BEML Ltd. jumps to All-Time High: 148% up in Just 9+ Months!

BEML Limited’s Record Surge to a New All-Time High

The all-time high of BEML Limited can be a result of many factors. Its previous all-time high was made on 20 December 2023 at ₹ 2764.65. It took 02 days to create a new all-time high at ₹ 2820 on 22 December 2023. In between, it made a low of ₹ 2486.4 on 21 December 2023, implying a correction of over 10 %. It may represent a change in the investors’ sentiment about the company due to improved financial condition or may represent overvaluation. Let’s go through the factors contributing to its all-time high.

Factors Contributing to a Stock’s All-Time High

Positive Earnings Reports

• Its revenue in Q2 FY24 increased by 13.91% year-on-year and reached ₹ 917 crores.
• In Q2 FY 24, the cost of goods sold reduced from 90.9% to 78.08% of revenue quarter-on-quarter, due to which the gross profit increased almost 4 times.
• Since 2020, its net margin has continuously increased, reaching 4.07% in 2022, which represents a net income of ₹ 158 crores.

Favorable Industry Trends

• The growing Indian industries are indirectly increasing the demand for coal and minerals. As the mining sector grows, the growth in demand for mining equipment will benefit manufacturers such as BEML Limited.
• Technology is continuously advancing, and the integration of automation and smart technology in heavy machinery and defense equipment has created opportunities for new product development for BEML.
• The mining business is normally limited to specific areas in various countries. Still, the mining equipment is sourced from all over the world, depending on its robustness and cost-effectiveness. BEML can capitalize on its capability to create machinery at a lesser cost and can dominate the market.

Positive Analyst Ratings

According to Simple Wall Street, the earnings of BEML Limited are expected to grow 31.36% annually. In the past year, its earnings grew by over 37.5%. In the past 3 months, the company’s stock has been more volatile than the rest of the Indian stocks, moving in the range of 6% a week. On the basis of the discounted cash flow model, its CMP of ₹ 2804.50 is 145.1% overvalued than the fair value of the stock. Even according to the PE ratio of 58.2x, it is overvalued compared to its peers, with a peer average of 47x.

Potential Scenarios Following an All-Time High

(Based on the chart of 1-month timeframe)

Converting numbers and candles into information can provide us with the market’s stance on the stock, which may help us make correct investment decisions. Since the listing of BEML Ltd. in January 2003, it has made 11 all-time highs after a gap of at least a month. In September 2023, it continuously increased for a second month, and whenever such a pattern has appeared in the past, a significant drop in the price is seen. Still, in December 2023, it reached a new high, due to which the past trend is already broken. It can be an indication of a strong positive sentiment amongst the investors. Investors may buy the stock and keep the stop loss at the low already made in December 2023.

Making Informed Investment Decisions

For any stock, reaching an all-time high is a significant milestone. Still, conducting thorough research and considering various factors is essential before making investment decisions. To make informed choices that align with your investment goals and risk tolerance, one needs to analyze the company’s fundamentals, industry trends, management’s strategy, and overall market conditions.

Company’s Financial Health

• In 2022, BEML Limited had a debt of ₹ 381 crores covered by a free cash flow of ₹ 483 crores and cash & equivalents of ₹ 9.76 crores. It has significantly reduced its debt compared to 2021 and also increased its free cash flow.
• In the short term, it has a liability of ₹ 1786 crores covered by assets of ₹ 4254 crores. The assets of ₹ 798 crores cover its long-term liabilities of ₹ 845 crores. Even though its long-term assets are less in comparison to long-term liabilities, it can easily manage them with short-term assets and free cash flow.

Industry Outlook

• To become a 5-trillion economy, the Indian government is continuously increasing its spending on infrastructure projects such as roads, railways, urban development, etc. It will result in an increasing demand for construction and heavy-duty vehicles in the coming years. It is a positive trend for the industry and is expected to remain for a long time.
• Indian government’s push for modernizing its defense forces and self-reliance in defense production has opened new opportunities in the industry to either work on their own or else create a strategic partnership with foreign countries to strengthen the resolve of Atma Nirbhar Bharat. We can see an increase in the order books of companies in the same industry.

Market Sentiment

BEML Limited’s surge to an all-time high reflects investors’ strong optimistic sentiment, which is further boosted by positive earnings and favourable industry trends. Due to the continuously increasing demand for heavy-duty vehicles, BEML is able to sell its products at a higher price, resulting in a continuous increase in net margin over the years. The company has reduced its debt by a significant level with strong asset coverage, indicating solid financial health. It is well positioned in the growing industry fueled by national economic activity and technological innovation. Investors need to conduct detailed research, considering factors like company fundamentals, industry trends, and financial health, to make informed investment decisions.