1:1 Bonus Soon; Not IRFC Or RVNL, But ACCUMULATE This Zero-Debt Railway Stock After Ex-Dividend, Rs 815 Target

A leading railway PSU stock with Navratna status has turned ex-dividend on August 8 for a payout of 25% dividend. This railway company is going to deliver double rewards for investors. Firstly, it is Rs 2.50 first interim dividend for FY25, and second would be its 1:1 bonus issue. Brokerages are also optimistic in the stock and have recommended to ACCUMULATE ahead. Who is it? Neither IRFC nor RVNL are the two railway giants.

Instead, it is RITES! This midcap railway stock has zero-debt.

RITES Share Price:

On the ex-dividend date, RITES share price ended at Rs 689.65 apiece with a market cap of Rs 16,572.42 crore. The stock's 52-week high and low is at Rs 826.15 apiece and Rs 432.65 apiece respectively.

YTD, RITES stock is higher by 37%.

RITES Dividend:

The civil construction company turned ex-dividend on August 8 for the first interim dividend of Rs 2.50 per share (25% of paid-up share capital) of the company for FY25.

August 8 is also the record date to determine eligible shareholders for the dividend. The distribution of the first interim dividend to investors' demat accounts will be done in due course.

Earlier, in January 2024, the stock turned ex-dividend for a payout of 47.5% worth Rs 4.75 per share. In FY24, the company delivered dividends of 180% worth Rs 18 per share.

RITES:

With the record date for the dividends done, the focus will now be shifted to RITES' upcoming bonus issue.

The company has announced a bonus issue in the ratio of 1:1. Meaning, RITES will issue 1 (One) bonus equity share of Rs.10/- each fully paid-up for every 1 (One) existing equity share of Rs.10/- each fully paid- up, to the eligible members by capitalizing a sum not exceeding Rs. 240,30,18,870.00 out of the sum standing to the credit of 'Capital Redemption Reserve and Free Reserves.

As per the regulatory filing, the balance in Capital Redemption Reserve and Free Reserves to be utilized for implementing the bonus issue is Rs. 240.30 Crore.

RITES has yet to declare the record date, ex-bonus date, allotment details, and distribution date for the bonus issue. However, it has mentioned that it plans to complete this corporate action within two months from the date of approval of the Board, as statutorily required.

ACCUMULATE RITES SHARE!

Way2Wealth On RITES:

RITES's Q1FY25 witnessed a decline in profits due to a fall in revenues in QA, Consultancy-Abroad and Exports. It focuses on getting more order orders both on the domestic and exports side which have high margins. Its continuity to focus on achieving one order per day with more big-ticket projects augers well for FY25.

Given the continuous focus on Railway and Road capex in the Final Budget 2024 has thrown open massive opportunities providing revenue and profit visibility as it has a presence across 13 different industry streams. Hence, we view it as ACCUMULATE stock with a fair value of Rs 760-780.

Elara Securities On RITES:

We lower our EPS by ~34% for FY25E and ~27% for FY26E on delayed export execution from FY26E. We introduce FY27E. But we raise our TP by 9% to INR 815 from INR 750 on 30x ([from 22x]; two-year average one-year forward) June 2026E P/E, as we roll forward.

We reiterate Accumulate, given that the margin may hit bottom in FY25 and recovery in consultancy & exports to begin. We expect an earnings CAGR of 21% during FY24-27E with an ROE and ROCE of 22% & 22%, respectively, during FY25-27E as the WC cycle may remain low despite the rise in turnkey construction along with a strong dividend yield of ~2% for FY25E.

In the June 2024 quarter, RITES reported a consolidated net profit of Rs 90.44 crore, registering a decline of 24.4% YoY and 33.82% QoQ. The company's net profit was at Rs 119.58 crore in Q1FY24 and Rs 136.67 crore in Q4FY24. Further, in terms of the top-line front, RITES revenue stood at Rs 485.76 crore in Q1FY25, also decreasing from Rs 544.35 crore in Q1FY24 and Rs 643.25 crore in Q4FY24.

Earlier this week, RITES signed a Memorandum of Understanding (MoU) with Housing and Urban Development Corporation Ltd. (HUDCO). Under this partnership, RITES and HUDCO will collaborate to undertake comprehensive range of consultancy projects/services from concept to commissioning in the infrastructure space. Additionally, RITES will provide consultancy to projects being financed by HUDCO.

The collaboration between the Navratna CPSEs has focus on exhaustive domains from metro rail, roads, airports, ports, ropeways, highways, underpasses and flyovers, tunnels, to the emerging sectors such as energy, water resources and hydropower, wastewater and waste management, urban and industrial building design, commercial and institutional projects, and other urban development and infrastructure-related initiatives, as per the regulatory filing.

About RITES:

RITES Limited, a Navratna Enterprise, is a leading player in the transport consultancy and engineering sector in India, having diversified services and geographical reach. The company has an experience spanning 50 years and undertaken projects in over 55 countries in Asia, Africa, Latin America, South America, and Middle East region.