BEML - Multiple Growth Drivers: Edelweiss PDF link

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We recently interacted with BEML’s top management to get an update on key businesses. Below is a snapshot of our interaction:

Metro, rail segment to drive top line; margin outlook stable

BEML has a robust INR18bn order book in the rail segment—INR15bn Metro and INR3bn railways. The company has a total manufacturing and supplying of 12-14 rakes in Metro coaches, 120-130 Metro coaches and 5-6 rakes in DEMU category p.a. Indian Railways’ bright investment outlook and meaningful traction in Metro projects in many cities augur well for BEML’s top line. However, management expects EBIDTA margin to sustain at a steady 6-7% level as it is often capped at other state run entities like ICF, RCF etc. BEML indicated that the Railway Board will incrementally cease to award projects on nomination basis and in future embrace the competitive bid route.

Defence: Robust order book outlook; eyeing high margin products

Management expects Tatra issues to be resolved soon, post which BEML will start negotiations with OEMs for future projects. The company has tied up with BAE Systems for light armoured multipurpose vehicles (LAMs), which is expected to be awarded by MoD soon. With an eye on 40% gross margin in the defence business, BEML is focusing on higher value-added products like Pinaca launcher mounted Tatra trucks.

Optimally positioned in mining business; W/C reduction on cards

Armed with an INR16bn order book, BEML expects mining segment deliveries to pick up over the next 3-5 quarters post a weak FY14. Management expects fresh orders also to pick up incrementally and is already L1 in INR6.3bn orders. The company expects finished goods inventory (especially mining) to dip over the next 3-4 quarters, which coupled with strong focus on receivables could help lower working capital in FY15.

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LINK
https://www.edelweiss.in/research/BEML--Multiple-Growth-Drivers/27171.html