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Pipeline robust; execution remains key

BEML (BEML IN) is set to benefit from robust order pipeline in the sunrise sectors of Rail & Metro (R&M, INR 1tn) and Defence (INR 500bn) in the next 3-4 years. This with better-than-expected growth in the Mining space (led by supply of high-end mining equipment to war-ridden zones) should aid growth. Room for margin improvement also exists given reduction in manpower expenses and better product mix. Expect FY25-26 to be soft for the R&M space due to gestation period (for orders) but FY27 may be a bumper year for the segment. We raise TP to INR 4,190 (from INR 3,770), led by 35x December FY26E P/E given robust order pipeline which may ensure a steady stream of revenue. We upgrade BEML to Reduce from Sell given strong order visibility and room for margin improvement.

R&M pipeline of INR 1tn in the next 2-3 years: The R&M segment is set to witness a massive order pipeline of INR 1tn in the next 2-3 years. This would be led by two largeticket orders – Aluminium push-pull 100 trainsets (worth INR 250-300bn) and an air conditioned electric multiple unit (AC EMU) order by Mumbai Rail Vikas Corporation (MRVC) worth INR 400bn. These orders were expected in FY26. BEML expects to have a pie of these two orders. Other prospective tenders include additional orders for Vande Bharat sleeper trains after completion of a prior order (10 trains in FY26-27), an order for Linke-Hofmann-Busch (LHB) coaches, and an order for a bullet train (after the submission of the developmental prototype) in December 2026. On the metro front, orders for Mumbai line 4,5,6 (474 cars), Bengaluru metro phase 3A (400 cars), Chennai metro phase 3 (96 cars), Patna metro (102 cars), Maharashtra metro for Pune, Nagpur and Thane (582 cars), and the Bhubaneshwar metro are in the pipeline. As per BEML, FY25-26 could be softer for R&M due to the completion of the Mumbai metro order and execution of Bengaluru and Chennai metros commencing in FY26-27. But FY27 may see a strong surge in R&M led by robust orderbook and focused execution.

Defence – Opportunity worth INR 400-500bn, expect 40% sales CAGR: The Defence segment is expected to post a CAGR of 40% in the next four years, per BEML, led by robust orderbook and an opportunity pipeline of INR 400-500bn in the next five years. Key orders include the overhauling of the 350 T-72 tank fleet of the army in phases (20- 40 tanks every year), orders for future infantry combat vehicles (FICV) and armored vehicles, and for the new 1500HP engine used in main battle tanks. BEML is also focusing on aerospace, naval and maritime orders.

Upgrade to Reduce; TP raised to INR 4,190: We raise FY25E EPS by 1% led by margin improvement due to better mix, but lower FY26E EPS by 10% given the delay in execution of rail orders to FY27E. We raise TP to INR 4,190 from INR 3,770 on 35x (from 32x) December FY26E P/E due to robust order pipeline in both Defence and Rail, which may ensure a steady stream of revenue in the next 3-4 years. We upgrade BEML to Reduce from Sell due to strong order visibility and room for margin improvement. Expect an earnings CAGR of 24% in FY24-27E with average ROE/ROCE of 14% each in FY25-27E

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