Delayed Delhi Metro orders impact BEML results

Mining equipment orders also slow but things could improve by second half of current financial year

BEML stumped the Street with its subdued performance in the June’16 quarter. The company, which saw an eight-fold increase in its net profit in FY14-16 period, reported a net loss of Rs 107 crore for the June’16 quarter.

Multiple factors impacted the company’s performance. For one, the expected gains from the coal mining space are yet to be realised as ordering by Coal India and Indian Railways remains subdued. The delay in Delhi Metro projects (and thus rail coaches ordering) as well as some mining orders impacted BEML’s execution in the June quarter, said analysts. Consequently, revenues fell 50 per cent year-on-year to Rs 292 crore, and with total expenses exceeding revenues, BEML reported a loss.

Moreover, the impact of a weak first quarter is seen reflecting on the full-year numbers. Thus, analysts at Antique Stock Broking have cut their earnings estimates for BEML by 28 per cent for FY17 and nine per cent for FY18, given the lower-than-expected execution.

All these had a bearing on BEML’s stock price. From the highs of Rs 1,082.45 on September 7, BEML has lost 16 per cent of its market cap and now trades at Rs 921 a share.

The reaction is not surprising given that the Street and analysts have remained positive on BEML’s prospects for a long time, citing opportunities offered from railways, defence and coal mining orders. The company is the domestic leader in earth-moving equipment such as dumpers and dozers and has also proved its mettle by withstanding competition from global players in the Metro rail (coaches) business, by focusing on indigenisation.

While the Street’s optimism was valid, not all is lost. Analysts say the focus of Coal India to improve availability of coal will further boost the spares and services business of BEML, which in turn will push up margins. Analysts at Antique add that with the defence segment back on track following commencement of Tatra dispatches, profitability is expected to witness healthy growth in FY17. They also remain positive on the pick-up in Delhi Metro projects’ execution leading to healthy growth. Likewise, the delayed mining orders are also expected to come through by the second half of FY17. BEML’s performance should see a rebound from the second quarter onwards.

In this backdrop and given BEML’s long-term prospects, analysts believe the stock could regain lost ground in the coming quarters.