One of my friends is in army and wants to invest into stocks. While talking to him over phone, I started looking at the listed companies into defense.
I began with Zen Technologies. The company manufactures simulators and has a market capitalization of only 60 crores. The earnings have been very volatile over the years (63 crores in 2009 vs 17 crores in 2011 vs 100 crores in 2012 vs 40 crores in 2013). The company has an order book of 37 crores and an OPM of around 30% (also very volatile). Company's recent buy back did bring some excitement, but it was a minor quantity of 17000 shares (0.19%). Due to the volatility in earnings of the company, I found it hard to derive some valuations for it.
CARE's report on Zen Technology mentioned about Bharat Electronics among the listed peers.
Bharat Electronics is a PSU. It "primarily manufactures advanced electronic products for the Indian Armed Forces." Market cap is just around 9000 crores with a cash of around 5000 crores in the March'13 balance sheet. The annual profits are around 900 crores. This makes it a very attractive stock to follow.
But the risk here, as is with all the other PSUs, is that there are elections within the next 12 months. The experts believe that the cash from balance sheets of the PSUs will suddenly disappear. Some unnecessary deal, merger, expansion, subsidiary etc will happen and the cash will be gone.
Barring the last year, the sales growth have been slow in the company. There are risks about the cash management, and a large distrust in promoters. For these reasons, I will watch this stock from a distance.
Astra Microwave looked good among other peers. I will cover it tomorrow.