIL’s GRM (Gross Refining Margin) in the US$11-11.5/bbl range. Consequently, we expect PAT CAGR of 12.2% over FY17-19E.

Year Net Sales (Rs Cr) OPM (%) Net Profit (Rs Cr) EPS (Rs) PE (x) P/BV (x)
FY17 305,400 15.1% 29,800 50.3 18.6 2.1
FY18E 392,700 15.0% 34100 57.6 16.3 1.9
FY19E 427,100 17.4% 37,600 63.5 14.8 1.7

Source: 5 Paisa Research

Technical View

Stock Reliance Industries Limited
Recommendation The stock is currently trading in a rising channel formation on the weekly chart. It has also witnessed a bullish crossover on the daily MACD Indicator. We expect the stock to trend higher and to move towards the upper end of the channel.
Buy/Sell Range Target Stop Loss
SELL-Jan Futures 935-940 1,010 888
NSE Code Market Cap(Rs in Cr) 52-week High /low 200 M.A
RELIANCE 594,779 957/508 801

Research Disclaimer

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5 Stocks for next week 15th Jan-19th Jan 2018

5 Stocks for next week 15th Jan-19th Jan 2018
by Gautam Upadhyaya 01/12/2018

BHARTI INFRATEL - BUY

Stock BHARTI INFRATEL
Recommendation The stock has formed a bullish engulfing candlestick pattern on the daily chart and has managed to give a close above its short term EMA. The stock has also formed a bullish hammer formation on the weekly chart.
Buy/Sell Range Target Stop Loss
Buy(cash 373.5-375.5 389 364
NSE Code Market Cap(Rs in Cr) 52-week High /low 200 Day M.A
 INFRATEL  69036 481/283 382

KARNATAKA BANK - BUY

Stock KARNATAKA BANK
Recommendation The stock has managed to give a close above the declining trend line on the daily chart backed by a surge in volumes. Derivative data is also suggesting a fresh long build up which is indicated by surge in price and O.I.
Buy/Sell Range Target Stop Loss
Buy(cash) 165.5-167.5 177 159
NSE Code Market Cap(Rs in Cr) 52-week High / low 200 Day M.A
KTKBANK 4721 181/112 150

 

TATA GLOBAL BEVERAGES - Buy

Stock TATA GLOBAL BEVERAGES
Recommendation The stock has given a breakout from its sideways consolidation on the daily chart backed by a surge in volumes; The stock is also on the verge of witnessing a bullish crossover on the daily MACD indicator.
Buy/Sell Range Target Stop Loss
Buy(cash) 323-326 337 315
NSE Code Market Cap(Rs in Cr) 52-week High / low 200 M.A
TATAGLOBAL  20489 327/126 216

DISH TV - SELL

Stock DISH TV
Recommendation The stock has formed a large bearish candle on the daily chart which has been accompanied by a rise in volumes. The stock has also breached its support levels and has given a close below its 200 day EMA which affirms our negative view on the stock.
Buy/Sell Range Target Stop Loss
Sell Jan Futures 78-79 73 82
NSE Code Market Cap(Rs in Cr) 52-week High / low 200 M.A
DISHTV 8362 110/68 82

REPCO HOME FINANCE - SELL

Stock REPCO HOME FINANCE
Recommendation The stock has formed a bearish candlestick on the weekly chart. It has also shown weakness on the daily MACD Histogram. Derivative data suggests fresh short positions.
Buy/Sell Range Target Stop Loss
SELL-Jan Futures 680-684 654 702
NSE Code Market Cap(Rs in Cr) 52-week High / low 200 M.A
REPCOHOME 4233 932/552 675

Research Disclaimer

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Attention Investors - Half of Your Salary Raise Should Go Towards the Future

Attention Investors - Half of Your Salary Raise Should Go Towards the Future
02/12/2018

Getting a raise in salary is one of the best things for an employee. Professionals from all walks of life set targets and make wish lists in anticipation of a salary raise. A salary raise is usually an occasion for a celebration. To the more savings-minded, it is an opportunity to top-up on their investments. But before you decide to splurge the money, let’s have a look at why a fifty percent of the raise should be invested for your future.

The prevalent thought – Percentage Savings

Retirement planners bank upon the classic “save a percentage” model. It usually means taking a slice out of the income pie every year. There’s no universal consensus on what’s a reasonable amount. A 10% savings on the pre-tax salary seems reasonable to most. The general idea is that, as your salary increases, so does your savings. But there are pitfalls that we turn a blind eye to.

Drawbacks

  • Increasing standard of livingWhen you save 10% of your income, you save only 10% of your raise. This puts you in a position of spending 90% of your salary, no matter what the increase. This significantly increases the standard of living and requires much greater savings for an equivalent retirement corpus.

  • Post-retirement difficulty - With the standard of living peaking just before retirement, it becomes difficult to sustain the lifestyle. Troubles multiply after hanging up your boots and a reduced corpus doesn’t help at all.

