Bharat Dynamics Ltd:Annual Report 2023-24 Analysis

Bharat Dynamics Ltd.: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History:

Bharat Dynamics Limited (BDL) was established in 1970, conceived as a manufacturing base for guided weapon systems and allied defence equipment. It was created to achieve self-reliance in defence technology.

Headquarters Location and Global Presence:

Headquartered in Hyderabad, India, BDL primarily operates within India, focusing on supplying to the Indian Armed Forces. While international exports exist, they are not the primary focus.

Company Vision and Mission:

• Vision: To be a world-class manufacturer of precision-guided weapon systems, contributing to the nation’s security and self-reliance.
• Mission: To design, develop, and manufacture advanced weapon systems, ensuring technological excellence and customer satisfaction.

Key Milestones in their Growth Journey:

• 1970: Establishment of Bharat Dynamics Limited.
• Early Years: Focused on producing first-generation anti-tank guided missiles through technology transfer.
• Later Years: Expanded product portfolio to include surface-to-air missiles, air-to-air missiles, and underwater weapons.
• Ongoing: Continued investment in R&D for indigenous development of advanced weapon systems.
• Recent: Emphasis on enhancing export capabilities and forging strategic partnerships.

Stock Exchange Listing Details and Market Capitalization:

BDL is listed on both the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

Recent Financial Performance Highlights:

• (Replace with up-to-date data - Check the company’s official website, investor relations section, and reputable financial news sources.)
• Focus on revenue growth driven by strong order book.
• Increased profitability through cost optimization.

Management Team and Leadership Structure:

• (Replace with up-to-date data - Check the company’s official website, investor relations section, and reputable financial news sources.)
• BDL is led by a Chairman & Managing Director (CMD), supported by a board of directors.

Any Notable Awards or Recognitions:

• Awards for indigenization efforts in defense production.
• Recognition for export performance.
• Awards for quality and manufacturing excellence.

Their Products #

Complete Product Portfolio with Categories:

• Missiles:
  • Surface-to-Air Missiles (SAMs)
  • Air-to-Air Missiles (AAMs)
  • Anti-Tank Guided Missiles (ATGMs)
  • Surface-to-Surface Missiles (SSMs)
• Underwater Weapons:
  • Torpedoes
• Countermeasures:
  • Chaff and Flare Dispensers
• Launchers:
  • Missile Launchers
• Other Defense Equipment:
  • Underwater Mines
  • Engineering Equipment
  • Refurbishment and Life Extension of Weapon Systems

Flagship or Signature Product Lines:

• Akash Missile: Surface-to-air missile system.
• Milan-2T: Anti-tank guided missile.
• Torpedoes: Varunastra

Key Technological Innovations or Patents:

• Indigenous development of propulsion systems for missiles.
• Advanced guidance and control systems.

Manufacturing Facilities and Production Capacity:

BDL has multiple manufacturing facilities located in:

• Hyderabad
• Visakhapatnam
• Ibrahimpatnam

Quality Certifications and Standards:

BDL adheres to stringent quality standards including:

• ISO 9001
• AS9100

Any Unique Selling Propositions or Technological Advantages:

• Indigenous design and development of advanced weapon systems, promoting self-reliance.
• Integration of advanced technologies into weapon platforms.
• Ability to cater to specific requirements of the Indian Armed Forces.

Recent Product Launches or R&D Initiatives:

• Development of new variants of existing missiles with enhanced capabilities.
• R&D on hypersonic technologies.
• Focus on underwater weapon systems.

Primary Customers #

Target Industries and Sectors:

• Defense

Geographic Markets (domestic vs. international):

• Primarily domestic (Indian Armed Forces)
• Growing focus on international exports.

Major Client Segments:

• Indian Army
• Indian Air Force
• Indian Navy

Any Notable Government Contracts or Institutional Clients:

• Contracts with the Ministry of Defence, Government of India.

Major Competitors #

Direct Competitors in India and Globally:

• Indian:
  • Ordnance Factory Board (OFB) - Now divided into 7 DPSUs.
  • Private sector defense companies
• Global:
  • MBDA
  • Raytheon Technologies
  • Lockheed Martin
  • Thales Group

Competitive Advantages and Disadvantages:

• Advantages:
  • Strong relationship with the Indian government and armed forces.
  • Established manufacturing infrastructure.
  • Focus on indigenous development.
• Disadvantages:
  • Dependence on government contracts.
  • Long lead times in product development.
  • Competition from established global players.

How they differentiate from competitors:

• Focus on indigenization and meeting the specific needs of the Indian Armed Forces.
• Cost-effectiveness in comparison to imported weapon systems.
• Customization of products to suit unique requirements.

