BEML Ltd’s recent order win of ₹3,658 crore from Chennai Metro Rail Ltd offsets the subdued September quarter (Q2FY25) when it received orders worth ₹444 crore only due to delay in order finalization in rail and metro. Its total order book now stands at ₹15,100 crore, or 3.7x its trailing 12-month revenue. With this, BEML should be able to meet its order inflow guidance of ₹9,000 crore in the second half of FY25.
Despite a robust order book, the company faces uncertainty around execution because of the complexity of these businesses, involving rigorous trials, government approvals, etc.
The state-owned equipment manufacturing company is also seeing a big shift in its order mix, moving from the low-margin mining and construction segment to the high-margin railways and metro, and the defence segment. These segments are gaining from the metro network’s expansion and the government’s push towards defence modernization and domestic capacity building. Railways and metro now form over 60% of its order book at about ₹9,000 crore, while defence order book is ₹4,700 crore.
Better times ahead
Most of these orders are to be executed over the next three years, with revenue contribution projected to reach 70%. Besides, railways and metro has a strong pipeline of ₹1.1 trillion, with six new tenders expected to be finalized in FY26. “With better margin business increasing their contribution, we expect BEML’s operating margin to increase from 10.9% in FY24 to 15.6% in FY27, leading to an earnings compound annual growth rate of 37% over FY24-27E,” said Antique Stock Broking in a 29 November report.
Unsurprisingly, BEML’s shares are up about 50% in 2024. The changing order book mix is showing in the financial performance, too. In Q2FY25, BEML’s consolidated Ebitda of ₹73 crore beat analysts’ estimates and the margin rose 178 basis points, aided by the rising share of high-margin segments and lower input costs. Ebitda stands for earnings before interest, taxes, depreciation, and amortization.
While the company faced delays in the execution of the Mumbai metro, leading to a modest drop in revenue, it is expected to pick up from FY26. “Rail and metro segment revenue is likely to be subdued this year as major orders booked last year are still in the early stages of execution; we expect it to ramp up from FY26,” said PL Capital analysts.
To be sure, BEML’s shares are down 22% from its 52-week peak of ₹5,488 apiece on 5 July. The stock trades at 51x its FY25 earnings estimates, showed Bloomberg data. A pick-up in metro orders’ execution over the next few quarters may offer the stock a much-needed fillip.
