Money Tree

The salient features and extracts from the Red Herring Prospectus of the issue are given hereunder:

Issue Opens On : June 27, 2007
Issue Closes On : July 03, 2007
Issue Size : 49,00,000 equity shares
Face Value : Rs.10/-
Price Range : Rs. 1020 to Rs. 1090/-
Issue Type : Book Building
Tick Size : Re.1/-
Market Lot : 5
Minimum Order Qty : 5
Listing Stock Exchange : Already listed on NSE, BSE

Objects Of the Issue :

Expansion of Metro Coach Manufacturing Facility at Bangalore.
Capital Expenditure including upgradation of current facilities.
Voluntary Retirement Scheme (“VRS”) for Employees.
Setting up of 5MW Wind Mill for captive consumption.
Contribution for setting up R&D Centre of Excellence for Metro Coaches.
To meet Issue Expenses.
For General Corporate Purposes.

Basis for Issue Price :

Face Value : Rs.10/-
Issue Price : 102 Times(Lower Price Band) of the Face Value.
Issue Price : 109 Times(Higher Price Band) of the Face Value.
Issue Price : Rs. 1020 to Rs. 1090
EPS for the last financial year 2005-06 : Rs 50.87
EPS for the last year 2004-2005 : Rs 47.70
EPS for the 9 months ended on 31st December 2006 : 40.42
Weighted Average EPS for the years April 2003- Dec 2006 : Rs 41.77

Industry PE ratio:

Highest : 82.6
Lowest : 9.9
Industry Average : 39.1

PE ratio of BEML on the higher side of price band comes out to 26 times and on the lower side of the price band comes out to 24 times on the basis of weighted average EPS for the last three years.

PE ratio of the Peer Group

Larsen & Toubro : 68.75
ACE Ltd : 40.69
TIL Ltd : 24.21

Industry Overview :

Construction and Mining Equipment Industry

The Construction and Mining Equipment Industry plays a vital role in the economic development of our country. This industry is closely linked with major development and infrastructural sectors such as coal and mineral mining, irrigation, road and power projects, ports, steel, cement, fertilizers, etc. The technology required to manufacture such machines was not earlier available as a result of which it was necessary for the Government to permit import of technology for development of the same from internationally manufacturers like Komatsu, Caterpillar, Poclain, Dresser, Demag and Hitachi. But now, most of the manufacturers have been able to absorb the technology to produce modern and high-quality equipments. The construction and mining equipments currently being manufactured cover dozers from 65 HP to 770 HP, excavators starting from 7 tonnes (T) to 160 T, wheel dozers of 300 HP and 460 HP, wheel loaders with bucket capacity ranging from 1.7 to 4.7 cubic metres (cu.m.), mechanical dumpers from 35 T to 100 T, electrical dumpers of 120 T and 170 T (with plans to add 190 T, 240 T and 360 T in the near future), rope shovels of 10 cu.m., 20 cu.m. and 42 cu.m., draglines of 24/96 and 30/96 sizes, motor graders of 145 HP and 280 HP and backhoe loaders. Side discharge loaders and load haul dumpers for underground mining applications are also being manufactured. For road building, vibratory compactors, hot mix plants, pavers etc. are also being manufactured indigenously. These machines help to speed up development in irrigation and power projects, coal and iron ore mining, for excavation of lime stone for cement, for development and reclamation of vast track of land, building roads, making canals, preparing industrial sites and all facets of the country’s development activity. These machines also reduce dependence on labour and provide automation in the core sectors.

Defence Products Industry

India has one of the longest coastlines extending upto 14,103 kilometres of land borders, including 7,000 kilometres of border with countries with which territorial disputes still persist, a coastline of 7,600 kilometres and 2.5 million square kilometres of Exclusive Economic Zone (EEZ) to protect. Defence production is under the Department of Defence Production (DDP). DDP was set up in 1962, in the aftermath of the Indo-China war to create a self-reliant and self-sufficient indigenous defence production base. In November, 1965, Department of Defence Supplies was created to forge linkages between the civil industries and defence production units. The two departments were merged in December, 1984 into the Department of Defence Production and Supplies. The Department of Defence Production and Supplies has been renamed as Department of Defence Production from January, 2004. Today, the DDP deals with the indigenisation, development and production of defence equipment, both in the public and private sectors. It caters to production infrastructure for aircraft and helicopters, warships, submarines, heavy vehicles and earthmovers, missiles, a variety of electronic devices and components for the defence sector, and alloys and special purpose steel. DDP has a substantial infrastructure developed over the years, consisting of 40 Ordinance Factories and 8 Defence Public Sector Undertakings (DPSUs) including BEML. It also draws upon supplies from the Indian civil and private sector wherever feasible and forms the backbone of the country’s defence production.

