BEML- Not a good company to be owned for long term.
Best time to downsizing the holding in these companies is when they start making double digit EBITDA margins, and can be owned when they again start making EBITDA margins of ~1% after posting loss for few years.
Margins of these kind companies can be a good proxy to assess the state of general economy. In 2004-05 when Indian economy started doing good, its negative margin turned positive, and in 2009 it posted peak EBITDA margin of 12%.
Over 20 years, Networth multiplied by just 3.5 times, from Rs 600 crores to Rs 2100 crores, out of which around Rs 500 crores was the new equity raised in 2007-08. That indicates the poor performance from long term shareholders point of view.
BEML’s revenues can be broadly dividend into three segments, Mining & Construction Equipment, Railways and Defense. BEML derives its 50-60% revenue from the manufacturing of mining equipment. Revenues from Railways and Defense segment fluctuate significantly as it can be as low as 5% or as high as 45% in any financial year.
Inventories and Sundry Debtors forms ~80% of Total assets, Fixed assets constitute around 10-15% of assets. Around 40-50% of the assets are financed by shareholders.
Most of the Cash Generated from Operation (after working Capital increase) was used in Investing in Fixed Assets, Interest Payment. Dividend paid almost equal to new equity issue.
Government of India (GOI) holds 54% stake in it. Recently, GOI gave its ‘in-principal’ approval for strategic disinvestment of 26% equity shares in BEML Limited out of Government of India shareholding of 54.03%. This is indeed a positive step for better management of company from shareholders point of view.