Strong metro rail order book, indigenisation initiatives bode well for BEML

New project wins and other segments will strengthen the already strong revenue visibility of three and a half years

Shares of BEML are up a good 60 per cent from their March lows. Though there are some near-term concerns on new order flows and project execution in the backdrop of lockdowns, the company's existing order book of close Rs 10,000 crore as on end March 2020 provides good revenue visibility of three and a half years.
 

Primarily driven by metro rail coach orders, the share of mining and construction equipment is also decent in the order book. While BEML had won prestigious order for supply of additional metro coaches for Mumbai lines worth Rs 834 crore, it also bagged Rs 730 crore worth orders from Delhi Metro during FY20. In April, the company has also received orders for 150-tonne and 180-tonne dumpers from Coal India worth Rs 398 crore. The order book, however, can expand further looking at the 'Make in India' initiative of the government, which means more reliance on indigenisation.
 

In the metro rail projects space, analysts say that the metro systems are either operational, under construction or at bidding stage in 21 cities and with funding burden spread across central/state governments and multi-lateral agencies, short-term issues notwithstanding investments in this space will remain robust going ahead.
 

Defence supplies, which is comparatively is a smaller segment (14 per cent of BEML's FY20 revenue), also holds promise and can see exponential growth looking at rising defence requirements. BEML is also working on joint ventures for manufacturing defence spares in the country.
 

BEML's strong order book of Rs 9,795 crore gives revenue visibility of three and a half years on FY21 sales, say analysts at Elara Capital, who see execution of 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 company's future growth. Among other things, those at Edelweiss say, bids for Rs 23,000 crore metro rail contracts are underway, tendering for new projects/phases in eight cities has commenced and construction has started on new projects/phases in three cities.
 

Given this backdrop, expect near-term performance (up to first half of FY21) to remain impacted on account of execution delays as was seen during March quarter (profit before tax declined 38 per cent year-on-year). High fixed costs and working capital requirements are likely to put pressure on June quarter performance. With recovery expected by second half, analysts at Antique Stock Broking estimate FY21 earnings to decline by 5.4 per cent year-on-year to Rs 14.4 per share.
 

But thereafter, BEML's performance is expected to see a sharp rebound, with earnings estimated to surge by 140 per cent in FY22 to Rs 34.6. So, corrections could be a good entry point for long-term investors.