BEML’s strength lies in rail and metro projects, defence, and mining and construction, which are seeing increased order flows. Metro rail is seeing revenue bookings from major rail projects such as Mumbai and Bengaluru
The government's approval to sell 26% stake in BEML Ltd through strategic disinvestment has fired up the stock. The company's share price shot up over 4% in early trade on Monday. The stock is trading close to its pre-covid highs having recovered 63% in the past two months.
Much of this has got to do with the buzz around the disinvestment, which also comes with management control. But its business is also expected to gain traction with normalcy returning in the construction and mining space.
BEML’s strength lies in rail and metro projects, defence, and mining and construction, which are seeing increased order flows. Metro rail is seeing revenue bookings from major rail projects such as Mumbai and Bengaluru.
Overall, the high order book provides revenue visibility as projects execute over the coming years. Another driving factor is the likelihood of substantial new orders in the second half, which could see order books expand by about 35% year-on-year in FY21.
Further, the self-reliance policy is also expected to drive order inflows in segments such as defence and railroads over time. All this could expand revenue base in the coming years. Further, margins could also expand on better operating leverage and economies of scale. Besides, mining has also been opened up for the private sector.
However, investors must note that some of the gains in the stock price is also due to the fact that the firm has a large land bank of about 4000 acres, of which 2778 acres can be monetised. “Indicative market value of the land parcel could be in excess of ₹2000 crore (refer table I & II) leading to a post-tax per-share value of ₹385 (assumed 20% capital gains tax)," noted analysts at Antique Stock Broking in a client note.
But given the sharp rise in its stock price in the recent past, some of the upsides have already been factored in. BEML’s core business is fetching a valuation of about ₹780 per share, according to analysts. “We continue to value the operational business at 16 times its FY23E EPS of ₹48.7 ( ₹780 per share) and assign ₹385 per share value to the land bank," point out analysts at Antique.