The alternative – Save your raise

Alternatively, you spend only 50% of each raise, implicitly saving the raise. Instead of dedicating the same percentage of your income to savings, you save the same percentage of our salary hikes.

Benefits
  • The controlled standard of living Saving half of your salary raise helps you to control the rise in your living standard. Expenditure is capped and savings grow in parallel to your paychecks.

  • Early retirement opportunity  With your standard of living in check, and your salaries burgeoning, you can easily move for an early retirement.

A Case Study

Figures rarely lie. Logic and reasoning need to be backed up by some solid figures to support claims.

Let’s take two examples to illustrate the point.

Case A: Traditional Savings

Mohan starts off with a Rs 4,00,000 per annum salary in the mid-twenties. He follows a 3% savings growth plan. With a reasonable increment of Rs 20,000 per annum, his savings build up somewhat like this:

Now in a period of 3 years, Mohan will have an annual contribution of Rs 13,800 per annum.

Though Mohan possibly becomes a millionaire, he’s forgotten to take the bigger picture into account. He is raising the lifestyle costs by 90% each year.

Thus, an initial living cost of Rs 3,88,000 per annum (Rs 40K minus the 3% saved) can exponentially increase.

With a 4% withdrawal rate, Mohan is going to need a lot more to make it through.

Case B: Saving half your raise

Mohan’s friend Rohan started off on the same Rs 4,00,000 per annum as Mohan. However, he doesn’t plan to save exactly 3% every year. He plans to save half his salary raise every annum.

He puts aside 3% for the first year and then spends only 50% of each salary raise, saving the rest.

In a period of 3 years, Rohan has saved much more than Mohan. His annual savings contribution is now Rs 42,000. His savings graph now looks something like this.

Since he has significantly reduced his lifestyle growth, he’s more likely to make do with a much smaller corpus than Mohan’s on retirement. He had a lifestyle growth which was slower, but it definitely means that he won’t have to do with less once he hangs up his boots

Saving more and spending less is a double blessing. It grants more flexibility during your working career and significantly increases the chance that you will enjoy a comfortable retirement.

It’s worth your while to save that next pay raise—and you deserve it!

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IPO Note: Aster DM Healthcare Ltd - Not Rated

IPO Note: Aster DM Healthcare Ltd - Not Rated
by Nikita Bhoota 02/12/2018
Untitled Document

Issue Opens: February 12, 2018
Issue Closes: February 15, 2018
Face Value: Rs10
Price Band: Rs180-190
Issue Size: ~Rs980cr
Public Issue: 5.16-5.37 crore shares
Bid Lot: 78 Equity shares       
Issue Type: 100% Book Building

% Shareholding

Pre IPO

Post IPO

Promoter

43.0

37.0

Public

57.0

63.0

Source: RHP

Company Background

Aster DM Healthcare (Aster) is one of the largest private healthcare service providers in multiple GCC countries (Gulf Cooperation Council). Company also has operations in India and Philippines. It has a diversified portfolio of healthcare facilities, consisting of 9 hospitals, 90 clinics and 206 retail pharmacies in the GCC countries, 10 multi-specialty hospitals and 7 clinics in India and 1 clinic in Philippines. Domestic business generated 18% of H1FY18 revenue, while rest came from GCC region and Philippines. Aster is planning to add 1,658 beds over the next 2-4 years through 4 new multi-specialty hospitals in the UAE and 5 new hospitals in India.

Objective of the Offer

The Initial Public Offer consists of an Offer for Sale for 1.34cr equity shares amounting to `255cr (on the upper price band) by promoter group company, Union Investments Private Ltd. The IPO also includes fresh issue of Rs725cr, which comprises of issuance of 3.82cr new shares on the upper price band. Company proposes to use the fresh issue proceeds to repay debt (Rs564.2cr) and to purchase medical equipment (Rs110.3cr).

Financials

Consolidated Rs Cr.

FY15

FY16

FY17

H1FY18

Revenue

3,876

5,250

5,931

3,123

Adj. EBITDA

506.0

445.6

332.1

178.2

Adj. EBITDA Margin %

13.1

8.5

5.6

5.7

Adj. PAT

272.1

8.2

-329.3

-82.7

Adj. EPS* (Rs)

5.4

0.2

-6.5

-1.6

P/E*

35.3

1,169.1

--

--

P/BV*

4.3

16.1

4.3

--

EV/EBITDA*

20.2

28.0

36.6

--

EV/Sales*

2.6

2.4

2.1

--

RONW (%)

12.1

1.5

11.9

--

ROCE (%)

11.5

5.4

0.2

--

Source: Company, 5 Paisa Research; *EPS & Ratios at higher end of the price band.

Key Points

During the Union Budget 2018-19, Indian government announced National Health Protection Scheme (NHPS) to cover ~10cr poor and vulnerable families (up to Rs5 lakh cover per family/ year) for secondary and tertiary hospitalization. This brings ~50cr people under health insurance coverage, boosting domestic healthcare industry, including hospital sector. Aster operates in India with 10 hospitals (3,887 bed capacity) and plans to expand by adding 5 new hospitals (1,372 beds) over the next 4 years. Aster, with its presence in the tier 2/ 3 cities is likely to emerge as one of the beneficiaries of NHPS in India.

