BEML: Dividend Paying Railway Stock Riding High, Prabhudas Lilladher Recommends BUY For Rs 3,345 TP

Railway stocks are in focus after the government laid foundations for thousands of crores worth of projects in-line with the committment to transform the sector. Railways are also in focus ahead of Lok Sabha elections. Amidst this, brokerage Prabhudas Lilladher has initiated coverage on one railway stock which is riding high on India's metro, rail, & defence.

This is none other than BEML which manufactures a variety of heavy equipment, such as that used for earth moving, railways, transport and mining.

In its latest research note, Prabhudas Lilladher said, "We initiate coverage on BEML with a 'BUY' rating at a TP of Rs3,345, valuing it at a P/E of 26x FY26E."

According to Prabhudas Lilladher, BEML is in a sweet spot to capitalise on "Make-inIndia" and the country's flourishing metro, railway & defence capex story led by 1) defence order pipeline of ~Rs400bn, 2) near-term order potential of Rs100bn+ in metro projects, 3) ~Rs365bn+ opportunity in rolling stock for Vande Bharat trains, and 4) healthy order book (~Rs124bn) with ~Rs8bn capex planned to ramp up execution.

The brokerage pointed out that the company has order prospects of ~Rs400bn over the next 4-5 years including ~Rs160bn for supplying new HMVs & ARVs and overhauling the existing fleet. BEML is also executing a healthy ~Rs50bn defence order book. It said, "We expect revenue CAGR of 26.0% in the Defence segment over FY23-26E."

Further, BEML is a leading manufacturer of Metro coaches in India. The company has near-term order prospects of Rs100bn+ for metro cars including the Bangalore, Mumbai, Hyderabad, Chennai and Patna projects, it cited. Also, BEML signed an MoU with Delhi Metro Rail Corporation to supply rolling stock for the Bahrain Metro Rail Project Phase-1. Meanwhile, it is also executing a healthy metro order book worth Rs50bn+.

Meanwhile, from the total allocations of Rs 2.65 lakh crore to the railway sector in FY25, the maximum allocation has been given to rolling stock at Rs 531 bn. Notably, as per the National Rail Plan, capex on passenger coaches is estimated at ~Rs3.8trn over 2022-51 with 32.2% of the outlay expected to be incurred by 2026.

Thereby, Prabhudas' note said, "Government's target of 800 Vande Bharat trains by 2030 has led to a healthy opportunity pipeline worth Rs365bn+ over the next few years to manufacture rolling stock. This is a strong opportunity for BEML, with the company having enhanced its value proposition in mainline rail coaches by bagging an order for 10 Vande Bharat sleeper trainsets. We expect 25.1% revenue CAGR in the Rail & Metro segment over FY23-26E."

However, giving financial prospects, Prabhudas' note said, "BEML's revenue is expected to scale up at a 16.4% CAGR over FY23-26E owing to 1) strong tailwinds in Defence and Rail & Metro verticals, 2) healthy order book execution, and 3) substantial planned capex of ~Rs8bn over the next 2 years to enhance production. With ~25% of the company's workforce expected to retire in the next two years, employee costs as a % of sales will likely drop by ~370bps by FY26E. As a result, BEML is expected to witness considerable EBITDA margin expansion from 9.3% in FY23 to 13.6% in FY26E."

BEML Share Price:

Last week, on Friday, BEML's share price stood at Rs 3092.40 apiece, up by 2.71% on BSE with a market cap of Rs 12,878.15 crore. The stock has a 52-week high and low of Rs 4,139.40 and Rs 1,182.55 respectively.

On the current market price, BEML has a dividend yield of 0.32%. Last month, BEML delivered a dividend payout of Rs 5 per share or 50% for FY24. In the year FY23, the dividend payout was of 100% amounting to Rs 10 per share.

On year-on-year performance, BEML is a multi-bagger with gains of nearly 148% on BSE.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. The author, the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.