Strong order book leads to outsized gains for BEML; stock up 60% since Oct

The Mumbai metro project order is about 45% of the company's order book at the start of the year

The BEML stock has gained about 60 per cent since its lows in October on multiple triggers. While operational performance has improved over the last couple of quarters, the stock got a major boost after winning a large Mumbai metro project order. 

The mega contract, worth about Rs 30.15 billion, includes design, manufacture, supply, testing and commissioning of 378 metro coaches, as well as supply of spares and training of personnel. 

This order is about 45 per cent of the company’s order book at the start of the year. 

BEML had an order book of Rs 67.2 billion at the end of FY18, which provides revenue visibility for over two years. The order pipeline is expected to get better with more orders from Coal India and railways. 

With metro rail order in its kitty, revenue visibility has improved beyond FY20 as train deliveries are scheduled to commence from July 2020 until September 2022.  

The company has a strong track record of delivering complex products in each of its three verticals of railways, mining and defence. 

The company’s first half performance has been subdued on account of delays in execution in the railways and defence orders during the June quarter. 

The billing of the same in second quarter boosted revenues and expanded margins by 120 basis points. 

However, analysts say that traction in revenue is always skewed towards the second half, which also sees better operating performance. 

The management has maintained its revenue growth guidance of 30 per cent for FY19, despite a 6 per cent decline in H1FY19.

Analysts at Antique Stock Broking say that BEML remains a strong play on uptick in mining activity, defence spending, and rail capex. 

In the near term, they expect the huge spending in defence and railways to drive growth. Investors, however, need to keep a watch on the divestment of government’s 26 per cent stake, which could put pressure on the stock. 

Further, the sharp run up in prices means that the upside from these levels could be limited. 

Investors can accumulate the stock on dips.