Future Outlook #

Expansion Plans or Growth Strategy:

• Expanding manufacturing capacity.
• Increasing R&D investment.
• Forging strategic partnerships with global defense companies.
• Focusing on export opportunities.

Upcoming Products or Innovations:

• Advanced air defense systems.
• Hypersonic weapons.
• Next-generation underwater weapons.

Sustainability Initiatives or ESG Commitments:

• (Replace with up-to-date data - Check the company’s official website, investor relations section, and reputable financial news sources.)

Industry Trends Affecting their Business:

• Growing emphasis on indigenization in defense procurement.
• Increasing demand for advanced weapon systems.
• Geopolitical tensions and security concerns driving defense spending.

Long-term Vision and Strategic Goals:

• To be a leading global player in the defense sector.
• To enhance India’s self-reliance in defense technology.
• To contribute to the nation’s security and strategic interests.

Bharat Dynamics Limited (BDL) Performance Overview: 2023-24 Analysis #

Financial Performance: 3-Year Trend Analysis #

• Revenue from Operations: Decreased by 5% from ₹2,489 crore in 2022-23 to ₹2,369 crore in 2023-24.
• Value of Production: Increased by 3% from ₹2,508 crore in 2022-23 to ₹2,592 crore in 2023-24.
• Profit Before Tax (PBT): Increased significantly by 72%, from ₹482 crore in 2022-23 to ₹828 crore in 2023-24.
• Profit After Tax (PAT): Increased by 74% from ₹352 crore in 2022-23 to ₹613 crore in 2023-24.
• EBITDA Margin: Improved to 22.64% in 2023-24 from 16.39% in the previous year.
• Net Worth: Increased consistently, reaching ₹3,637 crore in 2023-24, up from ₹3,211 crore in 2022-23.
• Earnings Per Share (EPS): Increased to ₹16.72 in 2023-24 from ₹9.61 in 2022-23.
• Inventory Turnover Ratio: Decreased to 1.25 in 2023-24 from 1.43 in 2022-23.
• Debtors Turnover Ratio: Slightly decreased from 10.19 in 2022-23 to 9.57 in 2023-2024.
• Operating Profit Margin: Showed a significant increase from 13% in 2022-23 to 20% in 2023-24.
• Net Profit Margin: Rose from 14% to 26%.
• Return on Net Worth: Grew from 11% to 18%.

Business Segment Performance #

• BDL primarily operates in the manufacturing of guided missiles and allied defense equipment.
• Segment reporting is exempted for BDL due to the sensitive nature of the business.

Strategic Initiatives and Progress #

• Indigenization Efforts: Indigenized 98 critical items, with an average indigenization percentage between 80-90% across programs.
• Diversification: New verticals include guided bombs, drone-delivered payloads, warhead manufacturing, cruise missile engines, space application products, propellants, and rockets.
• Capital Expenditure: ₹81.93 crore spent in 2023-24 on infrastructure for new plants. Planned ₹100 crore expenditure for 2024-25.
• R&D Investment: R&D expenditure was ₹75.37 crore in 2023-24, representing 3.18% of sales turnover.
• Export Market Expansion: Focus on exporting Akash Weapon Systems, ATGMs, and other products. Export order book of ₹2,420 crore as of March 31, 2024.
• Partnerships: MoU with Godrej & Boyce, VEM Technologies, Undersea Sensor Systems Inc, and others, for technology enhancement.

Risk Landscape Changes #

• Geopolitical Risks: Increased due to conflicts in Europe and the Middle East, affecting the supply chain.
• Supply Chain Risks: Dependency on FOEMs for critical components, mitigated by increasing indigenization efforts.
• Competition Risk: Increased competition due to the opening up of the defense sector to private players.

ESG Initiatives and Metrics #

• Environmental Sustainability: Recertified with ISO 14001:2015. Initiatives include plastic use reduction, e-waste disposal, and a Zero Liquid Discharge system.
• Social Responsibility: CSR expenditure of ₹1,017.73 lakh against an obligation of ₹936.94 lakh. Key focus areas include healthcare, nutrition, education, skill development, and sanitation.
• Safety: Strict adherence to safety standards. All production division are certified with AS 9100D.

Management Outlook #

• Positive Future Outlook: Supported by a strong order book of ₹19,434 crore as of March 31, 2024.
• Addressing Supply Chain Issues: Continuous engagement with FOEMs and diplomatic channels.
• Growth of Order Book: Expected through government policy initiatives.
• Indigenization and Diversification: Emphasis on indigenizing components and diversifying into the space technology sector.
• Export Market: Pursuing export orders.
• Strategic Diversification: Venture into the space technology sector.

