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Published on: Sept. 20, 2020, 11:27 p.m.
Ill-advised offer for sale
  • Bharat Dynamics pays interim dividend to the government

By Sarosh Bana. Executive Editor, Business India

It has been a woefully tepid market response to the first two post-lockdown divestments undertaken within a fortnight of each other, both of underperforming defence public sector undertakings (DPSUs).

While the Rs5,020 crore Offer for Sale (OFS) of 15 per cent equity of Hindustan Aeronautics Ltd (HAL) of 27/28 August was undersubscribed 92 per cent, despite being offered at a 15 per cent discounted floor price of Rs1,001 per share (Business India, September 7-20, 2020), the Rs907 crore OFS of 15 per cent of the shares of Bharat Dynamics Ltd (BDL) on 9/10 September, at 14 per cent discounted Rs330 a share, returned a more dismal subscription of 85 per cent. This was despite retail investors having been offered an additional discount of Rs20 a share.

The BDL share price fell 5.24 per cent to close at Rs313.8 on the BSE the day the OFS opened. It has since sagged further to around Rs315. While institutional investors subscribed to the offer size of 2.75 crore shares by 1.4 times on the first day, the retail portion in the “greenshoe” option the day after was undersubscribed.

“BDL OFS concluded today with total subscription of about 2.34 crore shares worth Rs770 crore from institutional and retail investors,” tweeted Department of Investment and Public Asset Management (DIPAM) secretary Tuhin Kant Pandey on 10 September. “This issue will help the company achieve MPS [minimum public shareholding] norms.”

Prior to the OFS, the government had an 87.75 per cent stake in the Miniratna company, which went public in May 2018 at an offer price of Rs428.

As with the HAL OFS, the government evidently felt that investor sentiment would be buoyed by the on-going confrontation between India and China on the border in eastern Ladakh, which would likely further the cause for “Make in India” and for enhancing indigenous defence capabilities. It also believed that with Defence becoming a focus sector today, investment interest would be high for a company like BDL. At the same time, the government has cut profit percentage for the supply of defence equipment by DPSUs from 10 to 7.5, which could affect their margins on new orders.
 
Order book position

According to BDL Chairman and Managing Director, Cmde Siddharth Mishra (retd), his company’s turnover registered a modest increase from Rs3,069 crore in 2018-19 to Rs3,095 crore in 2019-20, though down from Rs4,587.60 crore in 2017-18. Profit after tax (PAT) clocked Rs528.15 crore, Rs422.59 crore and Rs534.9 crore respectively. Value of production slid from Rs4,641.30 crore to Rs3,235.22 crore and to Rs2,591.54 crore over these last three years. Inventory too slipped from Rs1,925.87 crore to Rs1,664.53 crore and to Rs856.52 crore. And while the number of employees shrank from 3,095, to 3,034 and finally to 2,950 between 2017-2020, employee costs remained more or less the same at Rs529.34 crore, Rs534.21 crore and Rs534.03 crore. The company’s order book position was around Rs7,413 crore, as on 1 April 2020.

As with most of the industry, BDL too was shuttered from 23 March on account of the Covid-19 pandemic, with its manufacturing facilities partially resuming with a third of its workforce from 4 May and with 50 per cent of its staff from 20 May. As the shutdown was from the last week of March, it had little impact on the company’s business for 2019-20, but the halt in production will affect revenues and profitability in the current financial year.

Despite its none too happy finances, BDL donated Rs9.02 crore raised through contributions of one-day salary by its employees and from its CSR funds, to the Prime Minister’s PM Cares fund. It was one of 38 PSUs – from Maharatnas to Navratnas – that contributed more than Rs2,105 crore to the fund. HAL, in turn, had donated Rs26.25 crore.

Established in 1970, Bharat Dynamics is a leading manufacturer of supersonic Medium Range Surface-to-Air Missiles (MRSAMs), Anti-Tank Guided Missiles (ATGMs), air defence weapon systems, Counter Measures Dispensing Systems (CMDSes), Torpedo Advanced Lightweights (TALs), and heavy weight torpedoes. It has the Vision to be a world-class enterprise producing international standard products for the Defence industry, and the Objectives to become self-reliant and competitive in Guided Missile and Underwater Guided Weapon Technology and Production, and to maximise utilisation of its existing production capacities.

BDL is headquartered in Hyderabad, in Telangana state, and operates three manufacturing units at Kanchanbagh, in Hyderabad, Bhanur, in the state’s Sangareddy district, and Visakhapatnam, in the neighbouring state of Andhra Pradesh. It is setting up two more facilities, a 530-acre one at Amravati, in Maharashtra, for producing the Very Short Range Air Defence (VSHORAD) missile, and the other, a 630-acre unit, at Ibrahimpatnam, in Telangana, which will serve as a static test facility for SAMs and ATGMs.

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