Wednesday, April 1, 2009

BEML - Value Pick

BEML BEML is a multi-product and multi-technology company. Its vast product range primarily caters to the needs of three segments, namely mining and construction (like hydraulic excavators, bulldozers, dump trucks), defence (field artillery tractor, tank transportation trailers, weapon loading equipment, armoured recovery vehicle) and railways and metro (metro trains, rail coaches, D-EMUs, wagons). BEML's other three divisions are technology (design and engineering solutions), trading (third party products) and exports. Little wonder, the current economic slowdown and high input prices (besides higher wages) has impacted its performance in the recent quarter. While topline growth has slowed, margins have also slipped. However, net profits haven't declined thanks to higher other income. Positively, receipt of a few high value orders recently has propped up its order book. In February 2009, BEML bagged a Rs 1,672.50 crore order from Bangalore Metro Rail Corporation for supply of 150 metro coaches (orders for another 63 is in pipeline). This is in addition to an Rs 1,365 crore metro coach order from Delhi Metro. Since new metro projects (Chennai, Mumbai) are coming up, BEML with the advantage of a local manufacturing base should gain. BEML has also been active in terms of strengthening its vast portfolio by entering into joint ventures with foreign players. On March 19, it tied-up with France-based NFM Technologies (second largest globally) to produce Tunnel Boring Machine in India. Likewise, an agreement with Indonesia-based Sumber Mitra Jaya (30 per cent stake by BEML) for contract mining opportunities in India was also signed recently; total number of foreign partners is now 20. To sum up, given the humungous investments planned in infrastructure, power, mining, steel, cement, transportation (air, road and rail) and urban infrastructure as well as focus on defence capex, the demand for BEML's offerings is likely to remain robust (equipment cost as a percentage of project costs range 4-15 per cent). BEML expects revenues to grow at a CAGR of 11-12 per cent to Rs 5,000 crore by 2013-14. In light of the underlying potential, this is a modest target and should be achieved beforehand. On the flip side, analysts believe its past record has not been very impressive, which is also one reason for this stock to quote at relatively lower valuations. For now, in 2008-09, BEML is expected to clock revenues of Rs 2,800 crore and currently has an order book of over Rs 5,000 crore. With cash profits of Rs 250 crore a year and negligible debt on books, the stock can deliver steady returns in the long run, while it offers a decent dividend yield too. Source : Business-standard