Detailed Analysis #

Financial Position Analysis of Bharat Dynamics Limited (BDL) #

3-Year Comparative Analysis of Assets, Liabilities, and Equity #

(₹ in Lakh)

Significant Changes in Major Line Items (>10% YoY) #

(₹ in Lakh)

• Current Assets (2023-24 vs. 2022-23): Increased by ₹163,886.79 (21.56%), primarily due to increases in Bank balances, and other current assets.
• Current Assets (2022-23 vs. 2021-22): Increased by ₹263,737.21 (53.14%), and increase of bank balances and other current assets.
• Non-Current Liabilities (2023-24 vs. 2022-23): Increased due to Other Non-Current Liabilities from 320,528.18 to 364,855.77.
• Current Liabilities (2023-24 vs. 2022-23): Increased by ₹79,979.13 (36.25%) due to a rise in other current liabilities and trade payables.
• Current Liabilities (2022-23 vs. 2021-22): Increased by ₹138,238.39 (167.85%), mainly due to an increase in other current liabilities, including, Trade payables.
• Other Equity (2023-24 vs. 2022-23): Increased by 42532.56 (14.05%).
• Total Equity (2023-24 vs 2022-23) Increased by 13.24%.
• Other Equity (2022-23 vs 2021-22) Increased by 6.5%.

Working Capital Trends #

(₹ in Lakh)

Analysis of Working Capital #

Working capital has shown a significant increasing trend, indicating improved liquidity.

Debt Structure and Maturity Profile #

BDL reported zero long-term debt for all reported years and does not use off-balance sheet financing arrangements.

Off-Balance Sheet Items #

(₹ in Lakh)

Operating Performance: Bharat Dynamics Limited Analysis #

Revenue Breakdown #

• The financial statements do not offer a detailed revenue breakdown by segment or geography, other than that the exports sale is to friendly foreign countries. BDL reported to get exemption from segment reporting.
• The primary customer is the Ministry of Defence, Government of India, which is clearly the dominant revenue source.
• Revenue from operations decreased by 5% year-over-year, from ₹2489 crore in 2022-23 to ₹2369 crore in 2023-24.

Cost Structure Analysis #

• Material consumption is the largest cost component. It decreased by 7%, from ₹1210 crore in 2022-23 to ₹1120 crore in 2023-24.
• Employee costs represent a significant expense, increasing by 13% from ₹532.46 crore in 2022-23 to ₹600.01 crore in 2023-24.
• Other expenses, which include various operational costs, decreased.
• Changes in WIP/SIT contributed positively.

Margin Analysis #

• Operating Profit Margin: Increased significantly from 13% in 2022-23 to 20% in 2023-24, attributed to a change in product mix, higher interest income, and a refund received from a customer.
• Net Profit Margin: Increased from 14% in 2022-23 to 26% in 2023-24, reflecting the improved operating performance and higher other income.
• EBITDA Margin: Improved, standing at 22.64% in 2023-24 compared to 16.39% in the previous financial year.

EPS Analysis #

• Basic and Diluted EPS: Increased by 74%, from ₹9.61 in 2022-23 to ₹16.72 in 2023-24 (adjusted for the stock split). This reflects the substantial growth in net profit.

Cash Flow and Liquidity Analysis of Bharat Dynamics Limited #

Operating, Investing, and Free Cash Flow #

• OCF (Operating Cash Flow):
  • 2024: ₹41,171.86 Lakh
  • 2023: ₹213,025.18 Lakh
  • Significant decrease year-over-year. Major components include profit before tax, adjustments for depreciation, finance costs, interest income, and changes in working capital.
• ICF (Investing Cash Flow):
  • 2024: ₹(72,240.48) Lakh
  • 2023: ₹(117,102.93) Lakh
  • Main components include the purchase of property, plant & equipment and intangible assets, bank deposits, and interest received.

Working Capital Management Efficiency #

• Debtors Turnover Ratio:
  • 2024: 9.57 times
  • 2023: 10.19 times
  • Slight decrease indicates marginally slower collection of receivables.
• Inventory Turnover Ratio:
  • 2024: 1.25 times
  • 2023: 1.43 times
  • Decrease indicates slightly slower inventory movement.
• Trade Payables Turnover Ratio:
  • 2024: 1.68
  • 2023: 2.70
  • Decrease shows a slowdown in payable dues.

CAPEX Analysis #

• Total CAPEX (Property, Plant & Equipment and Intangible Assets additions):
  • 2024: ₹8,322.48 Lakh + 19.36 Lakh
  • 2023: ₹6,806.35 Lakh + 1223.40 Lakh
• 2024 Specifics included: propellant plant at Jhansi, infrastructure work for Phase-II at Ibrahimpatnam, integration facility at Vizag and commissioning of warhead facility.

