BEML: No minefield, this

Sowmya Krishnan

THE fixed deposit programme of Bharat Earth Movers Ltd (BEML) is not an attractive investment option as the interest rate offered does not appear commensurate with the risk involved.

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The minimum deposit requirement is also quite high. However, considering that interest rates might move further south after the recent announcements in the Credit Policy review, an investment for a year can be considered for diversification purposes.

Bharat Earth Movers accepts deposits under two schemes -- BEML Gold Plus Deposit Scheme and BEML Gold Fixed Deposit Scheme. The former accepts cumulative deposits for three years at an interest rate of 10.25 per cent per annum compounded half-yearly. The latter accepts fixed deposits for one, two and three years at 8.75 per cent, 9.50 per cent and 10.25 per cent respectively. The minimum deposit amount is Rs 20,000 under both the schemes and, thereafter, in multiples of Rs 5,000.

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BEML makes a wide range of construction, mining and earth-moving equipment, besides catering to the needs of the Defence and Railway Ministries through its various products. The company's fortunes are directly related to the general economic indicators and investment in infrastructure projects.

The ongoing slowdown and the lack of fresh investments in the infrastructure sector have affected its profitability in 2001. Moreover, a slowdown in orders from the Railways and Coal India -- its two major customers -- has made a dent into its topline growth. The company did not get a single order from the Railways for the last two years. However, orders from the Defence sector were comfortable and provided some cushion. In the last quarter, BEML received orders worth Rs 124 crore and this should provide comfort to the topline growth for this year.

The company has also tried to reduce its dependence on the Railways and look for new business opportunities. It has entered into contracts with mining companies for supply, leasing, service and maintenance of equipment and provide spareparts support on a long-term basis. All these efforts might improve the company's prospects. However, the operational risk involved makes it an unattractive fixed investment option.

The company's financial performance was not very impressive. Its operating margins have been dropping steadily the past five years. For 2001, it was 8.68 per cent compared to around 15.5 per cent in 1996.

The company reduced its debt drastically by 38 per cent in 2000-2001. As a result, there was an improvement in the debt-equity ratio which stood at 0.5:1. However, the interest coverage ratio remained stable due to a 59 per cent dip in net profits for 2001. The high volatility in the earnings pattern is a cause for worry. As the returns offered do not match the risk involved, investors can stay away. However, high net worth investors can park a part of their funds for diversification purposes.