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* BEML, a Miniratna Category-I PSU, engaged in the manufacturing of rail coaches and spare parts, mining equipment and defence related ground vehicle systems across its 9 manufacturing units located at Bangalore (Rail, Metro), Kolar Gold Fields (Mining Equipment), Mysore (Mining Equipment), Palakkad and Chikmagalur.

* Large metro projects such as Mumbai lines 4 & 6, Chennai phase 2, Nagpur phase 2, and Patna have translated into `80bn worth of opportunities for metro rolling stock manufacturers. Of the `45bn R&M order book, execution pace of the Bangalore Metro order of `31.8bn for 318 cars is a key driver of the estimated 20-25% R&M revenue growth in the medium term. Capacity expansion from ~280 cars per year to ~400 cars per year remains a significant lookout point. As the premiere manufacturer of 10 novel Vande Bharat sleeper trainsets (order of `6.8bn), the firm showcases its ability to expand its expertise and set the ball rolling for the national vision of 650-800 Vande Bharat trainsets by 2030.

* Protection and monitoring of India’s large land and high-terrain borders causes significant stress to defence vehicles, requiring timely overhauls and replenishment of the fleet. In addition to the current `48bn orderbook, the Defence and Aerospace segment is poised to witness `~60bn+ opportunity worth of replacement and overhaul orders to come in, in the near future.

* The intended reduction in manpower to 4,800 from ~9,600+ in FY15 continues to be a key lever for margin improvement. We estimate manpower cost to remain range bound at 18-20% in the short to medium term as the firm will likely replace only a portion of those that are retiring and superannuating. The internal restructuring initiative of dividing the company into 11 SBUs and 2 Micro-SBUs, so as to better align each SBU with a particular domain, will likely begin bearing fruit by first half of FY-26E. In the next 2 years, BEML aspires to reach `10bn annual revenue from each SBU and `5bn from each micro-SBU.

* BEML remains a key player with a proven track-record in Defence, Metro, Vande Bharat and Mining equipment with proven capabilities. We expect improving margins on the back of better utilization of its resources to execute its orders more efficiently and effectively, in addition to a declining employee cost ratio. However, as a large part of the revenue growth rests on its ability to win future orders as all its segments face strong competition from large domestic OEMs. At the CMP, we find BEML an attractive BUY as it trades at 34x FY-26E P/E.

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