Dividend and Share Buyback Trends #

• Dividends:
  • 2024: Total ₹5.275 per share (face value of ₹5). Includes a final dividend of ₹0.85 per share (₹31.16 crore) and an interim dividend of ₹8.85 per share (₹162.20 crore at face value ₹10).
• Share Buybacks:
  • No share buybacks reported for 2023-24 or 2022-23.

Liquidity Position #

• Current Ratio:
  • 2024: 3.07 times
  • 2023: 3.45 times
  • Decrease, but still represents a strong ability to cover short-term liabilities.
• Cash and Cash Equivalents:
  • 2024: ₹59,384.20 Lakh
  • 2023: ₹105,288.37 Lakh
  • Decrease suggests utilization of cash reserves.

Operational Metrics #

Key Performance Indicators #

Profitability Ratios (3-Year Trends) #

• ROE, ROCE, Net Profit Margin, and Operating margins have shown improvement in 2023-24 compared to the Previous Year.

Liquidity Metrics #

• Current ratio is strong but has decreased slightly year-over-year.

Efficiency Ratios #

• Both inventory and receivables turnover ratios have slightly declined, indicating a potential minor decrease in efficiency.

Leverage Metrics #

• BDL has no debt.
• BDL showing Strong interest coverage

Working Capital Ratios #

• Net Capital Turnover Ratio decreased slightly during 2023-24.
• Working capital increased year-over-year.

Comparison with Industry Averages #

• It is observed that it maintains better standards over the Industry averages on account of Profitability, Efficiency, Leverage, and working capital.

Bharat Dynamics Limited (BDL) - Segment Performance Analysis #

Revenue and Profitability Metrics with Growth Rates #

• Revenue from Operations: Decreased by 5% from ₹2,489 crore in 2022-23 to ₹2,369 crore in 2023-24.
• Value of Production: Increased by 3% from ₹2,508 crore in 2022-23 to ₹2,592 crore in 2023-24.
• Profit Before Tax (PBT): Increased by 72% from ₹482 crore in 2022-23 to ₹828 crore in 2023-24.
• Profit After Tax (PAT): Increased by 74% from ₹352 crore in 2022-23 to ₹613 crore in 2023-24.
• Operating Profit Margin: Increased by 54%, from 13% in 2022-23 to 20% in 2023-24, attributed to product mix changes, higher interest income, and customer refunds.
• Net Profit Margin: Increased by 86%, from 14% in 2022-23 to 26% in 2023-24.
• Value Added: Increased By 13%, from 1298 cr in 2022-23 to 1472 cr in 2023-24.

Market Share and Competitive Position #

• BDL is positioned as a key player in the Indian defense industry, among a few globally with state-of-the-art facilities for manufacturing guided missiles, underwater weapons, and allied defense equipment.
• BDL faces increased competition due to government policies allowing private sector participation.

Key Products/Services Performance #

• Major products executed during the year include ATGMs, Akash-SAM, Varunastra, and MR-SAM.

Geographic Distribution and Market Penetration #

• BDL has three manufacturing units: Kanchanbagh (Hyderabad, Telangana), Bhanur (Sangareddy District, Telangana), and Visakhapatnam (Andhra Pradesh).
• BDL is establishing additional facilities in Amaravati (Maharashtra), Ibrahimpatnam (Telangana), and Jhansi (Uttar Pradesh).
• BDL is actively pursuing export opportunities and has secured orders from friendly foreign countries, with an export order book of ₹2,420 crore as of March 31, 2024.

Segment-wise CAPEX and ROIC #

• Total CAPEX: ₹81.93 crore spent in 2023-24 on modernization of plant & machinery and infrastructure development, including propellant plant at Jhansi, Phase-II at Ibrahimpatnam, integration facility at Vizag, and warhead facility.
• Planned CAPEX: Approximately ₹100 crore planned for 2024-25, focused on the Jhansi Unit and Phase-II infrastructure development at Ibrahimpatnam.
• Return on Net Worth: Grew from 11% to 18% from 2022-23 to 2023-24 (64% increase).

Operational Efficiency Metrics #

• Inventory Turnover Ratio: Decreased from 1.43 times in 2022-23 to 1.25 times in 2023-24.
• Debtors Turnover Ratio: Decreased slightly from 10.19 times in 2022-23 to 9.57 times in 2023-24.
• Import Material Consumed: Decreased by 57%.
• Indigenous Material Consumed: Increased by 12%.
• MSME Procurement: Exceeded the mandated 25% target, achieving 27.70% (₹450.38 crore) of total procurement from MSMEs.
• GeM Procurement Exceeded the GeM Target of 1602cr procuring goods and services of 5841.7 cr.

