Buy Bharat Earth Movers Ltd for the Target Rs 2,600 by Emkay Global Financial Services Ltd
BEML reported mixed bag quarterly results, with revenue growth meaningfully above our estimates and profits marginally below estimates, impacted by an adverse revenue mix. Revenue stood at Rs11.9bn (+42% yoy; est Rs9.8bn), while operating profit stood at Rs795mn (+9% yoy; est Rs838mn) and net profit at Rs329mn (-40% yoy; est Rs379mn). We expect the company to deliver strong operational performance over FY26-29E supported by execution of the Vande Bharat order and the strong metro order book developed over the last two years. We bake in 19% revenue CAGR over FY26-29E, while earnings are expected to report 63% CAGR over FY26-29E. We maintain BUY with an unchanged TP of Rs2,600, valuing the stock at 42x its 1HFY29E EPS.
Marginal miss on operational performance
BEML reported strong revenue of 42% yoy to Rs11.9bn, as execution of Metro and Vande Bharat orders commenced. Gross margins contracted sharply by 770bps yoy owing to a shift in product mix toward Rail and Metro and defence verticals. However, the operating profit margin decline was restricted to 202bps yoy to 6.7% as operating leverage played out during the quarter, leading to EBITDA growth of +9% yoy to Rs795mn. PAT for the quarter stood at Rs329mn (-40% yoy; est Rs379mn). 1HFY27 performance was strong, with revenue growing 37% yoy to Rs20.1bn (Rs14.7bn in 1HFY26) with margins expanding 400bps yoy to 4.1% (1.7% in 1HFY26). PAT stood at Rs57mn compared with a loss of Rs92mn in 1HFY26. BEML generated healthy OCF of Rs2.6bn vs (Rs2.4bn) in 1HFY26. NWC days improved to 232 days vs 307 days in 1HFY26.
Healthy order book provides strong revenue booking visibility; pipeline equally promising
BEML reported strong order inflow of Rs62.3bn (+130% yoy) in 2QFY27. Order book stands healthy at Rs213.9bn, providing strong 4.4x TTM revenue. Additionally, the order pipeline remains robust, with six metro segment tenders worth Rs60bn expected to be finalized. There is also a Vande Bharat opportunity worth Rs30-40bn, which could further improve the order backlog. For FY27, BEML expects order inflow to reach Rs200bn, with Rail and Metro constituting 50%, Defence 30%, and balance the 20% from Mining and Construction and Exports
Investment summary
BEML is a strong play on mobility capex planned by the railways and metros, given its strong positioning in metro coaches and Vande Bharat sleeper coach manufacturing. We bake in 19% revenue CAGR over FY26-29E, while earnings are expected to report 63% CAGR over FY26-28E. We maintain BUY with an unchanged TP of Rs2,600, valuing the company at 42x its 1HFY29E EPS.
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