Entering double-digit growth trajectory
BEML (BEML IN) revenue is likely to enter a two -digit growth trajectory from FY27 as a large portion of its orderbook of INR 160bn , primarily comprising from railway & metro (R&M) and defence, would see strong execution momentum. Management retained revenue target of 20% in FY26 with margin improvement by 150bp, al though we believe it is a daunting task as H1 revenue fell by 1% YoY . We trim our TP to INR 2,700 on 37x September FY2 7E P/E, due to a slight delay in execution of the Vande Bharat (VB) sleeper order in FY26. We retain Buy due to double -digit earnings growth during FY25-28E, rising order pipeline ensur ing s teady revenue visibility along with the scope for a margin rise. The stock has underperformed the Nifty by 25% in the past three months.
Metros + Railways running at top speed during FY27-28 along with huge pipeline: The R&M segment may witness huge order pipeline, led by large ticket order of the Mumbai Rail Vikas Corporation (MRVC) air conditioned electric multiple unit (MRVC AC EMU) order worth INR 350 -400bn, which is set in the next six months. Other prospective tenders include additional orders Linke -Hofmann -Busch (LHB) coaches, commuter rail orders and a strong metro pipeline of 1,200 -1,300 cars in the next two years. BEML expects to deliver two VB sleepers every month post the clearance by Chief Commissioner of Railway Safety (CCRS). For LHB coaches, BEML expects ~20% revenue in FY26 and the rest in FY27. On the metro front, Chennai metro prototype is set to be rolled out in FY27, Bengaluru metro delivery of 8 -10 trains this year with the same nearing peak in FY27, and Mumbai metro execution recommencing from FY27 with peak in FY28.
Defence revenue to see multi-fold growth: Defence revenue to grow 70 -80% YoY in FY26 on the back of sales already doubled YoY in FY25, led by integrated supply of high mobility vehicles and strategic systems like the 1500HP engines for main battle tanks (MBT) . Order pipeline consists of light armored multipurpose vehicle (LAMV), high mobility vehicle, gun towing vehicle, Pinaka -related orders. BEML target s a new area of supply of maritime trains and port handling equipment with a potential revenue opportunity of INR 40 -50bn once fully operational in the next 4-5 years.
Retain Buy with a lower TP of INR 2,700: We lower our FY2 6E EPS by 2%, by 6% for FY27E and 5% for FY28E on account of delay in execution of the VB sleeper and Mumbai metro orders . Hence, w e lower our TP to INR 2,700 from INR 2,780 on 3 7x (unchanged) September FY27E P/E. However, we retain Buy, due to strong order visibility in R&M and defence, scaling up exports opportunity in high-end mining equipment, providing scope for margin improvement and focus on new areas, such as Advanced Medium Combat Aircraft (AMCA), maritime trains and engines. We expect an earnings CAGR of 31% during FY25-28E with an average ROE of 17% and ROCE of 16% during FY26-28E. Key risks would be the delay in receipt of new orders and execution of large R&M orders