Growth Initiatives and Challenges #

• Growth Initiatives: Focus on indigenization, R&D investment (both in-house and with DRDO), strategic alliances with foreign OEMs, and expansion into new markets (exports). Diversification into new verticals like guided bombs, drone-delivered payloads, warhead manufacturing, and space applications.
• Challenges: Supply chain disruptions due to the geopolitical situation in Europe and the Middle East, causing delays in receiving input materials from Foreign Original Equipment Manufacturers (FOEMs).
• Indigenisation: 98 critical items, previously imported, were indigenised.

Risk Framework #

Comprehensive Risk Assessment #

Strategic Risks #

• Severity: High. The company’s heavy reliance on the Ministry of Defence (MoD) as its primary customer creates significant concentration risk.
• Likelihood: Medium. Shifts in government defense budgets or procurement policies could impact BDL. Cancellation of the staggered orders could also weaken the order book.
• Trend: Increasing, as the government opens up the defense sector to private companies, intensifying competition.
• Mitigation Strategies: BDL is actively pursuing export markets and diversification into areas like space technology. Entering into various MoUs and agreements with foreign OEMs.
• Control Effectiveness: Partially effective. Export orders have been secured (₹2420 crore as of March 31, 2024), but revenue is still primarily driven by the Indian Armed Forces.
• Potential Financial Impact: Reduction in revenue and profitability. The report notes a 5% decrease in revenue from operations in 2023-24 (₹2369 crore) compared to 2022-23 (₹2489 crore) due to supply chain disruptions.

Operational Risks #

• Severity: High. Supply chain disruptions, particularly due to geopolitical situations in Europe and the Middle East, directly impact production.
• Likelihood: High. The current geopolitical climate makes this a persistent risk.
• Trend: Stable but elevated. BDL is experiencing delays in the receipt of input material.
• Mitigation Strategies: BDL is engaging with Foreign Original Equipment Manufacturers (FOEMs) and utilizing diplomatic channels. They are also increasing indigenization efforts (98 critical items indigenized).
• Control Effectiveness: Partially effective. Indigenization efforts are reducing dependence on imports (import material consumed decreased by 57% in 2023-24), but supply chain issues persist.
• Potential Financial Impact: Increased production costs and decreased production output, as seen in the marginal dip in revenue. Value of production increased by 3%, but the reduced material consumption due to disruptions.

Financial Risks #

• Severity: Medium.
• Likelihood: Low.
• Trend Improving.
• Mitigation Strategies: The company holds a strong financial position, with a good order book position.
• Control Effectiveness: Strong.
• Potential Financial Impact The company presented a staggering order book with a staggering figure of ₹19434 crore, which represents 13% increase in net worth.

Compliance/Regulatory Risks #

• Severity: Medium. Changes in government regulations, export restrictions, and procurement rules can affect BDL.
• Likelihood: Low to Medium. The defense sector is highly regulated, but the government’s “Atmanirbhar Bharat” initiative is generally favorable.
• Trend: Stable.
• Mitigation Strategies: BDL maintains strict compliance with all applicable regulations, including SEBI (LODR) Regulations, 2015, and DPE Guidelines.
• Control Effectiveness: High. The report indicates full compliance with relevant regulations and no instances of non-compliance.
• Potential Financial Impact: Fines, penalties, or reputational damage in case of non-compliance.

Emerging Risks #

Technology Risk: #

• Severity: Medium. Rapid technological advancements require continuous investment in R&D.
• Likelihood: Medium.
• Trend: Increasing, with the growing importance of Artificial Intelligence and new-generation weapons systems.
• Mitigation Strategies: Increased R&D expenditure (3.18% of sales turnover in 2023-24). Collaboration with DRDO and other entities.
• Control Effectiveness: Developing. BDL is investing, but the effectiveness will depend on the success of R&D projects.
• Potential financial impact R&D expenditures present a 9.10% of the PBT, while in 2022-2023 represented 31.55%.

Strategic and Management Analysis of Bharat Dynamics Limited (BDL) #

Long-Term Strategic Goals and Progress #

• BDL aims for self-reliance and competitiveness in guided missile and underwater weapon technology and production. Progress is demonstrated through the indigenization of 98 previously imported items and an average indigenization percentage between 80-90%.
• BDL is expanding production capacities at new facilities, supporting a planned CAPEX of ₹100 crore for 2024-25, and building diversification plan.
• BDL has a goal to become a prime competitor in the world market for missile exports. BDL has a current export order book of ₹2420 crore.

Competitive Advantages and Market Positioning #

• BDL possesses state-of-the-art facilities for manufacturing guided missiles, underwater weapons, and allied defense equipment.
• BDL has a strong supply chain comprising of qualified vendors, supported by the surpassing of 25% MSME procurement targets (27.70% in 2023-24).
• Market positioning is dominant within India due to strong relationships with the Indian Armed Forces and Ministry of Defence.
• BDL demonstrates quality via certifications including AS 9100D, ISO 14001:2015, and ISO 9001:2015 across various facilities.

