With the railway theme largely revolving around rolling stock procurement, companies engaged in this business have been on investors' radars lately. One such company that recently bagged an export order for the supply of rolling stock is RITES.
Recently, the Central Public Sector Enterprise (CPSE) signed agreements with the National Railways of Zimbabwe for the supply of rolling stock—3,000 HP diesel-electric locomotives and high-sided open wagons—valued at $81,175,500 or Rs 664 crore. The contract is executable over a period of 24 months after approval of funding. The respective authorities are expected to approve the funding in a couple of months.
"In this context and based on the execution of new export orders, we raise the company’s revenue growth projection for FY25 by 5 percent to 17 percent," said Axis Securities.
The brokerage firm expects the company to post revenue growth of 12 percent compounded annually over FY23-25 while earnings before interest taxes, depreciation, and amortisation (EBITDA) and adjusted profit after tax (PAT) are seen growing at 11 percent and 12 percent, respectively. This will be on the back of a good order book position, efficient execution prowess, a clean balance sheet, high return ratios, and a healthy dividend payout, the brokerage firm added.
According to Axis Securities, the stock is trading at 17 times its FY24 EPS and 14 times FY25.
On June 23, the scrip settled 0.4 percent lower at Rs 378.85.
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Strong revenue visibility
With an order inflow of Rs 3,080 crore in FY23, the company’s order book stood at Rs 5,870 crore as of March 31, 2023.
With the addition of the new export order worth Rs 664 crore, the total unadjusted order book now stands at Rs 6,600 crore. Plus, the addition of more export orders will keep the order book ticking, going forward, according to analysts.
Besides, as of March 31, 2023, the cash and bank balance of the company remained healthy at Rs 1.136 crore.
Focus on rolling stock
A higher capital expenditure outlay in the Budget 2023–24 for Railways and Highways has presented a number of large opportunities for RITES to grow its business verticals.
Out of the almost Rs 10 lakh crore in capital expenditure by Indian Railways over FY15–22, network expansion garnered the largest share (39 percent), followed by rolling stock (30 percent), Nuvama Institutional Equities highlighted in a report.
Rolling stock includes locomotives, railroad cars, coaches, and wagons, among others.
The company’s rolling stock design unit specialises in the design and development of rolling stock, including modifications and upgrades, for the domestic and export markets. RITES is also engaged in maintenance and operational facilities such as Smart Yards, coaching, and freight maintenance depots; the design and development of rolling stock; and the procurement and supply of wagons. Besides, it is also involved in the supply, commissioning and leasing of locomotives.
Having set up the infrastructure, the Indian Railways is now focusing on rolling stock procurement.
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More export orders likely in near term
The company anticipates that a portion of the contract will be completed in FY24, while the majority of it will be executed over FY25 and FY26. RITES is seeking additional export orders in the near future.
Additionally, the company is working on exporting Vande Bharat trains to clients in countries in Southeast Asia and Africa.
Technical View
When the RITES' stock tested the Rs 433 level in May this year, it formed a classical double top and then slipped in a corrective decline, noted Milan Vaishnav, Founder and Technical Analyst, Gemstone Equity Research and ChatWizard FZE.
The stock has now come off close to 15 percent from its high and is seen breaking down from its 50-day moving average (DMA) after taking support on it multiple times after forming a lower top at Rs 406, he explained.
He believes that all technical pullbacks are likely to find resistance in the 400–406 zone. Vaishnav suggests booking profits in the stock now as it has broken the 50-DMA on a closing basis and advises against fresh buying at this point in time.
From the end of December to around mid-April, the stock has been range-bound between Rs 341 and Rs 347. Then, towards the end of April, it climbed higher to Rs 380 and with occasional ups and downs. The stock is now trading at Rs 379.
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