Railway & Metro Products Industry

Indian Railways (IR) is considered the backbone of our national transport infrastructure. It is the world’s second largest system under one management which has an extensive route length. It is often described as the nation’s lifeline with its vast network and reach.

On an average Indian Railways runs 16,021 trains every day out of which 9,556 are passenger trains. In FY2006, IR carried approximately 5.89 billion passengers, which work out to over 16 million passengers every day. As per the Railways Year Book 2004 – 2005, there were 222,379 Wagons, 48,263 Coaches and 7,131 stations throughout the country. Indian Railways is the largest employer (company) in India other than the government with over 1.4
million employees according to the Railway Budget 2007.

Urban public transportation constitutes an important part of social infrastructure and is indispensable not only for commuting to and from work but also maintaining comfortable lives of urbanites. Mobility is a crucial factor for economic growth of any urban area. Urban transport facilities and services are important features of national economy since these urban areas contribute a sizeable portion of the country’s gross domestic product (GDP). With inherent advantages of less emissions and energy consumption, coupled with high safety record and efficiency, Metro rail is well-placed to support commuters in teeming urban areas.
With the increased demand of transportation needs, many urban cities in India having a population of more than 3 million are now planning to introduce Metro rail transportation. Delhi Metro Rail Corporation (DMRC) has already taken a lead in establishing a world-class Metro in Delhi which was well received by the public and has become a role model for future upcoming Metro projects in the country. Cities like Mumbai, Bangalore, Hyderabad, Ahmedabad, Chennai and Cochin have already finalized their project reports with DMRC being a prime consultant for these Metros.
A substantial number of Metro coaches would be required in the immediate future to cater to the upcoming Metro projects in the country. These projects are highly capital intensive and include high technology. Manufacturing of Metro cars involves state-of-the-art technologies in terms of materials, fabrication, power electronics, digital controls, software driven aggregates, etc. Import of these hi-tech Metro coaches is prohibitively expensive and hence there was a pressing need to take up their manufacturing in India.

Business Overview :

The Company is one of the major manufacturers of mining and construction equipments in India. The company is a multi-locational and multi-product company primarily dealing in three product segments comprising Mining and Construction equipments, Defence products and Railway & Metro products through which the company caters to vital applications in diverse sectors of the economy such as mining, steel, cement, power, irrigation, construction, road building, defence, railway and Metro transit system. Recently the company has expanded its product range to cover high-quality hydraulics, heavy-duty diesel engines, welding robots and heavy fabrication jobs.

History :

The Company was incorporated in 1964 as a Public Sector Undertaking (PSU) under the administrative control of Department of Defence Production and Supplies, Ministry of Defence, with headquarters at Bangalore in Karnataka. The company commenced operations at Bangalore with the transfer of railway coach manufacturing facilities from Hindustan Aeronautics Ltd. with land, building, plant and machinery for a consideration of Rs. 600 lakhs.

Financial Information :

Total income of the Company for the period ended 31st December, 2006 : Rs. 1,60,849.65 lacs
Total income of the Company for the year ended 31st March, 2006 : Rs. 2,11,237.74 lacs
Total income of the Company for the year ended 31st March, 2005 : Rs. 1,83,405.88 lacs

Net profit (after tax) for the period ended 31st December, 2006 : Rs.11,219.45 lacs
Net profit (after Tax) for the year ended 31st March, 2006 : Rs.18,751.50 lacs
Net profit (after Tax) for the year ended 31st March, 2005 : Rs.17,568.25 lacs

Comments :

The stock is already listed and on the opening day of the issue before the opening of stock markets the listed price of the stock on NSE is Rs. 1170.50 and the price band for the issue is Rs. 1020 to Rs. 1090. The stock has recently made a high of Rs. 1270 in february this year and then it fell down to Rs. 950 levels and then again surged to current levels of Rs.1170. The issue has been made at a good PE multiple and the company is in a good space with good growth potential. There is about 80 rupees difference in the higher price band and current market price of the stock and until the new shares are listed the gap may widen or it may narrow down as well. However the stock is worth buying at the levels of issue price with a long term view, it may come down for a while but the future prospects of the company are undoubtedly very bright. We recommend to subscribe the issue.