Accumulate BEML (BEML IN) Ltd for the Target Rs.1,922 by PL Capital
Quick Pointers:
* Adjusted one time provision of Rs800-850mn for metro project under other expenses
* Announced Rs15bn greenfield rail manufacturing facility in MP, to be funded through long-term debt and executed in phases over five years (Phase 1 capex of Rs9bn and phase 2 capex of Rs6bn)
We revised our FY27/FY28E EPS estimates by -3.5%/-2.7% factoring in delay in execution. BEML reported a revenue growth of 23.7%, while EBITDA margin expanded 136bps YoY to 8.3% after adjusting for a one-time provision of Rs800–850mn related to metro projects. Management guided for ~15-20% YoY revenue growth, with EBITDA margins expected to remain in line with FY25 levels (13–14%), supported by largely stabilized supply chains with improving defense and R&M revenue mix. The order book remains healthy at Rs163.5bn, with Q3 order inflows of Rs10.5bn (on a high base), and is expected to reach ~Rs200bn in FY26, aided by healthy domestic inflows across railways, metro and defense along with a potential export order. The proposed Rs15bn greenfield rail manufacturing facility is expected to increase coach capacity from ~200-250 units to ~800 units per annum over time. Additionally, BEML’s focus on TBM development under a clean-sheet design, with a 2.5-year gestation period, targets an estimated India opportunity of ~US$5bn over the next 10 years. The stock is currently trading at a PE of 27.3x/22.1x on FY27/28E. We upgraded our rating from ‘Hold’ to ‘Accumulate’ given recent correction in the stock price with a revised TP of Rs1,922 (Rs1,982 earlier) valuing the stock at a PE of 27xSep’27E (same as earlier).
Long term View: Slower execution and supply-chain challenges weighed on performance over past few quarters along with a weaker operating performance which remains monitorable key in the near term. However, BEML’s long-term prospects remain strong on the back of 1) healthy order prospects in the modernization of defense vehicles, 2) expansion into higher value defense segments such as engines and aerospace, 3) large tender pipeline for rail & metro rolling stock, and 4) large capacity expansion leading to a ramp-up in execution and, thereby, margins.
One time provision of Rs850mn impacted the profitability: Consolidated revenue increased by 23.7% YoY to Rs10.8bn (PLe: Rs10.6bn). EBITDA increased by 48.1% YoY to Rs894mn (PLe: Rs1.0bn) after adj. for one time impact for provision of Rs850mn. EBITDA margin expanded by 136bps YoY to 8.3% (PLe: 9.5%) largely driven by better operating leverage despite contraction in gross margin (238bps YoY). Adj. PAT increased by 117.9% YoY to Rs532mn owing to lower effective tax rate of 11.9% (vs 17.5% in Q3FY25).
Q3FY26 order book stood at Rs163.5bn (3.9x of TTM revenue): Q3FY26’s order intake stood at Rs10.5bn (against higher base in Q3FY25). Order book increased by 8% YoY and stood at Rs163.5bn (3.9x of TTM revenue).
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