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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Technicals - Axis bank, Insecticides India, BEML, United Bank of India, Mindtree, Persistent Systems, Max India :: Business Line

Technicals: BHEL, Advanta India, BEML, Kennametal, Suprajit Engineering, Indoco Remedies ::Business Line

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BHEL, Advanta India, BEML, Kennametal, Suprajit Engineering, Indoco Remedies ::Business Line

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Buy BEML: target Rs 575 :: Anand Rathi

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Company Description
BEML (formerly Bharat Earth Movers) is a public sector
undertaking manufacturing BEML Limited operates as a
construction equipment company in India and internationally.
The company offers a range of mining machinery for opencast
and underground mines; and produces machines, such as
electric rope shovels, hydraulic excavators, bulldozers, wheel
loaders, wheel dozers, dump trucks, motor graders, pipe layers,
tire handlers, water sprinklers, and backhoe loaders, as well as
mammoth walking draglines for the opencast mines.
BEML’s products are exported to more than 56 countries. As
part of the company’s globalisation strategy, it has expanded
global reach by opening a local company in Indonesia and
Brazil recently in addition to offices in Malaysia and China.
BEML Ltd has lately announced its entry into dredging starting
with a technology tie-up with a Netherlands company, Vosta
LMG. The new stream of business would generate for BEML an
additional Rs 220 crore in revenue in the next two years.
As of date, BEML's combined order book position stands at Rs
4712 crore, which is 1.79 times its consolidated net sales of Rs
2802.62 crore for the year ended March 2011, giving strong
revenue visibility.
Rising allocation of defence and railways in government
expenditure plans will buoy BEML's order book. Realising this
trend, the company has expanded capacities, launched new
products and entered in technological tie -ups. Launch of metro
train services in new Tier-I and Tier-II cities have the potential to
pace business growth. BEML has expanded its capacity to
garner more orders.
The company has cash and cash equivalents of ~Rs. 280crs
with low debt/equity ratio of 0.41x for the FY11.
BEML came up with decent set of results for Q2FY12. PAT
reported was Rs. 15.3crs v/s 14.7crs y-o-y. Top line was Rs
792crs v/s Rs. 509crs y-o-y basis. At present valuations it is
quoting at a 5 years lowest PE multiple.

BEML Strong operating performance ::CM, Anand Rathi Retail Research

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BEML (formerly Bharat Earth Movers), the PSU earthmoving equipment and engineering major registered strong operating performance for the quarter ended September 2011. Its revenue for the quarter was up strong 56% to Rs 792.47 crore and the operating profit more than doubled (up 140%) to Rs 32.90 crore with 150 bps expansion in operating margin to 4.2%. However the net profit eventually closed higher by modest 4% to Rs 15.30 crore. Just a modest growth in bottom line in spite of strong operating performance was largely on account of lower other income, higher interest & depreciation cost as well as higher tax provision.

Strong revenue growth for the quarter in an empirically a weak quarter seems largely on account of burnout of strong order book especially in railways and defence. While the sales were higher by 56% to Rs 792.47 crore, the value of production was higher by 40% to Rs 925.07 crore. It seems good show by the Railway & metro business of the company for the quarter with higher delivery in the wake of imminent launch of Banglore Metro as well as flagging off of first batch of new products such as stainless steel wagon/EMU etc, which has boosted the value of production as well as sales for the quarter.

Higher sales together with 150 bps expansion in operating margin to 4.2% facilitated 140% jump in operating pro fit to Rs 32.90 crore. Expansion in OPM is largely on account of higher volume spread over large fixed overheads. While the material cost as proportion to sales net of stocks was higher by 250 bps to 62.2%, The staff and other expenses was lower by 110 bps (to 20.2%) and 290 bps (to 13.9%) respectively.

However the good work at operating level has been trimmed to large extent by lower other income, which was lower by 23% to Rs 16.95 crore. The interest cost was higher by sharp 57% to Rs 23.15 crore and depreciation was higher by 36% to Rs 10.48 crore. Thus the growth at PBT (before EO) was limited to 21% to Rs 16.22 crore. The EO income for the quarter was Rs 3.45 crore compared to nil in the corresponding previous period. Thus the PBT after EO was up by 47% to Rs 19.67 crore, but only to be dragged down by higher taxation.

Taxation was a provision of Rs 4.37 crore for t he quarter compared to a write back of Rs 1.34 crore in the corresponding previous period. Thus, the growth in net profit was just 4% to Rs 15.30 crore.

Half yearly performance

Sales was higher by 30% to Rs 1346.38 crore and the operating profit was higher by 83% to Rs 54.51 crore with 110 bps expansion in OPM to 4%. However the growth at net profit was limited to 7% to Rs 31.17 crore impacted by lower other income, higher interest & depreciation and higher tax incidence.

Other developments

BEML has forayed into design, construction and delivery of Dredgers and in this reg ard it has signed Memorandum of Agreement with globally renowned Dredging company viz., M/s. Vosta LMG, Netherlands on Oct 11, 2011. Under this MoA, Vosta LMG will transfer technology and BEML will ensure manufacture and marketing of dredgers for inland and south East Asian regions. The company expects this business stream to bring in an additional volume of around Rs 220 crore in the next two years.

