BEML: Railway, defence PSU stock gets 60% upside target! 

Elara Securities in a fresh note said the railway and defence PSU stock BEML offers nearly 60 per cent upside potential, even as near-term execution challenges prompted a marginal cut in its price target. The brokerage said BEML’s revenue is expected to enter a double-digit growth trajectory from FY27, driven by a large order book of around Rs 16,000 crore, largely comprising railway and metro as well as defence orders, which were likely to see strong execution momentum.

While the management retained its FY26 revenue growth guidance of 20 per cent along with a 150 basis point margin improvement, the domestic brokerage said achieving the target appeared challenging, given a 1 per cent year-on-year decline in revenue in the first half of the year.

ELara trimmed its target price to Rs 2,700, valuing the stock at 37 times September FY27 estimated earnings, citing a slight delay in the execution of the Vande Bharat sleeper train order in FY26. It retained its 'Buy' rating on BEML, however, on the back of expectations of double-digit earnings growth over FY25–FY28, a rising order pipeline providing revenue visibility, and scope for margin expansion. The stock has underperformed the Nifty by about 25 per cent over the past three months. On Friday, BEML shares were up 1.49 per cent at Rs 1,692.45. 

On the railways and metro segment, the brokerage said execution momentum was expected to peak during FY27–FY28, supported by a strong order pipeline. This included a potential large-ticket order from Mumbai Rail Vikas Corporation for air-conditioned EMU coaches, estimated at Rs 35,000–40,000 crore, likely to be awarded over the next six months. Other opportunities included additional Linke-Hofmann-Busch coach orders, commuter rail projects and a robust metro pipeline of 1,200–1,300 cars over the next two years.

The brokerage said BEML expected to deliver two Vande Bharat sleeper trains every month following clearance from the Chief Commissioner of Railway Safety. For LHB coaches, around 20 per cent of revenue was expected in FY26, with the balance spilling into FY27. On the metro side, the Chennai Metro prototype was slated for rollout in FY27, Bengaluru Metro deliveries of eight to 10 trains were expected this year with volumes peaking in FY27, while Mumbai Metro execution was likely to resume from FY27 and peak in FY28.

Defence revenue is expected to see multi-fold growth, with the brokerage projecting 70–80 per cent year-on-year growth in FY26, following a doubling of defence sales in FY25. Growth is expected to be driven by integrated supplies of high-mobility vehicles and strategic systems such as 1,500-horsepower engines for main battle tanks. The order pipeline included light armoured multipurpose vehicles, high-mobility vehicles, gun-towing vehicles and Pinaka-related systems.

The brokerage added that BEML is also targeting new opportunities in maritime trains and port-handling equipment, which could offer a revenue opportunity of Rs 4,000–5,000 crore once fully operational over the next four to five years.

While earnings estimates for FY26, FY27 and FY28 were cut by 2 per cent, 6 per cent and 5 per cent, respectively, due to delays in the Vande Bharat sleeper and Mumbai Metro orders, the brokerage said strong visibility in railways and defence, export opportunities in high-end mining equipment and entry into new areas such as the Advanced Medium Combat Aircraft programme continued to underpin the investment case. It expected earnings to grow at a CAGR of 31 per cent over FY25–FY28, with average return on equity of 17 per cent and return on capital employed of 16 per cent over FY26–FY28.

Key risks cited included delays in order inflows and execution of large railway and metro projects.