Why analysts are positive on BEML stock despite muted Q1 expectations

BEML (earlier Bharat Earth Movers) has corrected more than 10 per cent from its 52-week highs in April. While the soft execution during the March quarter and muted expectation in the June quarter due to the elections has impacted sentiment, analysts continue to be positive on the stock, given the multiple triggers.

The company is the largest beneficiary of government thrust on railway projects, particularly Metro rail. The company had received strong order inflow in 2018-19 (FY19) itself, led by the Mumbai Metro order of Rs 3,015 crore, which boosted the order book by 36 per cent to Rs 9,130 crore by the end of FY19. This order book itself gives confidence of a strong revenue performance (about 3x its FY19 revenue). The rising penetration of Metro rail in more cities will drive BEML’s prospects and order book.

Besides railways, the company has presence in construction and mining equipment, and the defence space. BEML has resolved issues with the Ministry of Defence related to the supply of Tatra trucks for all terrain. This should lead to higher supplies, driving defence segment contribution. Further with the world’s largest defence equipment manufacturer Lockheed Martin also having tied up with BEML, opportunities, especially in aircraft maintenance, should open up. All this bodes well for the company, with defence contributions to the order book expected to improve.

The construction and mining equipment segment, too, is getting some traction. Analysts expect strong orders from Coal India to keep its growth rates improving.

Antique Stock Broking is building in a 17 per cent annual growth in revenue over FY19-21, factoring in strong revenue traction from the Metro and railway segment (50 per cent of the order book currently), along with a stable outlook for both defence and construction equipment segments. 

Analysts at HDFC Securities peg revenue growth at 20 per cent annually during the period. The return ratios are also seen improving with return on capital employed to touch the 14-15-per cent mark in 2020-21, from 7.6 per cent in FY19.