PSU BEML Ltd recently received Rs 3,658 crore worth order from Chennai Metro, which took its order book to Rs 15,100 crore. Antique Stock Broking said Railway & Metro business may dominate revenue profile going ahead, while the Defence business will also be in a sweet spot. The BEML order book composition is turning in favor of better-margin business, it said while suggesting a 'Buy' rating on the stock.
"We believe that BEML with its market leadership position in the mobility segment (metro coaches, mining equipment, and defence mobility vehicles) is well placed to tap into the upcoming business opportunities in the Railway & Metro and Defence sectors which should help it deliver a revenue CAGR of 18 per cent and an earnings CAGR of 37 per cent over FY24-27E. We retain BUY rating on the stock with a target price of Rs 5,185," Antique said.
With the fresh order, BEML's the contribution of Railway and Metro segment has jumped to 60 per cent of the order book. BEML has consistently increased its revenue from the Railway & Metro and Defence businesses, while contribution from the weak-margin mining business has seen a decline from 49 per cent in FY21 to 41 per cent in FY24.
The contribution of the mining business is further expected to decline to 30 per cent in the medium term, as contribution from Railway & Metro and Defence segments are expected to reach 70 per cent, given that over 90 per cent of the order book contribution is from these two segments.
"With better margin business (Rail & Metro and Defence) increasing their contribution, we expect BEML's operating margin to increase from 10.9 per cent in FY24 to 15.6 per cent in FY27 leading to an earnings CAGR of 37 per cent over FY24-27. We retain our positive stance on the company and BUY rating on the stock," Antique said.
BEML's order book improved 38 per cent YoY in FY24 to Rs 11,900 crore supported by finalisation of large-ticket orders like Bangalore Metro and Vande Bharat sleeper class. The large-ticket order finalisation in the Railway & Metro segment has helped BEML to not only improve its revenue visibility, but also potentially improve its margin profile, Antique said.
The Railway & Metro (accounting for 61 per cent of the order book) and Defence businesses (32 epr cent of the order book) are superior margin business that account for 93 per cent of the order book.
"We expect BEML's operating margin profile to improve by 460 bps over FY24-27 to 15.6 per cent as contribution from the lower margin Mining business comes down to 31% as compared to 41 per cent currently," it said.
Antique Stock Broking said the order pipeline looks promising with multiple tenders being expected to be finalised in the high mobility and armored vehicle segment, all protected carrier vehicle segment.
Increased contribution from the Defence segment (from current 15 per cent levels to 24 per cent in FY27E) can lead to better margin profile for the company given the Defence business has superior margin profile as compared to its Mining and Railway business, it said.