The Emirate of Abu Dhabi introduced mandatory health insurance for locals and expatriates in 2006, which increased number of insured people in Abu Dhabi at a CAGR of 7.4% over FY08-13 and covered 3.43 million people in 2015. The mandatory health insurance was also implemented in Dubai in March 2017, which is likely to have brought 1.5-2 million additional people under health insurance coverage by 2017. Aster is well placed in the GCC countries due to its early mover advantage, deep understanding of the region and strong presence.

Key Risk

Profitability has been inconsistent over the past and is likely to remain weak due to cost associated with new hospital additions and lower occupancy in the existing hospitals.

Research Disclaimer

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IPO Note: Bharat Dynamics Ltd-Not Rated

IPO Note: Bharat Dynamics Ltd-Not Rated
IPO
by Nikita Bhoota 03/12/2018

Issue Opens: March 13, 2018
Issue Closes: March15, 2018
Face Value: Rs10
Price Band: Rs413-428
Issue Size: ~Rs961cr
Public Issue: 2.25crore shares
Bid Lot: 35 Equity shares       
Issue Type: 100% Book Building

% shareholding

Pre IPO

Post IPO

Promoter

100.0

87.7

Public

0.0

12.3

Source: RHP

Company Background

Bharat Dynamics Ltd. (BDL) is one of the leading defence public sector undertakings (PSUs) in India. It manufactures Surface to Air missiles (SAMs), Anti-Tank Guided Missiles (ATGMs), underwater weapons, launchers, counter measures and test equipments. BDL is the only manufacturer for SAMs, torpedoes, ATGMs in India. It also undertakes refurbishment and life extension of missiles. BDL has three manufacturing facilities located in Hyderabad, Bhanur and Vishakhapatnam. Its customers are the MoD (Ministry of Defence), other defence PSUs, government bodies under MoD and other countries.

Objective of the Offer

The offer consists of offer for sale of up to 2.25 cr shares (Rs961cr) by the government of India (GOI). It includes employee reservation of 4.58 lakh shares. There is a discount of Rs10per share (at the cut-off price) to the retail investors and employees. The net offer consists of ~ 2.2cr shares. The object of the offer is to carry out disinvestment plan of GOI.

Financials

Consolidated Rs cr.

FY15

FY16

FY17

**H1FY18

Revenue (net of excise duty)

2,780

3,791

4,631

1,644

EBITDA Margin %

9.9

13.5

12.3

14.9

Adj. PAT

444

562

490

173

EPS (`)*

24.2

30.7

26.8

9.4

P/E*

17.7

14.0

16.0

-

P/BV*

4.7

4.2

3.5

-

RONW (%)

26.8

30.4

22.2

 

Source: Company, 5 Paisa Research; *EPS & Ratios at higher end of the price band. **non-annualized numbers

Key Points

  1. The company is developing new generation SAMs, ATGMs, and heavy weight torpedoes, which will support revenues. The company is also the joint development partner with the Defence Research and Development Organization (DRDO) for the next generation of ATGMs and SAMs. Further, the Ministry of Defence (MoD) has identified BDL as the production agency and the lead integrator for one of the new generation SAMs and the nominated agency for the third generation of ATGMs. We believe that development of new products will enable the company to diversify its offerings.
  2. The company is being encouraged by GOI to augment its exports.  Currently, the company is exporting light weight torpedoes. Further, it intends to offer products such as Akash SAM, light weight torpedoes and countermeasure dispensing system for exports.
  3. BDL constantly modernizes all its manufacturing facilities in order to cater to the needs of the Indian armed forces without any interruptions. In order to meet the growing demand, the company is establishing manufacturing facilities at Ibrahimapatnam and Amravati. These facilities will be used to manufacture SAMs (including a new generation of SAMs) and very-short-range air defence missiles (VSHORADMs) respectively.

Key Risks

  1. BDL’s primary customer is MoD, from which the company derived 98.3%, 97.3%, of total revenue for H1FY18 and FY17 respectively. Therefore, a decline or reprioritization of the Indian defence budget, the reduction in their orders, termination of contracts or failure to succeed in tendering projects and deviations in the short term and long term policies of the MoD/ the Indian armed forces in the future will have a material adverse impact on its business. 
  2. The company’s EBITDA margin has improved from 9.7% in FY15 to 11.8% in FY17, however, its net profits have grown tepidly at 5.1% CAGR (FY15-17). The major reason for slowdown in profits is decline in interest income, as the company had to pay regular dividends to GOI. As per CPSE Capital Restructuring Guidelines, all central public sector enterprises are required to pay a minimum annual dividend of 30% of profit after tax or 5% of the net-worth. Similarly, overall FY18 performance is projected to be subdued owing to technical issues in one of the manufacturing facilities which impacted its revenues for H1FY18. The order inflow has also been tepid at an average run rate of ~`2,000-2,500cr over the last 3-4 years.

Research Disclaimer