BEML Ltd — Q4 FY24 earnings call

Call held 24 May 2024

Management summary

BEML delivered a strong financial performance in FY24, characterized by significant profit growth and a robust order book expansion. The company is undergoing a radical structural transformation into SBUs to drive decentralized decision-making and reach a ₹1,000 crore turnover per unit. While long-term revenue guidance of ₹7,000 crores has been shifted from FY26 to FY27 due to tender pushbacks, management remains bullish on the Vande Bharat sleeper project and emerging opportunities in Aerospace and Maritime sectors.

Highlights

  • Profit After Tax (PAT) surged 78% YoY to ₹283 crores from ₹159 crores.

  • Order Book grew 38.5% YoY to ₹11,872 crores as of March 31, 2024.

  • Value of Production (VOP) increased to ₹4,056 crores from ₹3,802 crores in the previous year.

  • EBITDA margin expanded by 200 basis points, meeting previous management guidance.

  • Gross margin improved by 25% to ₹486 crores from ₹389 crores.

  • Export turnover reached ₹1,066 crores, a significant jump from ₹62 crores in FY20.

  • Management announced a major restructuring into 11 Strategic Business Units (SBUs) and 2 micro-SBUs.

  • Board approved a Capex of ₹480 crores (approx. 10% of revenue) for capacity expansion.

Concerns

  • Tender Pushbacks and Delays

Key financials

  1. Value of Production ₹4,056 Cr +6.7%YoY
  2. PAT ₹283 Cr +78%YoY
  3. Order Book ₹11,872 Cr +38.5%YoY
  4. Gross Margin ₹486 Cr +25%YoY
  5. EBITDA Margin Expansion 200 bps
  6. R&D Expenditure ₹87 Cr +29.8%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
    43% Revenue Contribution
  • Rail & Metro
    38% Revenue Contribution
  • Defence & Aerospace
    19% Revenue Contribution

Guidance & targets

Revenue

  • Revenue Growth CAGR Revenue · FY25 · Medium confidence 18-20%
    That’s again one of the reasons why 18 to 20% CAGR is probably the right number for the current financial year.

    — Management

  • Total Revenue Revenue · FY27 · Medium confidence ₹7,000 crores

    Previously ₹7,000 crores by FY26 → ₹7,000 crores

    So, these are the reasons because of which probably 7,000 may get shifted by a year or so.

    — Management

Other

  • Order Book Guidance Other · FY25 · Medium confidence ₹20,000 to 30,000 crores
    we should be looking at order book guidance of 20,000 to 30,000 crores, it sets a broad range.

    — Management

  • Physical Export Revenue Mix Other · next 3 years · Medium confidence 10%
    Our ambitious export target, it talks about at least 10% revenue from the physical exports.

    — Management

Capex

  • Capital Expenditure Capex · FY25 · High confidence ₹480 crores
    the board has decided to infuse a CapEx of around 480 crores, which is around 10% of our last year's revenue.

    — Management

Market Share

  • Metro Market Share Market Share · next 2-3 years · Medium confidence 60%

    From 40-45% today

    Our current market share is roughly around 40%-45% and we aspire to increase it to at least 60%.

    — Management

Risks & concerns

  • Tender Pushbacks and Delays

    high

    Major projects like the ₹36,000 crore Push-Pull train and Metro variation orders were delayed, impacting execution timelines.

    Management acknowledged

  • Workforce Depletion

    medium

    25% of the workforce (approx. 1,800 people) will retire in the next 2 years, creating a potential skills gap.

    Both acknowledged

  • Supply Chain Challenges in Defence

    medium

    Indigenization efforts for High Mobility Vehicles (HMVs) faced quality and supply chain hurdles with indigenous partners.

    Management acknowledged

  • Quarterly Seasonality

    low

    Revenue is heavily skewed toward Q4 (approx. 55% in H2), impacting quarterly cash flows.

    Analyst acknowledged

Areas of evasion (2)

  • Specific 'bought-out' cost percentage for Vande Bharat manufacturing.
  • Detailed competitor capacity for Titagarh.

Q&A highlights

2 direct, 1 evasive
Delay in Revenue Guidance Direct
Some big ticket tenders were pushed back, they were discharged. For example, the push-pull aluminium train, 100 train sets... that opportunity itself is around 36,000 crores.

Explains why the ₹7,000 crore revenue target was deferred from FY26 to FY27 due to external tender delays.

Asked by Not identified

Vande Bharat Cost Structure Evasive
Well, that is an information which I can't really divulge... these days it is smart manufacturing. Everything is not manufactured within the company.

Management refused to disclose the specific 'bought-out' component percentage for Vande Bharat, citing competitive sensitivity.

Asked by Not identified

Workforce Attrition and Hiring Direct
Around 25% of our workforce is going to separate from us in next 2 years... 99% is retirement. Generally, in a public sector, attrition levels are very low.

Highlights a significant human capital risk/transition where 1,800+ employees will retire, requiring a massive talent onboarding exercise.

Asked by Not identified

2 min read 5 chapters

Detailed narrative

Strategic Restructuring into SBUs

BEML has reorganized into 11 Strategic Business Units (SBUs) and 2 micro-SBUs as of April 1, 2024. The aspiration is for each SBU to achieve an average turnover of ₹1,000 crores and micro-SBUs to reach ₹500 crores within two years. This radical change in the business model involves internal churning, new SOPs, and empowering SBU heads to function as CEOs to accelerate decision-making.

Vande Bharat Sleeper Execution Timeline

The Vande Bharat sleeper train is a critical growth driver, with the first prototype expected to be pushed by June 15, 2024. Following a two-month trial and CCRS inspection, BEML plans to deliver the remaining 9 rakes at a rate of 2-3 per month, aiming for completion by December 2024. Management expects repeat orders for the sleeper version if the prototype performs well, given the government's target of 800 Vande Bharat trains by 2030.

Aerospace and Maritime: The New Frontiers

BEML is pivoting from simple structures to mainstream participation in Aerospace and Maritime sectors. The Aerospace opportunity size is estimated at ₹8,000-9,000 crores over the next 2-3 years, focusing on ISRO and Air Force projects like light utility helicopters and missiles. A dedicated Maritime SBU has been created to interact with the Navy and Coast Guard, with announcements expected shortly.

Capacity Augmentation and Capex Strategy

The Board has approved a significant Capex of ₹480 crores for FY25, representing roughly 10% of FY24 revenue. This investment is focused on three areas: engine programs (5 concurrent programs), Defence (armoured vehicle overhauling), and Rail/Metro. In the Metro segment, BEML aims to add 100-120 cars per year to its existing practical capacity of 277 cars per year to meet a ₹15,000 crore opportunity size.

Order Book Dynamics and Revenue Pipeline

The order book stands at a healthy ₹11,872 crores, with a target to reach ₹20,000-30,000 crores in FY25. While revenue growth for the current year is guided at 18-20%, management notes that execution is dependent on the stabilization of the new SBUs (estimated to take 8-9 months) and the relaunch of big-ticket tenders like the ₹36,000 crore aluminum push-pull train project after the elections.

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