Why Bharat Dynamics Share Price is Falling

In recent years, the government's focus on indigenization and self-reliance has fueled optimism and investment in the Indian defence sector.

Bharat Dynamics Limited, a key player in the defense manufacturing landscape, has been a major beneficiary of this growth. The company specializes in the development and production of missiles, torpedoes, underwater weapons, and allied equipment.

The growth is reflected in Bharat Dynamics share price. Its share price rallied 138% in the past year, and in 2024 so far it is up 54.8%.

However, the recent downturn has raised some eyebrows. The stock has shed 19.7% in the past month and suffered a further setback today with a 6% decline.

This sudden reversal has left investors puzzled.

Read on to find out the answers.

#1 Weak Quarterly Results

Bharat Dynamics reported a sharp decline in net profit, falling 87% to Rs 0.7 billion (bn) for the June 2024 quarter. This is a significant drop from the Rs 4.2 bn profit it reported in the same quarter last year.

This decrease in profit reflects the company's struggle to manage its operations effectively during the period.

The company's earnings before interest, tax, depreciation, and amortisation (EBITDA) recorded a loss of Rs 5.2 bn. This loss was higher than the Rs 3.3 bn loss reported in the same quarter last year. The increased EBITDA loss highlights the growing operational challenges faced by the company.

Despite the EBITDA loss, Bharat Dynamics managed to remain profitable for the quarter. This was supported by higher interest income, which resulted from a strong cash balance. However, the lack of major order wins during the June quarter further strained the company's financial performance.

The ongoing Russia-Ukraine War and conflicts in the Middle East continued to disrupt the supply chain. This caused delays in receiving key components, negatively affecting the company's quarterly results.

For the past seven quarters, supply chain issues related to certain electronic components have consistently hampered Bharat Dynamics' performance.

The company's share price is falling due to these disappointing financial results, as investors are concerned about its ability to navigate these challenges.

#2 Profit Booking and Expensive Valuations

Another reason behind the downtrend could be profit booking and concerns over expensive valuations.

After a strong run-up in the stock price, many investors have started to sell their holdings to secure their profits. Profit booking is common when a stock has seen substantial gains over a period.

Another significant factor contributing to the decline is the company's current price-to-earnings (P/E) ratio of 18.4. While this P/E ratio is not excessively high, it suggests that the stock is somewhat expensive, especially in the context of the company's recent financial performance.

The sharp drop in net profit and the ongoing operational challenges have made investors wary. This raises concerns about whether the current valuation is justified, given the difficulties Bharat Dynamics is facing.

The combination of profit booking and the perception of an overvalued stock is causing many investors to reconsider their positions.

This increased selling activity is putting additional downward pressure on the share price, making it difficult for the stock to recover in the short term. Investors are also concerned about the company's ability to sustain growth at these valuation levels, which further fuels the decline in the share price.

What Next?

Bharat Dynamics is poised for significant growth in the current financial year FY25. The company is addressing key challenges in its supply chain, which are expected to normalise by the second half. This normalisation is crucial for BDL's operations and is anticipated to enhance its revenue growth.

The company is not just waiting for the supply chain issues to resolve; the company is actively working on indigenising its critical component ecosystem. By reducing its dependence on foreign vendors, it aims to strengthen its operational resilience. This strategic shift is expected to safeguard the company against future supply disruptions, ensuring a more stable production pipeline.

Looking ahead, the management is optimistic about the company's ability to deliver robust operational performance. The easing of supply chain challenges, combined with the company's proactive measures, positions the company well for achieving strong revenue growth in FY25.

The company's future strategy includes leveraging its solid order book, which stood at Rs 194.3 bn at the end of March 2024. Additionally, it has orders worth approximately Rs 200 bn in the pipeline for the next 2-3 years, indicating a secure revenue stream.

Moreover, the company is expected to continue its focus on exports, particularly in products like the Akash Surface-to-Air Missile (SAM), Light Weight Torpedoes, and Konkurs M. With export orders totaling around Rs 24.2 bn as of March 2024, the company is well-positioned to capitalize on international demand for its advanced weaponry.

In conclusion, Bharat Dynamics is on a path of sustained growth, supported by its strategic initiatives and a robust order book. The company's focus on indigenisation and operational excellence will likely drive its performance in the coming years, making it a key player in the defense sector.

How Bharat Dynamics Share Price has Performed Recently

In the past five days, Bharat Dynamics share price tumbled 4%. In the past month its share price is down 20%.

In 2024, so far its share price is up 54.3% and it has surged 137.1% in the last year.

The stock touched its 52-week high of Rs 1,794.7 on 5 July 2024 and a 52-week low of Rs 450.5 on 25 October 2023.

About Bharat Dynamics

Bharat Dynamics is one of India's manufacturers of ammunitions and missile systems.

It was founded in 1970 in Hyderabad, Telangana, India.

The company was established in the year 1970 to be a manufacturing base for guided weapon systems.

Starting with a pool of engineers drawn from Indian ordnance factories, DRDO and aerospace industries, Bharat Dynamics began by producing a first generation anti-tank guided missile - the French SS11B1.

This product was a culmination of a license agreement the government of India entered into with Aerospatiale.

It has three manufacturing units, located at Kanchanbagh, Hyderabad, Telangana; Bhanur, Medak district, Telangana and Visakhapatnam, Andhra Pradesh.

Two new units are planned at Ibrahimpatnam, Ranga Reddy district, Telangana and Amravati, Maharashtra.

For more details about the company, you can have a look at Bharat Dynamics factsheet and quarterly results on our website.

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Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...

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Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...