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Elara Capital
BEML (Buy)
CMP: ₹956.1
Target: ₹1,180
BEML revenue rose by 7 per cent y-o-y to an all-time high of ₹34.8bn in FY19 as rail & metro (R&M) revenue jumped 45 per cent y-o-y to ₹1,480 crore and constituted 43 per cent of total FY19 revenue (versuss 31 per cent in FY18).
While mining & construction (M&C) revenue fell by 6 per cent y-o-y to ₹1,650 crore as equipment was down 6 per cent, spares was slightly lower by 3 per cent and services declined by 12 per cent. Defence revenue plunged 36 per cent y-o-y to ₹3,200 crore, the lowest in the past four years, as equipment sales declined by 55 per cent. About 87 per cent of product revenue was from orders through competitive bidding in FY19 vs 83 per cent in FY18.
We retain our earnings estimates with a TP of ₹1,180 on 27x June 2021E P/E as there is minimal impact of reduction in the corporate tax rate. We retain our positive view on the infrastructure & defece industries and reiterate our Buy rating on BEML, owing to high order book and huge opportunity in the metros & defence segments. We expect an earnings CAGR of 46 per cent over FY19-22E (vs nil over FY16-19) and a ROE of 7 per cent & a ROCE of 8 per cent over FY20-22E (vs ROE at 4 per cent and ROCE at 5 per cent over FY16-19).
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