Even as the broader indices were down on Monday, shares of public sector units (PSUs) BEML and Bharat Electronics (BEL) continued to gain. In fact, BEML was locked in 20 per cent upper circuit (only buyers and no sellers in its shares) for most part of Monday, and closed with gains of 19.94 per cent. While, BEL ended the day in the green adding to the over 20 per cent gains it has seen from end-March lows.
The PSU companies with strong order book and robust balance sheet are well placed to see operations streamlined and growth return as the disruption led by Covid-19 related lockdown eases. In fact, analysts such as Arafat Saiyed at Reliance Securities say these companies will benefit further as they are likely to see order flow pushed up by equipments required to fight covid-19.
The firm business prospects of BEL, a defence order supplier, remain unaffected by the Covid-19 caused disruption. With long range surface to air missile system (LRSAM) orders in execution stage, analysts remain positive on the company’s earnings prospects.
BEL, in its communication to exchanges recently, had said that it has ended FY20 with record turnover of over Rs 12,500 crore, which was up 6 per cent year-on-year. Analysts say, adjusted for the VVPAT/EVM revenue of Rs 2,600 crore in FY19 ahead of general election, FY20 revenues grew by a strong 35 per cent year-on-year. This is despite some impact on execution in March 2020 quarter. Analysts say, for Q4’FY20, the implied execution for BEL was likely at Rs 5,730 crore (up 48 per cent year-on-year) and was ahead of expectations. The large order flows related to defence projects, which are driving execution, are likely to keep the pace firm in future too.
Analysts at Motilal Oswal Financial Services say that BEL has demonstrated strong execution capability over the years and is well placed in the current troublesome time of Covid-19. The company having received orders worth Rs 13,000 crore in FY20 now has an order book of Rs 51,800 crore. This gives high revenue visibility with order book being four times FY20 turnover.
Meanwhile, BEML is already seeing its prospects being driven by defence and railway projects (metro rail in particular). Further, with mining leases being renewed, mining equipments are likely to see an uptick in demand. The expected order flow from railways to gear up for challenges posed by Covid-19 is also likely to be an additional driver. BEML has already seen strong order inflow momentum pertaining to metro Coach manufacturing (including Mumbai, Delhi, Kolkata and Bengaluru) and the Mumbai order alone constitutes roughly 30 per cent of the current order book. Trailing 12 months order inflow growth of 179 per cent year-on-year till end of December had already provided confidence of improved execution going ahead, say analysts.
Overall, analysts see metro rail projects and defence segment to be key growth drivers for BEML moving forward too.
Even after the recent gains, the two stocks trade at decent valuations, feel analysts, as the share prices are still down by up to 40 per cent compared to January highs.