Innovation Initiatives and R&D Effectiveness #

• BDL is actively engaged in new product development and upgrades, with a Design & Engineering division focused on various projects.
• R&D expenditure for 2023-24 was 3.18% of sales turnover and 9.10% of PBT.
• Collaborations with DRDO are ongoing, achieving milestones in Astra Missiles and Akash Air Defence System.

M&A Strategy and Execution #

• Formation of joint ventures is part of a strategy, especially under the Defence Testing Infrastructure Scheme (DTIS), with MIDHANI and Bharat Electronics Limited.

Management’s Track Record in Execution #

• BDL achieved a ‘Good’ rating for the year 2022-23 against the MoU signed with the Ministry of Defence.
• Profit After Tax (PAT) increased by 74% to ₹613 crore in 2023-24, reflecting improved manufacturing activity and realization of customer amounts.
• BDL has a healthy order book of ₹19434 crore as of March 2024.

Capital Allocation Strategy #

• A final dividend of ₹0.85 per equity share (₹5 face value) was recommended for 2023-24, totaling ₹31.16 crore.
• An interim dividend of ₹8.85 per equity share (₹10 face value) was paid in 2023-24, amounting to ₹162.20 crore.
• ₹400 crore was transferred to General Reserve in 2023-24.
• Capital expenditure for 2023-24 was ₹81.93 crore, primarily for propellant plant establishment, infrastructure work, and commissioning of warhead facility.

Organizational Changes and Their Impact #

• New verticals are being pursued for diversification, including guided bombs, drone-delivered payloads, and products for space applications. This suggests a strategic shift towards broader market engagement.
• The additional charge of Director (Finance) was assigned to the CMD, and Director (Technical) to the Director (Production), indicating potential transitional management adjustments.

ESG Analysis at BDL #

Environmental Metrics and Targets #

• All manufacturing units are recertified with ISO 14001:2015 (Environmental Management Systems).
• The company is committed to protecting the environment, preventing pollution, fulfilling compliance obligations, conserving natural resources, and continually improving to enhance environmental performance.
• A Zero Liquid Discharge system is in place, with treated water from the effluent treatment plant undergoing further treatment through reverse osmosis.
• BDL monitors environmental parameters, including ambient air quality, stack quality, sewage treatment, effluent treatment, and noise levels, to ensure compliance.

Social Responsibility Programs #

• BDL allocated 2% of its average net income from the previous three fiscal years for CSR initiatives, focusing on healthcare, nutrition, education, skill development, sanitation, and other areas.
• CSR initiatives have been extended to aspirational districts and underdeveloped areas in Telangana and Andhra Pradesh.
• Key projects for 2023-24 included mid-day meals for school children, smart classrooms in government schools, job-oriented training for women, and support for medical facilities.
• BDL’s CSR & SD obligation for 2023-24 was ₹936.94 lakh; the company incurred ₹1,017.73 lakh, achieving 100% of the target amount.
• BDL had an excess amount of 80.79 lakhs availabe for offset in succeding Financial Years
• Observed one month long Swachhata campain.

Governance Structure and Effectiveness #

• BDL maintains transparency in operations, complies with laws, adheres to ethical standards, and aims to enhance stakeholder value.
• The Board of Directors includes Functional Directors, Government Nominee Directors, and Independent Directors.
• Statutory committees (Audit, Nomination and Remuneration, CSR, Stakeholders Relationship, Risk Management) are in place.
• BDL’s Board held five meetings, and various Board committees met multiple times during the year, with high attendance rates.
• Quarterly and yearly compliance reports on Corporate Governance are forwarded to Stock Exchanges and the Ministry of Defence.
• Whistle Blower Policy Policy and an Anti-Bribery and Anti-Corruption are avaible on the website.
• During the year 2023-24, the Board of Directors has accepted all the recommendations of its committees which were mandatorily required.

Sustainability Investments and ROI #

• BDL spent ₹81.93 crore on CAPEX for modernization of plant & machinery and infrastructure development, including propellant plant, integration facility, and warhead facility.
• The company plans to spend approximately ₹100 crore in 2024-25 on CAPEX, including construction of the Jhansi Unit and Phase-II infrastructure development at Ibrahimpatnam.
• The company is making efforts to improve the idigenous creation of Sub-Systems, Systems, and services

ESG Ratings and Peer Comparison #

• BDL’s procurement from MSMEs (27.70%) exceeded the mandated 25%, indicating positive engagement with smaller enterprises.

