Accumulate BEML; target of Rs 4484: Prabhudas Lilladher

Prabhudas Lilladher's research report on BEML

BEML reported decent quarterly performance with 9.9% YoY revenue growth and 85bps YoY improvement in EBITDA margin. Management reiterated FY25 guidance of ~20% revenue growth and Rs200-300bn closing order book, with major tenders expected in the Rail & Metro segment, including tenders pushed back from last year. The company is expected to complete the order for 10 Vande Bharat sleeper trains in FY25, with the first one set to be ready in Aug-24. BEML also continues to focus on its indigenous tank engine development program for both domestic & export markets, with a view to make India a hub for engines & power packs. We believe BEML is in a sweet spot to capture long-term growth on the back of 1) healthy order prospects in the modernization of defense vehicles (HMVs, ARVs, etc.), 2) expansion into higher value defense segments such as engines and aerospace, 3) large tender pipeline for metro & Vande Bharat rolling stock, and 4) large capacity expansion leading to a ramp-up in execution and, thereby, margins. The stock is currently trading at a P/E of 41.5x/30.6x on FY25/26E earnings. We value the stock at a P/E of 35x FY26E (same as earlier). Upgrade to ‘Accumulate’.

Outlook

We upgrade the rating to ‘Accumulate’ from ‘Hold’ with a revised TP of Rs4,484 (Rs4,520 earlier) following the recent sharp correction in stock price.

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