BEML looks at fresh start after dismal H1

Prepares growth plan for each business segment

The BEML stock hit a 52week low by end November. However, the stock has gained 18 per cent after the September quarter results till Wednesday. With BEML further spelling out a revised business strategy, the stock rose another four per cent to ~962.30 on Thursday. So, what has changed, and are these gains sustainable?

The current order book is ~7,300 crore. In the new plan, BEML is targeting ~5,000 crore revenue in FY18. Earlier, slow Metro rail order supplies impacted the first half of the financial year. The railways, defence and mining equipment segments also didn’t lend support. The second half is expected to be better. Historically, the bulk of execution is in the fourth quarter, say analysts. Supplies to Delhi Metro (RS10) coaches accrued positives in Q2, leading to lower losses. Delhi Metro phase-III coaches (RS 13) supplies have commenced and will reflect in December quarter revenue.

BEML sees the segment as a major growth driver and expects its revenues to more than double in FY18. This is likely to be driven by a company’s focus on railway orders of Linke Hofmann Busch passenger coaches, in addition to the Metro orders that are increasing with more projects coming up. Fresh orders for rail coaches, however, will be crucial to achieve the targeted revenue of ~1,500-1,600 crore in FY18, compared to the ~600 crore estimate for FY17.

Mining is another important area. BEML leads in the domestic earth moving equipment (dumpers, dozers, etc) space. Even as it remains optimistic on fresh orders from Coal India, BEML is working towards reducing its dependence on the coal sector. Other segments like construction equipment are being targeted and so are export opportunities. About ~2,200 crore in revenue is targeted (including spares) against an annual ~1,500-1,600 crore in the past five years.

The defence segment has remained muted, with slow order inflows and delays in execution of Tatra truck contracts. BEML said the latter issues had been resolved and as pending orders are supplied, it is aiming at expanding the scope to combat vehicles missile systems. Consequently, against expected revenue of ~900 crore in FY17, the target for FY18 is ~1,200-1,300 crore; over the long run, it expects the segment to contribute 30 per cent to sales.

The revenue target of ~5,000 crore, compared to ~3,000 crore estimated for FY17, looks ambitious. But, even at ~4,300 crore, analysts had estimated the stock could rise to ~1,110, an upside of over 14 per cent.