BEML to gain from higher govt spend: Edelweiss

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Published: September 9, 2015 12:10:18 AM

We met BEML’s CMD and top management to get an update on its key businesses. We see the company a beneficiary of increased spending planned...

We met BEML’s CMD and top management to get an update on its key businesses. We see the company a beneficiary of increased spending planned in each of the industry driven by policy intervention by the government.
Below are the key points from our discussion.

With Coal India, BEML’s main customer, looking at doubling its coal production to 1 bn tonne, industry size for earth moving equipment is expected to rise 4x to $4 bn.

This places BEML in a sweet spot as it bags ~90% of its contracts through competitive bidding. The company expects its main workhorse, dozers & dumpers  and spares to drive revenue and help maintain overall market share of ~25%.

The company sees strong traction in ordering for metro coaches with the last order from Delhi Metro worth Rs 650 crore. We expect this traction to continue following increased activity towards metro rail construction in several cities. BEML’s metro factory is booked till FY18 and thus it is looking at enhancing capacity by 50% by adding a third assembly line at capex of Rs 70 crore.

Order from India Railways has been affected by delays, but owing to its wide experience across all types of coaches the company is well placed when the ordering activity picks up.

The stock currently trades at 44x/ 32x its FY16/FY17 consensus earnings. ‘Not Rated’.

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