BEML Limited (formerly Bharat Earth Movers Limited) was established in May 1964 as a Public Sector Undertaking for manufacture of Rail Coaches & Spare Parts and Mining Equipment at its Bangalore Complex. The Company ha s partially disinvested and presently Government of India owns 54 percent of total equity and rest 46 percent is held by Public, Financial institutions, Foreign Institutional Investors, Banks and Employees.
During the financial year 2007-08, BEML achieved a sales turnover of INR 2713 crores and a pre tax profit of INR 348 crores. The export earnings touched INR 200.62 crores.
Let's analyze Q3FY09 results of BEML Ltd for investment guidance.
Q3FY09 – Result Snapshot
** Net Sales increased marginally by 1.7% to Rs 632.9 crore as against Rs 622.1 crore in Q3FY08
** EBIDTA gone up by 5.6% to Rs 105.6 crore as against Rs 100 crore in Q3FY08
** PAT decreased marginally by 0.8% to Rs 58.7 crore as against Rs 59.2 crore in Q3FY08
Analysis
** Net Sales of the company increased marginally by 1.7% (YoY) to Rs 632.9 crore due to slowdown in economy.
** Raw Material cost as a % of Net Sales decreased by 905bps to 52.9% as result of correction in the commodity prices.
** Interest and Depreciation expenses increased by 55.6% and 54.8% (YoY) to Rs 9.8 crore and Rs 6.1 crore due to higher interest rate and expanded capacity at Palakkad.
** PAT decreased marginally by 0.8% (YoY) to Rs 58.7 crore, being a result of sluggish performance and increase in non operating expenses.
** At end of Q3FY09, order book of the company stands at ~Rs 4,200 crore (~1.7x FY08 net sales).
Business Opportunities
Construction & Mining Equipment (CME) Industry
Bulk of infrastructure related investments is anticipated in areas like power, roads and irrigation, which requires relatively higher investments in CME. The investments in above mentioned areas will support growth in CME industry going forward.
As per Construction Industry Development Council Survey, CME cost as % of construction costs varies from industry to industry. As in Building CME cost constitutes to ~5%, Roads 21 to 23%, Bridges 16 to 18%, Dams 21 to 23%, Power 21 to 24%, Railway 6 to 8%, Mineral Plant 20 to 22%, Medium Industry 7 to 9%, Transmission 5 to 7%.
Railway & Metro Products Industry
With turnaround of Indian Railways (since 2004) and the resultant demand for rail
transport, the requirement of rolling stocks (Coaches & Electrical Multiple Units) has substantially increased. The coaches/ Electrical Multiple Units (EMUs) requirement is projected at 22,689 units over the Eleventh Five Year Plan. The combined production capacity of Railway is around 2,500 units per annum; hence the demand-supply gap for coaches/EMU is more than 10,000 units in the Eleventh Five Year Plan. Considering the expected gap between demand and supply of rolling stock during the Eleventh Five Year Plan, there is considerable scope for third parties (other than Railway) to fill in this gap.
Defense
The Department of Defence Production (DDP) controls production of defence equipments in India. DDP has developed substantial infrastructure over the years, consisting of 40 Ordinance Factories and 8 Defence Public Sector Undertakings (including BEML). The total defence budget for FY 2009 is proposed at Rs 1,056 billion, which is an increase of 10% over the previous year. Out of the total defence budget, Rs
480 billion is allocated for capital expenditures, which is an increase of 27% over the previous year.
Valuations
After Q3FY09 disappointing results and slowdown in economy, we have reduced our FY10E earning estimate by 9.5% to Rs 58.3. With a cautious view we are changing our target price of Rs 476 to Rs 426.
At CMP of Rs 346, the stock is trading at 6.7x on TTM earning of Rs 51.7 and 5.9x on FY10E earning of Rs 58.3. On back of diversified business model, rich cash reserves (~Rs 125.1 per share), healthy order book, railway business initiatives, we maintain our BUY rating on the stock.
Important Statistics
Shareholding Pattern
Promoters (Govt. of India): 54%
Institutions: 23.6%
FIIs: 13.3%
Other public: 9.3%
Mkt Cap: 1,433.40
P/E: 6.66
Div: 120.00
EPS: (TTM) 51.70
B/V: 409.56
Mkt: Lot 1.00
FV: 10.00
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