Recommendation From Defence Sector

This section gives a recommendation of a stock having stock price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon.

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Several projects from government lined up

Reliance Defence and Engineering Limited (RDEL) is a defence company engaged in the business of shipbuilding and fabrication. The ship building and fabrication segment includes shipbuilding, block manufacturing, ship and rig repairs, fabrication at its Special Economic Zone (SEZ) and Export Oriented Units (EOU) situated at Pipavav, Gujarat.

The company's trading segment includes steel trading activities. The shipbuilding facility has modular shipbuilding facility with a capacity to build fabricated and outfitted blocks. The shipyard has a pre-erection berth with length of over 80 meters and width of 40 meters approximately, and over two Goliath cranes with a combined lifting capacity of approximately 1200 tonnes.

RDEL operates one of the largest shipyard facilities in the world, capable of constructing vessels up to 400,000 DWT. The facilities include shipbuilding, ship repair and fabrication complex. The requirements of defence sector in India are largely catered by imports. The government’s initiative of ‘Make in India’ has opened the doors for private sector participation in the Indian defence sector. This may usher in strategic partnerships of Indian companies with global players, which would result in acquiring latest technology in the sector and bolster exports in the long run.

There is huge potential demand for ship repairs in the country since India has a large fleet of ships of around 1,100 Indian owned vessels. Moreover, 41 per cent of the domestic fleet has passed 20 years of its operational life.

The company is qualified for dry-docking of INS Vikramaditya, presently the largest aircraft carrier of the Indian Navy.

There are some new projects in the offing by the government, namely, landing platform dock, fleet support ships, diving support vessels, ASW-SW crafts, new generation missile vessels and multi-purpose vessels, expected during the next few years, which would present huge opportunities for the company.

On the financial front, the company’s net sales have grown 88.68% to Rs.228.19 crore for the quarter ended March 31, 2017 as compared to the previous quarter.

The company’s operating profit (EBITDA) has grown 94.65% on Q-o-Q basis to Rs.27.66 crore for the quarter ended March 31, 2017. The EBITDA margin for Q4FY17 stood at 2.3 per cent as against -13.2 per cent in Q4FY16. The long-term debt for FY17 stood at  Rs.5958.3 crore as against Rs.6040 crore in FY16. The company has recently received a nod from RBI and lenders for a Rs.6800 crore corporate debt restructuring (CDR).