Regulatory Compliance and Future Preparations #

• BDL complies with the Companies Act, 2013, SEBI (LODR) Regulations, 2015, and DPE Guidelines on Corporate Governance.
• The company follows Presidential Directives regarding reservations for SCs/STs/OBC/EWS in recruitment.
• All the applicable Accounting Standards are followed except IND-AS-108 relating to Segment.
• Compliance under the Right to Information Act, 2005, is maintained, with a designated Central Public Information Officer.
• The company complies with the Sexual Harassment of Women at Workplace (Prevention, Prohibition & Redressal) Act, 2013.
• The company is prepared to comply with regulatory requirements, including those related to defense production, environmental protection, and corporate governance.

Financial Analysis of Bharat Dynamics Limited (BDL) #

Management Guidance and Assumptions #

• Management assumes continued support from the Indian government’s “Atmanirbhar Bharat” initiative, promoting self-reliance in defense manufacturing.
• The company anticipates a healthy order book, expecting further expansion with orders in various stages of finalization. Executable orders are projected to span the next 4-5 years.
• Management is actively addressing supply chain issues caused by geopolitical situations in Europe and the Middle East, focusing on indigenization and continuous discussions with Foreign Original Equipment Manufacturers (FOEMs).
• The company considers its robust order book reached ₹ 19434 crore as of March 31, 2024.
• BDL has achieved indigenization for 44 items out of 56 belonging to BDL in the 4 PILs(Positive Indigenization List) issued till date.
• BDL is focused to excute orders within the delivery schedule with quality products at a competetive price, to sustain business and growth.

Market Growth Forecasts #

• BDL is venturing into the space technology sector, aligning with the expected growth of the Indian space economy from US$9.6 billion in 2020 to a projected US$13 billion by 2025.
• BDL has set on a path to grow in the international market, by converting leads from Friendly Foreign Countries (FFCs) into confirmed export orders.
• The Indian defence manufacturing industry is expected to accelerate due to current geo-political situations.
• Defence exports reached an all-time high of ₹ 21,083 crore in FY 2023-24, marking a 32.5% growth from the previous financial year and tenfold increase since 2016-17.

Planned Strategic Initiatives #

• Diversification: BDL is diversifying into new verticals, including guided bombs, drone-delivered payloads, warhead manufacturing, cruise missile engines, space application products, propellants, and rockets.
• Indigenization: BDL is strongly emphasizing indigenization across all programs, aiming to reduce dependency on FOEMs and achieving 80-90% indigenization across many of its programs.
• Strategic Partnerships: BDL is forming alliances with public and private sector companies, and international entities through MoUs, for technology upgrades, component indigenization, and joint development programs.
• Export Market Expansion: BDL is actively pursuing export opportunities, particularly for Akash Weapon Systems, and is appointing channel partners/agents in several countries. Opening Representative Offices in foreign countries is also planned.
• BDL is also entering into various agreements with foreign OEMs, both for manufacturing in India as well as joint development programmes.

Capital Expenditure Plans #

• BDL spent ₹ 81.93 crore on CAPEX in 2023-24, primarily for a propellant plant at Jhansi, Phase-II infrastructure at Ibrahimpatnam, an integration facility at Vizag, and commissioning of a warhead facility.
• Approximately ₹ 100 crore is planned for CAPEX in 2024-25, focusing on the Jhansi Unit and Phase-II development at Ibrahimpatnam.

Efficiency Improvement Targets #

• BDL is focused on improving indigenous creation of sub-systems, systems, and services to enhance capabilities and competencies.
• BDL aims to optimize its production lines to enhance efficiency and productivity by streamlining processes and integrating cutting-edge technologies.
• The company aims at enhancing its market position by expanding capabilities, capitalising on opportunities in domestic and international markets, and enhance the company’s competitive advantage focusing more on Indigenization.
• The pursuit results into reduction in production cost, benchmarking of productivity norms and modernization of management system and less dependence on imported technology.

Potential Challenges and Opportunities #

• Challenges:
  • The geopolitical situation in Europe and the Middle East causing delays in the receipt of input materials.
  • Dependence on a single primary customer, the Indian Armed Forces.
  • Increased competition from private sector companies in the defense sector.
  • Cancellation of orders can weaken the order book and future revenue.
• Opportunities:
  • Government initiatives like “Atmanirbhar Bharat” and export clearances are creating significant growth prospects.
  • Potential for expanding the export market, with strong interest in BDL’s products.
  • Diversification into new verticals such as space technology.
  • Increased budgetary allocation by the government to defense for acquiring defense equipment.
  • BDL has adequate production facilities to cater to the domestic as well as export demand for its products and to expand its customer base in the international market.

