IGI Logo

Muted Q2; all eyes on execution pace

Quick Pointers:

* In Q2FY26 order inflow stood at ~Rs27bn (vs ~Rs4.4bn in Q2FY25) taking the order book to ~Rs163bn (4.1x TTM revenue)

* Net working capital increased to Rs29.3bn (267 days of TTM sales) in Q2FY26 from Rs28.4bn (256 days of TTM sales) in Q2FY25.

We revised our FY27/FY28E EPS estimates by -7.6%/-4.7% factoring in slower execution pace and supply chain issues. BEML reported a muted Q2FY26 performance, with revenue declining 2.4% YoY to Rs8.4bn and EBITDA margin remaining stable YoY at 8.7%. Despite execution headwinds, the company maintained a robust order book of Rs163.4bn, supported by sustained momentum in private and public capex across mining, railways, and defense. Order inflows stood at Rs27bn in Q2FY26, driven by a Rs18.9bn order from the Integral Coach Factory under railways and ~Rs6bn order for HMVs from the defense segment Export contribution is expected to improve to ~4% in FY26 (vs ~1% in FY25) alongside a rising defense mix (~30% in FY26 vs 27% in FY25), which should aid margin recovery over time. However, CFO weakened sharply to -Rs2.4bn as of H1FY26 (vs +Rs1.8bn as of FY25), exerting pressure on the balance sheet. While the medium-term outlook remains healthy, near-term growth visibility is constrained by slower project ramp-up and supply chain bottlenecks. The stock is currently trading at a PE of 30.1x/24.6x on FY27/28E. We roll forward to Sep’27E and maintain our ‘Hold’ rating on stock with a TP of Rs1,982 (Rs2071 earlier) valuing the stock at a PE of 27xSep’27E (29x Mar’27E earlier).

Long term View: We believe the slower pace of execution has significantly impacted H1FY26 revenue and will be key monitorable 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.

Lower execution drags profitability: Consolidated revenue declined by 2.4% YoY to Rs8.4bn (PLe: Rs9.8bn). Gross margin expanded by 157bps YoY to 51.8% (PLe: 49.2%). EBITDA remained flattish YoY to Rs732mn (PLe: Rs912mn). EBITDA margin improved marginally by 24bps YoY to 8.7% (PLe: 9.3%) led by expansion in gross margins offset by higher employee cost (+1.1 YoY to Rs2bn) and other expenses (+49bps YoY as % of sales). PBT decreased by 8.1% YoY to Rs503mn (PLe: Rs677mn) due to lower other income (-52.6% YoY to Rs70mn). Adj. PAT declined by 4.7% YoY to Rs486mn (PLe: Rs610mn) owing to weaker operating performance partially offset by lower effective tax rate of 4.5% (vs 6.8% in Q2FY25).

Q2FY26 order book stood at Rs163.4bn (4.1x of TTM revenue): Q2FY26’s order intake stood at Rs27bn(against slightly lower base due to elections in Q1FY25). Order book increased by 42.7% YoY and stood at Rs163.4bn (4.1x of TTM revenue).

Please refer disclaimer at https://www.plindia.com/disclaimer/

SEBI Registration No. INH000000271