BEML Ltd — Q2 FY24 earnings call

Call held 5 Dec 2023

Management summary

BEML is transitioning from a government-dependent entity to a competitive player in high-growth sectors like Defence and Vande Bharat rail projects. The company is aggressively targeting a 20% CAGR to double its top line, supported by a massive ₹12,743 crore order book and a ₹20,000 crore pipeline in T-72 overhauls. While manpower costs remain higher than the industry average, management is focused on operational leverage and efficiency to drive EBITDA margins toward the 13-14% range.

Highlights

  • Order book stands at a robust ₹12,743 crores as of September 2023, with a target to reach ₹17,000 crores by year-end.

  • H1 FY24 Value of Production reported at ₹1,429 crores, with a revenue mix of M&C (43%), Rail & Metro (41%), and Defence (16%).

  • Gross margin for H1 FY24 turned positive at 1.35%, compared to -0.8% in the previous year.

  • Management targets doubling revenue to ₹7,000-8,000 crores within the next 3-4 years, implying a 20% annual growth rate.

  • Planned Capex for FY24 is approximately ₹350 crores, focused on capability enhancement in KGF and Palakkad facilities.

  • EBITDA margin target set at 11% for the current year, with a long-term aspiration of 13-14%.

  • Export revenue for H1 FY24 reached ₹347 crores, following a record ₹830 crores in the previous full year.

Key financials

  1. Value of Production ₹1,429 Cr +1%YoY
  2. Order Book ₹12,743 Cr
  3. Gross Margin 1.4%
  4. Finance Costs ₹21 Cr -4.5%YoY
  5. Market Cap ₹9,653 Cr +56%YoY

What they filed

Q1 FY27: revenue up 29.3%, net profit up 57.8% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue860 876 1,653 634 839 −2%1,083 +24%1,794 +9%820 +29%
EBITDA73 60 423 -48 73 +0%4 −93%272 −36%2 +104%
Net profit51 25 288 -64 55 +8%-23 −192%179 −38%-27 +58%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Mining & Construction (M&C)
    43% Revenue Mix (H1)50% Historical Sales Contribution
  • Rail & Metro
    41% Revenue Mix (H1)₹6,000 Cr Metro Order Book300 coaches Annual Capacity
  • Defence & Aerospace
    16% Revenue Mix (H1)₹4,600 Cr Defence Order Book7.5% Gross Margin Range

Guidance & targets

Revenue

  • Annual Revenue Revenue · next 3-4 years · High confidence ₹7,000-8,000 crores
    if we grow at 20% year-on-year, in three years' time we definitely look to crossing the INR 7,500 crores. So that is near to double.

    — Shri Shantanu Roy, CMD

Margin

  • EBITDA Margin Margin · FY24 · High confidence 11%

    Previously 9.2% → 11%

    Last year we closed the year at 9.2%, and 200 basis points improvement means it should be 11%.

    — Management

  • Long-term EBITDA Margin Margin · next 4 years · Medium confidence 13-14%
    Maybe even if we are able to do around 13% to 14% EBITDA, that is pretty healthy for the industry that we are in.

    — Shri Shantanu Roy, CMD

Capex

  • Total Capex Spend Capex · FY24 · High confidence ₹350 crores
    We are planning a capex of around INR 350 crores this year.

    — Shri Anil Jerath, Director (Finance)

Volume

  • Vande Bharat Trainsets Volume · per year · Medium confidence 9-12 trainsets
    what we are planning is to make 1 trainset in a month or 45 days... So 9-12 trainsets in a year?

    — Shri Shantanu Roy, CMD

Risks & concerns

  • High Manpower Intensity

    medium

    Manpower costs as a % of sales are significantly higher than the 16-17% industry benchmark.

    Management acknowledged

  • Intense Competition in Metro Segment

    medium

    Management noted that the difference between them and Chinese competitors in the MRS tender was only 0.5%.

    Management acknowledged

  • Working Capital Intensity

    medium

    Working capital is high at ₹2,500-2,800 crores; management expects the 'number of days' to decrease as turnover increases.

    Analyst downplayed

Areas of evasion (1)

  • Specific margin breakdown per segment was described as 'difficult' and 'altogether mixed'.

Q&A highlights

2 direct
Defence Margin Structure Partial
So, margin can be 2.5% and 7.5% in some cases. They give margin on the spare parts 2.5%. Some products margin can go up to 10%.

Reveals that Defence margins are relatively thin on a gross basis, relying on volume and spare parts for profitability.

Asked by Not identified

Vande Bharat Opportunity and Capacity Direct
Total opportunity size is over INR 2 lakh crores in seven years so definitely our volumes in rail business will increase... we plan to get prototype ready by March 2024.

Highlights the massive scale of the Vande Bharat pipeline and BEML's 'first mover' advantage in the sleeper version.

Asked by Not identified

Manpower Cost Rationalization Direct
Usually manpower cost as a percentage of sales is 16-17%, at present ours is on a higher side... It might not reduce to 16-17% level, but might be close to 20%.

Identifies a key area for margin improvement; BEML is currently inefficient compared to industry peers but expects operating leverage to bridge the gap.

Asked by Not identified

2 min read 5 chapters

Detailed narrative

Defence Segment: From HMVs to High-Value Aggregates

BEML's defence strategy is shifting from a 60% reliance on High Mobility Vehicles (HMVs) to a more balanced mix including Armoured Recovery Vehicles (ARVs) and aggregates. The company is eyeing a massive ₹20,000 crore opportunity in T-72 tank overhauling, which is now open to competitive bidding. Management expects the defence order book, currently at ₹4,600-5,000 crores, to grow by 30-40% annually as indigenization efforts replace Russian imports.

Rail & Metro: The Vande Bharat Growth Engine

The Rail & Metro segment is poised for significant expansion with a ₹6,000 crore order book and a total addressable market of ₹2 lakh crores over the next seven years. BEML is manufacturing India's first sleeper version of the Vande Bharat train in collaboration with ICF, with a prototype expected by March 2024. The company plans to scale production to 9-12 trainsets per year, leveraging its existing capacity of 300 coaches per annum.

Operational Efficiency and Margin Expansion

Management is targeting a 200 basis point improvement in EBITDA margins to reach 11% by the end of FY24. This expansion is predicated on reducing manpower costs from their current high levels toward a 20% of sales target through operating leverage. While gross margins in some segments remain tight (2.5% to 7.5%), the shift toward higher-value indigenous products and AMCs is expected to drive long-term EBITDA toward 13-14%.

Capex and Capacity Utilization

A substantial capex of ₹350 crores is being deployed in FY24, representing nearly 9% of last year's sales. This investment is focused on upgrading machinery, automation in paint shops, and civil works at the KGF and Palakkad facilities. Management indicated that next year's capex could increase by another 40% before stabilizing, providing the infrastructure necessary to support the targeted ₹8,000 crore revenue run rate.

Mining & Construction: Steady Growth and Import Substitution

The M&C segment continues to be a steady contributor, with a 5-7% annual growth target. BEML is benefiting from the Ministry of Coal's policy to stop imports of high-end mining equipment, allowing the company to develop indigenous 20 cubic meter shovels and 550-horsepower motor graders. Most business continues to come from Coal India and its subsidiaries, with a growing focus on the MDO (Mine Developer and Operator) model.

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