Strong metro rail orders, indigenisation initiatives bode well for BEML

New project wins and other segments will strengthen the already strong revenue visibility of 3.5 years

Shares of BEML are up 60 per cent from their March lows. While there are some near-term concerns on new order flows and project execution due to present lockdowns, the existing order book of Rs 9,800 crore as of March-end provides good revenue visibility.
 

Primarily driven by orders for metro rail coaches, the share of mining and construction equipment is also decent in the order book. While BEML had won the order for supply of additional metro coaches to Mumbai lines worth Rs 834 crore, it also bagged Rs 730 crore worth orders from the Delhi Metro during FY20. In April, it received orders for 150-tonne and 180-tonne dumpers from Coal India worth Rs 398 crore. The order book can expand further, keeping in mind the government’s ‘Make in India’ initiative, which calls for increased indigenisation.

In the metro space, analysts say that metro systems are either operational, under construction, or at the bidding stage in 21 cities. With the funding burden spread across central/state governments and multilateral agencies, short-term issues, notwithstanding investments, will remain robust. Those at Edelweiss say bids for Rs 23,000-crore metro rail contracts are underway, tendering for new proje-cts/phases in eight cities has commenced, and construction has started for new proj-ects/phases in three cities.

Defence supplies, which is a comparatively smaller segment for BEML (14 per cent of its FY20 revenue), also holds promise and can see exponential growth. BEML is working on joint ventures for manufacturing defence spares in India.

Meanwhile, BEML’s strong order book of Rs 9,795 crore gives revenue visibility of 3.5 years on FY21 sales, say analysts at Elara Capital, who see execution of the Mumbai metro order and the Sarvatara bridging system during FY21-23 driving growth. Analysts also say that the strong pipeline in rail, metro, and defence segments, owing to increased focus on indigenisation and incremental orders for large-size mining equipment in coal, cement, and steel industries, bode well for the firm’s growth.

Given this backdrop, expect near-term performance (up to first half of FY21) to see an impact of execution delays, as was seen during the March quarter, when profit before tax declined 38 per cent year-on-year (YoY). High fixed costs and working capital requirements are likely to put pressure on the firm’s June quarter performance. With recovery expected by the second half, analysts at Antique Stock Broking estimate FY21 earnings to decline by 5.4 per cent YoY to Rs 14.4 per share. But thereafter, a sharp rebound is expected, with earnings estimated to surge 140 per cent in FY22 to Rs 34.6. So, corrections could be a good entry point for long-term investors.