BackBEML’s order intake is rolling in, but much depends on actual execution
Despite the large outstanding orders, though, management has guided to about ₹3,000 crore of revenue for FY20Analysts note that tenders for quite a few Metro lines are expected the next year or so
PremiumBEML Ltd’s stock has been in the spotlight as investors see more orders from Metro railways and mining rolling its way. A part of the buzz is explained by the change in market perception of infrastructure and capital goods companies. The stock gained 8.4% this week.
The company has had a good FY19 in terms of order book intake in the second half of last year. For a start, it bagged the Mumbai Metro Lines 2 and 7 orders of ₹3,015 crore, to supply 378 Metro-rail coaches. It also secured contracts for seven Metro train sets to augment Metro rail services in Bengaluru, worth around ₹400 crore. As a result, its outstanding order book shot up to an all-time high of ₹9,125 crore at end-FY19. That figure was about ₹6,723 crore at end-FY18.
Analysts note that tenders for quite a few Metro lines are expected the next year or so. And, as there are not many Metro rail coach manufacturers in the country, BEML is likely to bag some of these. Besides, Metro rail is turning out to be a big revenue earner for the company. “On the criteria of ‘Make in India,’ BEML could bag a good number of orders in coming quarters, Also, on the metro side, there are limited capital-goods companies available in the market," noted Harshit Kapadia, assistant vice president at Elara Capital Ltd.
Another factor that is keeping interest in the BEML stock high is the expected rise in mining activity. Mining firms are looking at increasing output, and investments in mining equipment could be expected. Coal India Ltd has indicated capital expenditure of nearly ₹10,000 crore over the next few years.
Despite the large outstanding orders, though, order execution is expected to be about ₹ ₹3,000 crore in FY 20. This is lower than the ₹3,481 crore revenue of FY19. While the target should be achievable, it’s not impressive. Still, revenues are expected to improve from FY21 once execution of the new orders kicks in. In the near term, though, investors may be looking at a contraction in the growth figures.
Margins have lately taken a hit. In the fourth quarter of FY19, the Ebitda (earnings before interest, tax, depreciation and amortization) margin slipped to 18.5% from 19.1% in the year-ago quarter, due to rising raw material and employee costs. In the coming quarters, margin pressures may persist due to the lower revenue target, while high raw material costs continue.
Nevertheless, analysts expect earnings to grow 46% a year in the next three years, much of which could be back-ended. So far, the earnings growth in the last three years has been lacklustre, at just about 6.6% per annum. So much will now depend on how rapidly BEML can ramp up execution in coming years.
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