Prabhudas Lilladher has maintained its ACCUMULATE rating on BEML, revising the target price to Rs 4,332 from Rs 4,484, reflecting execution delays and adjustments in order intake estimates. While Q2FY25 results showed a 6.2% YoY decline in revenue, improvements in gross and EBITDA margins highlighted the company's operational efficiency. BEML's long-term outlook remains robust, driven by healthy prospects in defense modernization, rail and metro expansion, and aerospace. However, near-term challenges persist, with the order book likely closing at Rs 180 billion, below management's earlier guidance of Rs 200-300 billion.

Q2FY25 Financial Performance

Revenue Decline: Consolidated revenue dropped 6.2% YoY to Rs 8.6 billion, missing the estimated Rs 11.2 billion, largely due to weak execution in the rail and metro segment.
Margin Improvement:
Gross margin expanded by 426 bps YoY to 50.3%.
EBITDA rose by 23.5% YoY to Rs 730 million, improving the margin by 204 bps to 8.5%.
Profitability:
PBT grew 29.8% YoY to Rs 547 million.
PAT marginally declined by 1.4% YoY to Rs 510 million due to a negative tax rate in the base quarter.

Order Book and Execution Highlights

Order Book Overview:

As of November 2024, BEML’s order book stood at Rs 123 billion, providing 2.8x trailing twelve-month (TTM) revenue coverage.
Executable orders for H2FY25 amount to Rs 27.8 billion.
Order Intake Challenges:

Q2FY25 order inflow was Rs 4.4 billion, a steep decline from Rs 38.5 billion in Q2FY24.
Key orders, such as Rs 360 billion aluminum push-pull trains and Rs 50 billion rolling stock for Mumbai Metro lines 4, 5, and 6, were deferred to FY26.
Positive Developments:

Secured an Rs 8.7 billion order for high-speed trains.
Reportedly emerged as L1 bidder for the Rs 30 billion Chennai Metro rolling stock contract.

Growth Prospects and Strategic Drivers

Defense Modernization:

BEML is poised to benefit from increased government focus on modernizing defense vehicles, engines, and aerospace equipment.
The company is expanding its footprint into higher-value defense segments, supported by R&D investments.
Rail and Metro Expansion:

A strong pipeline of tenders in the rail and metro segment positions BEML for long-term growth, with execution ramp-ups expected from FY26.
Capacity Expansion:

Significant capacity upgrades are underway to support higher execution volumes and improve operational efficiencies.
Diversification:

Leveraging its expertise in industrial manufacturing, BEML continues to explore new markets in mining and construction equipment.

Financial Outlook

Revenue Projections:

FY25E revenue is expected to grow by 11.5% to Rs 45.2 billion, accelerating to Rs 68.9 billion by FY27E, driven by higher execution in defense and metro projects.
Margin Expansion:

EBITDA margin is forecasted to improve from 12.0% in FY25E to 14.4% in FY27E, supported by favorable product mix and economies of scale.
Earnings Growth:

PAT is projected to grow by 23.9% in FY25E to Rs 3.49 billion and by 48.4% in FY26E to Rs 5.18 billion.
EPS is expected to reach Rs 124.4 in FY26E and Rs 164.4 in FY27E.

Valuation and Target Price

Valuation Metrics:
BEML trades at a P/E of 45.5x FY25E EPS, 30.6x FY26E EPS, and 23.2x FY27E EPS.
EV/EBITDA multiples stand at 30.1x FY25E, 21.4x FY26E, and 16.5x FY27E.
Target Price:
The revised target price of Rs 4,332 is based on a P/E multiple of 30x Sep’26E EPS, reflecting adjustments for execution delays and revised order intake.

Key Risks

Execution Delays:
Slower-than-expected progress in key projects could impact revenue and profitability.
Order Intake Uncertainty:
Deferrals in major tenders could delay the company’s growth trajectory.
Competitive Pressures:
Increased competition in the metro rolling stock segment may affect margins.

Bottomline for Investors

BEML’s long-term growth prospects remain intact, supported by its strong position in defense modernization, metro expansion, and capacity enhancements. While near-term challenges such as execution delays and deferred orders weigh on performance, the company’s strategic initiatives and robust order pipeline provide a solid foundation for sustainable growth. Investors are advised to accumulate the stock at current levels, with a revised target price of Rs 4,332 offering an attractive upside in the medium term.