Scenario Analysis and Sensitivity to Key Assumptions #

• Scenario: Prolonged Geopolitical Instability: If supply chain disruptions persist longer than anticipated, it could further impact BDL’s revenue and profitability. Sensitivity: Highly sensitive to the timely resolution of these conflicts.
• Scenario: Increased Government Spending: If the Indian government significantly increases defense spending, BDL would likely see substantial order book growth. Sensitivity: Moderately positive correlation with government defense budget allocations.
• Scenario: Successful Export Expansion: If BDL successfully converts export leads into firm orders, this could provide a significant revenue boost. Sensitivity: Highly sensitive to the company’s ability to navigate international markets and secure contracts.
• Scenario: Faster/Slower Indigenization: The rate of successful indigenization directly impacts cost competitiveness. Faster indigenization could improve margins; slower progress could expose BDL to import cost fluctuations. Sensitivity: Moderate impact, assuming long-term indigenization goals are met.

Bharat Dynamics Limited Financial Analysis #

Auditor’s Opinion and Qualifications #

• The Auditors, M/s. Tej Raj & Pal, issued an unmodified opinion on the standalone financial statements, stating they give a true and fair view in conformity with Indian Accounting Standards (Ind AS).
• Emphasis of Matter paragraphs were included, drawing attention to:
  • Note 38(25): Impact on performance due to supply chain disruptions from the Russia-Ukraine war and Middle East conflicts.
  • Note 32: Adjustment of material cost by Rs. 16491.29 lakhs due to a customer refund.
  • Note 38(7): Inventory not moved for more than five years (Rs. 8338.85 lakhs), for which no redundancy provision was made, contrary to the company’s accounting policy.

Key Accounting Policies and Changes #

• Revenue Recognition: Revenue is recognized when (or as) the company satisfies a performance obligation, either over time (based on input method - proportion of actual costs incurred) or at a point in time. Specific criteria are detailed for Ex-Works, FOR, and Bill and Hold sales.
• Government Grants: Grants related to income are deferred and recognized in profit and loss, matching them with the costs they intend to compensate.
• Foreign Currency Translation: Monetary assets and liabilities are translated at year-end exchange rates, with gains/losses recognized in profit and loss.
• Inventory Valuation: At lower of cost (weighted average) and net realizable value.
• Financial Instruments: Measured as per Ind AS 109, with classifications including amortized cost, fair value through other comprehensive income (FVOCI), and fair value through profit or loss (FVTPL).
• The Company has followed all applicable accounting standards, except that IND-AS 108 (operating segment) has not been followed.
• Property, Plant, and Equipment: Stated at historical cost less depreciation (straight-line method).
• Segment Reporting: Segment reporting (IND AS 108) is not applied, citing exemptions granted to defense PSUs due to the sensitive nature of the disclosures.
• Accounting policy changes: There were no significant changes except incorporating amendments to Indian Accounting Standards issued in 2023.

Internal Control Effectiveness #

• The auditors provided a separate report (Annexure 2) stating that the company has adequate internal financial controls with reference to the standalone financial statements, and that these controls were operating effectively as of March 31, 2024.
• There were no qualifications on the adequacy of internal control.

Regulatory Compliance Status #

• The company is in compliance with the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, and DPE Guidelines on Corporate Governance.
• Quarterly and yearly compliance reports on Corporate Governance are submitted to Stock Exchanges and MoD.
• The company complied with Secretarial Standards issued by the Institute of Company Secretaries of India.
• No instances of non-compliance were reported during the year.
• Presidential Directives and guidelines regarding reservations for SCs, STs, and OBCs are followed.

Legal Proceedings and Their Potential Impact #

• The company has no pending litigations that are expected to materially impact its financial position.
• Certain claims and demands against the company were not acknowledged as debt. Total such claims are detailed, the largest relating to Central Sales Tax and Excise Duty. Contingent liabilities related to ongoing litigations were discussed, highlighting management’s process for identifying, measuring, and disclosing them.

Related Party Transactions #

• There were no materially significant related party transactions during the year that presented a potential conflict of interest.
• Transactions with related parties are disclosed in Note No. 38(8) of the Notes to Accounts.
• A “Policy on Related Party Transactions” is in place and is available on the company’s website.
• Remuneration to key managerial personnel is disclosed.

Subsequent Events #

• No material changes or commitments affecting the financial position occurred between March 31, 2024, and the date of the Directors’ Report (May 30, 2024).
• A final dividend of ₹0.85 per equity share was recommended, subject to shareholder approval.
• Sub-division of equity shares from a face value of ₹10 to ₹5, effective May 24, 2024, was noted.

Accounting Quality and Regulatory Risk Assessment #

• Accounting Quality: The lack of provisioning for slow-moving inventory, despite the company’s policy, raises a minor concern about the conservatism of accounting practices. Emphasis of matters are pointed by the external auditors.
• Regulatory Risk: The primary regulatory risk stems from the company’s heavy reliance on government contracts and defense budgets. Changes in government policies or budget allocations could significantly impact BDL. Compliance with various government regulations and procurement rules is essential.
• The dependence on a single customer is another identified risk.