Buy BEML Ltd for Target Rs. 2,700 by Elara Capital
Entering double-digit growth trajectory
BEML (BEML IN) revenue is likely to enter a two -digit growth trajectory from FY27 as a large portion of its orderbook of INR 160bn , pri ma rily comprising from railway & metro (R&M) and defence, would see strong execution momentum. Management retained revenue target of 20% in FY26 with margin improvement by 150bp, although we believe it is a daunting task as H1 revenue fell by 1% YoY . We trim our TP to INR 2,700 on 3 7x September FY2 7E P/E , due to a slight delay in execution of the Vande Bharat (VB) sleeper order in FY26 . W e re tain Buy due to double -digit earnings growth during FY25 -28E, rising order pipeline ensur ing s teady revenue visibility along with the scope for a margin rise . The stock has underperformed the Nifty by 25% in the past three months .
Metros + Railways running at top speed during FY27-28 along with huge pipeline: The R&M segment may witness huge order pipeline , led by large ticket order of the Mumbai Rail Vikas Corporation (MRVC) air conditioned electric multiple unit (MRVC AC EMU) order worth INR 350-400bn , which is set in the next six months . Other prospective tenders include additional orders Linke -Hofmann -Busch (LHB) coaches, commuter rail orders and a strong metro pipeline of 1,200 -1,300 cars in the next two years . BEML expects to deliver two VB sleepers every month post the clearance by Chief Commissioner of Railway Safety (CCRS ). For LHB coaches, BEML expects ~20% revenue in FY26 and the rest in FY27. On the metro front, Chennai metro prototype is set to be rolled out in FY27, B engal uru metro delivery of 8 -10 trains this year with the same nearing peak in FY27, and Mumbai metro execution recommencing from FY27 with peak in FY28
Defence revenue to see multi-fold growth: Defence revenue to grow 70 -80% YoY in FY26 on the back of sales already doubled YoY in FY25 , led by integrated supply of high mobility vehicles and strategic systems like the 1500HP engines for main battle tanks (MBT) . Order pipeline consists of light armored multipurpose vehicle (LAMV), high mobility vehicle, gun towing vehicle, Pinaka -related orders. BEML target s a new area of supply of maritime trains and port handling equipment with a potential revenue opportunity of INR 40 -50bn once fully operational in the next 4-5 years.
Retain Buy with a lower TP of INR 2,700: We lower our FY2 6E EPS by 2%, by 6% for FY27E and 5% for FY28E on account of delay in execution of the VB sleeper and Mumbai metro orders . Hence, w e lower our TP to INR 2,700 from INR 2,780 on 3 7x ( unchanged ) Septem ber FY2 7E P/E. However, w e retain Buy, due to strong order visibility in R&M and defence, scaling up export s opportunity in high -end mining equipment , providing scope for margin improvement and focus on new areas , such as Advanced Medium Combat Aircraft (AMCA ), maritime trains and engines . We e xpect an earnings CAGR of 31% during FY2 5-28E with an average ROE of 17% and ROCE of 16% during FY2 6- 28E . Key risks would be the delay in receipt of new orders and execution of large R&M orders.
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