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BEML FPO to part fund Rs 900cr capex plan

Published on Wed, Jun 20, 2007 at 12:49 | Source : Moneycontrol.com

Updated at Thu, Jun 21, 2007 at 09:30

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BEML

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After ICICI Bank , BEML has come out with a follow on public issue. It opens on June 27. VRS Natrajan , CMD of BEML has said that BEML's expansion plans are of Rs 900 crore. They will be raising Rs 400-450 crore via the IPO. Balance funding for capex will come in via internal accruals.

Government holding will be 54% after the issue. Defense will continue to be 30-35% of revenues.

BEML sees a turnover of Rs 5,000 crore by 2011-12.

Excerpts from CNBC-TV18's exclusive interview with VRS Natrajan:

Q: How much are you looking to raise via this issue and where will you deploy the money?

A: We are looking at around Rs 400-450 crore of mobilisation from the market. Currently we have capex plans of Rs 900 crore encompassing Rs 214 crore in metro infrastructure building, Rs 100 crore in one of the metros in equity shares, Rs 100 crore will be used in the acquisition of a Brazil factory, Rs 90 crore is going to be expanded in VRS and Rs 180 crore is going to be in plant modernisation in replacement and renewal of the machineries.

About Rs 27 crore in 5 MW of wind power, basically for tax saving and to ensure that the power cost is cut down in the course of time and about Rs 9 crore towards R&D in metro. All this put together is Rs 900 crore.

Q: You are looking to raise about Rs 500 crore from the follow-on issue. How do you plan to raise the remaining money?

A: Remaining money will come from the internal accruals.

Q: Would it be fair on the back of the amount you just mentioned that the pricing would be anywhere between Rs 900 to about Rs 1,020 a piece. Would there be a substantial discount to the current market price? How are you looking at the pricing of this issue?

A: We are looking at it and we will decide a day before the issue opens.

Q: The current Follow-on Public Offer of ICICI has offered a discount to the retail investors. Are you toying with such an idea?

A: We will be reasonable in our pricing.

Q: The Government stake will hit 54% after this Follow-on Offer. That leaves very little headroom for the government to reduce, since you say as a strategic company the Government would want to keep 51% that might stultify your further fund raising?

A: In fact, we are looking at expanding equity base by mobilizing funds for 49 lakh shares. This will not reduce the actual shareholding of the Government, which will remain at Rs 225 lakh. But in the expanded capital, the percentage will get reduced to 54% and the Government will continue to be the single largest shareholder and it will remain a Government company, BEML being a strategic company under the Ministry of Defence.

Q: Do you expect some pressure on your margins, since there's competition for defense contracts even from private parties?

A: As far as the opening up of the Defense to the private sector in Indian corporate is concerned, our business of ground support equipments will not expect any dilution in our current market share. In other words, we are adding strategic products in our portfolio and our products continue to increase volume as years go by.

Q: What will this ratio be - construction and mining equipment at 63% and defence at 31%, do you think this mix will be re-jigged substantially in the years to come?

A: Mining and construction will continue to play a prominent role in giving great growth to BEML's future business. Defence will continue to be around 30-35% and we are adding on products through technology tie-ups. Rail and metro will also continue to add value, because the metro is coming up in the country. We are hopeful of bagging an order of 165 standard coaches, valued at around Rs 2,000 crore and this should auger well for the future business of BEML.

Q: You are targeting about Rs 5,000 crore by 2013-2014. From the mining space, from the construction as well as defence equipment segments and the overseas plans, what sort of a revenue breakup can one expect?

A: Currently, it is 60% in the mining and construction business. Defense remains at around 30-32% and 10% will come out of rail and metro. When we achieve our corporate plan of compounded growth of 12% in 2013-14, but we have been achieving around 15-17% in the last 3-4 years, which means we are going to advance our planning and we will end up with a business turnover of around Rs 5,000 in 2011-12.

Out of Rs Rs 5,000 crore envisaged, we anticipate good business growth including the exports. The mining and construction must be doing somewhere around Rs 3,000 crore. About Rs 1,500-1,800 crore must come out of Defense and Rs 200-300 crore should be from rail and metro.

Q: You have been saying that your CAGR has been about 15-17%, would that be substantially better in FY08 or FY09 given the kind of mood in the economy?

A: Today when I look at it, the coal industry has been opened out of India, the mine and minerals also has been opened out with the Hooda committee report. There is going to be huge opportunity in the mining equipments including the contract mining where we have forayed into a joint venture, which means that we will be in a position to take the high end equipments with higher margins which should help BEML bottomline, I suppose.