3 Things BEML Is Doing To Expand Orderbook And Improve Margins | Defense Push To Drive Growth?

Summary

Shantanu Roy, Chairman and Managing Director at BML, discusses the company’s growth and strategic transformations, including the introduction of 14 Strategic Business Units (SBUs) and plans for future expansion in rail, metro, defense, aerospace, and mining sectors. He highlights the company’s focus on increasing operational efficiency, achieving a 20% EBITDA margin, and expanding its defense contributions. Roy shares insights on BML's driverless metro projects and future orders, including a substantial increase in the company’s order book and the ambitious high-speed rail projects, while addressing financial strategies and capex requirements.

Takeaways

• 😀 BML (Bharat Heavy Electricals Limited) is undergoing transformation with a focus on structural changes and the introduction of 14 Strategic Business Units (SBUs) to improve efficiency and decision-making.
• 😀 The company aims to increase its EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) margin to 20% over the next 4-5 years, driven by strong performance in sectors like rail, metro, defense, aerospace, and mining.
• 😀 Despite a 50% decline in rail and metro sales, BML has managed to maintain its top-line and improve its bottom-line performance thanks to other SBUs, like high-mobility vehicles, which doubled their revenue.
• 😀 The defense sector has grown significantly, contributing 27% of the top-line in FY24, and BML is expanding into system integration for defense projects.
• 😀 BML's order book outlook for FY25-26 includes significant contributions from defense and rail, with a targeted 14,610 crore order intake in FY25-26.
• 😀 The company is focusing on driverless metro trains (UTO), with Bangalore and Chennai metro projects featuring unmanned operation systems using advanced automation technologies like communication-based train control.
• 😀 BML has ongoing projects to roll out unmanned trains in metro systems, with Bangalore metro slated to begin operations with 20 driverless trains in the current financial year.
• 😀 Aerospace and maritime orders are expected to contribute to BML’s growth but are not expected to see significant revenue spikes in FY25-26, with a stronger push likely starting next year.
• 😀 BML is planning to set up a state-of-the-art rolling stock manufacturing plant in Bangalore, which will cater to a wide variety of train gauges, and aims to be operational in the coming months.
• 😀 The company plans to raise funds through debt financing for capital expenditures, including a new plant in Bhopal, which will help double the rolling stock production capacity. They are exploring long-term debt options to support their growth plans.

Q & A

What major structural change has BML implemented recently?

BML has implemented the strategic business unit (SBU) concept, which started with 12 SBUs and two micro-SBUs. This has now expanded to 14 SBUs, with plans to create two more. The aim is to have a more focused approach, improve leadership pipelines, and enhance decision-making efficiency.

What are the main business verticals BML focuses on?

BML focuses on several business verticals including rail and metro, defense, aerospace, and mining and construction.

What is the projected growth in EBITDA margin for BML over the next few years?

BML is targeting an EBITDA margin of around 20%, up from 13.2% currently. This growth is expected over the next 4 to 5 years.

What has been the contribution of defense to BML’s top line?

Defense has seen a significant contribution, reaching around 27% of BML's top line, marking the first time in the company’s history that defense has had such a high impact.

Which sectors does BML see as key drivers for future growth?

BML sees defense, aerospace, rail, and metro as key drivers for future growth. Both defense and rail and metro will contribute significantly to the projected EBITDA growth.

What is the status of BML’s order book and its expected growth?

BML ended the year with an order book of 14,610 crores and is aiming to add another 14,000 crores in the upcoming year, bringing the total order book to approximately 28,000 crores.

What is the significance of the Bangalore metro project for BML?

The Bangalore metro project is significant because it is part of BML’s move towards driverless metro systems. The company is supplying 20 trains for this project, and this will contribute to a substantial increase in revenue from the rail and metro segment.

What does the driverless metro technology entail?

The driverless metro technology, also known as UTO (Unattended Train Operation), uses advanced signaling, onboard equipment, and communication-based train control systems. The trains gradually transition to UTO mode after receiving approval from relevant authorities like CCRS.

What is BML's capex plan for the coming year?

BML plans to invest around 600 crores in capex this year. This includes investments in a modern rolling stock manufacturing facility in Bangalore, as well as additional facilities for defense and aerospace in Mysore and Palakad.

How is BML handling its debt situation for its expansion plans?

BML has not taken long-term debt yet but plans to finance the Bhopal plant via debt financing. The company is working with financial institutions to secure funding and plans to execute the project in phases to ensure faster cash flows.