In October 20, 2011, the company has flagged off Stainless Steel Electrical Multiple Unit(EMU) and 100 ton stainless steel wagon indegenosly designed and manufactured by the company. The company has also developed and rolled out from its factory, the 8 wheel OHE car, deployable on rail tracks for repair of overhead electric lines.

FY12 Revenue target

The company has set itself a revenue target of Rs 4300 crore for FY12 with an opening order book of over Rs 5000 crore. As of Sep 23, 2011, the order book position of the company stand at Rs 4712 crore.

BEML manufactures wide range of Heavy Earthmoving products, defence products and railway products. Heavy Earthmoving Equipment and Parts catering to the core sector of the Industry - Mining, Irrigation, Projects, Steel/Cement Plants and Infrastructure segment accounts for little over 53% of the total turnover of the company. Defence Equipment and Aggregates caters to the Defence Forces. The company holds major share of supplies for ground support equipment to the defence forces and this segment accounts around 46% of the total turnover. The company is also into Railway Rolling Stocks primarily for Indian Railways. The company has three interdependent plants one each located at Bangalore, Mysore and K GF. The company has also commissioned its fourth manufacturing complex in Pallakkad, Kerala last year.

The share price hovers around Rs 524.50.

BEML: Results

1109 (3) 1009 (3) Var. (%) 1109 (6) 1009 (6) Var. (%) 1103 (12) 1003 (12) Var. (%) Sales 792.47 509.27 56 1346.38 1036.12 30 2630.37 2838.24 -7 OPM (%) 4.2 2.7 4.0 2.9 2.1 9.3 OP 32.90 13.69 140 54.51 29.73 83 56.18 263.29 -79 Other inc. 16.95 22.13 -23 32.14 40.87 -21 222.84 137.41 62 PBIDT 49.85 35.82 39 86.65 70.60 23 279.02 400.70 -30 Interest 23.15 14.73 57 38.54 26.73 44 58.63 48.93 20 PBDT 26.70 21.09 27 48.11 43.87 10 220.39 351.77 -37 Dep. 10.48 7.69 36 20.29 15.99 27 33.64 32.22 4 PBT 16.22 13.40 21 27.82 27.88 0 186.75 3 19.55 -42 EO Income 3.45 0.00 LP 13.24 7.08 87 0.00 0.00 PBT 19.67 13.40 47 41.06 34.96 17 186.75 319.55 -42 Taxation 4.37 -1.34 -426 9.89 5.82 70 36.99 96.70 -62 PAT 15.30 14.74 4 31.17 29.14 7 149.76 222.85 -33 EPS (Rs)* # # # # 36.0 53.5 * Annualised on current equity of Rs 41.64 crore, Face value of Rs 10 # EPS is not annualised due to seasonality of business Figures in Rs crore Source: Capitaline Corporate Database

* * *BEML* *                    CMP  * *525* *
SL  * *495* *
Target  * *575* ****

*Company Description*

BEML (formerly Bharat Earth Movers) is a public sector undertaking
manufacturing BEML Limited operates as a construction equipment company in
India and internationally. The company offers a range of mining machinery
for opencast and underground mines; and produces machines, such as electric
rope shovels, hydraulic excavators, bulldozers, wheel loaders, wheel
dozers, dump trucks, motor graders, pipe layers, tire handlers, water
sprinklers, and backhoe loaders, as well as mammoth walking draglines for
the opencast mines.****

BEML’s products are exported to more than 56 countries. As part of the
company’s globalisation strategy, it has expanded global reach by opening a
local company in Indonesia and Brazil recently in addition to offices in
Malaysia and China.****

 ****

*Technical Comments * ****

 ****

Stock has made positive Island reversal where 8-12% target in 1-60days can
be possible in the stock. Stock Gapped-down(506-501) on 18/10/2011 and
today gapped-up(497-498) and if the stock holds Rs.495 on downside then 575
on higher side can be possible. ****

BEML: Target:950 Horizon:12months : Anand Rathi

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Key Highlights
~Technical Collaboration
~Growth potential in Railway and Metro Rail sector
~Opportunity in defense sector
~Growing demand in construction and Mining
equipment sector
~ Future visibility

Sizzling Stocks: Reliance Communications (Rs 97.1): Business Line

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Reliance Communications was in the eye of the storm that rocked the market last week and the stock was sucked down into a vortex of selling pressure to its life-time low of Rs 89.7 on Friday. It had shaved off 22 per cent from the previous week’s close at that point.The trends along all-time frames — long, medium and short-term are down in the stock.

The stock had strong long-term support around Rs 132. Since this level was breached last month, a weekly close above this level is now required to mitigate the bearishness. Investors wishing to take fresh exposure to the stock should wait for a close above this level before doing so. Subsequent resistances are Rs 160 and Rs 205. Medium-term view will turn positive on a close above the second resistance.

The tricky question is - what should those still holding the stock do? These investors should have exited the stock once it closed below Rs 130. If they haven’t then the

stop-loss can be moved lower to Rs 75. If this level breaks, it is not possible to guess where the slide can halt. That said the movement over the last two days implies that some buying is emerging at current levels.