Axis Securities Places Buy On This PSU Miniratna Stock, Claims 19% Gains With Attractive Valuation

Leading brokerage firm Axis Securities recommend a BUY rating on the stock of RITS Limited with a Target Price of Rs. 405/share implying an upside of 19% from the Current Market Price. RITES- a Miniratna (Schedule A) CPSE under the Ministry of Railways, is an engineering consultancy company. It is a leading multi-disciplinary engineering and consultancy organization specialized in the field of transport infrastructure providing diversified and comprehensive services from concept to commissioning. The company is a preferred consultancy organization for Government of India (GoI) including Indian Railways.

Stock Outlook & Returns

The RITES' stock last traded at Rs 340.70/share on NSE, down 1.57% from its previous close. Its 52-week low is Rs 226.20, and its 52-week high is Rs 433, respectively. It has a market capitalisation of Rs 8,187.09 crore.
 
 The stock got listed on the stock exchange on 2 July 2018. Since its listing, it has given 99.66% positive returns. However, it fell 11.03% in the past 1 week and 11.62% in the past 1 month, respectively. In the last 3 months, it surged 13.95% with positive returns. In the last 1 year, it gave 30.44% positive return and in the last 3 years, it gave 20.62% positive return.

Investment Rationale

Strong revenue visibility owing to robust and diversified order book: RITES has a strong order book of Rs 5950 Cr and is well diversified with high-margin Consultancy contributing ~41%, Turnkey projects ~49%, Exports ~5%, and the rest from Leasing. Furthermore, ~80% of the order book is sourced from the GoI and its PSU while the rest are from private parties. The order book gives revenue visibility for the next 2 years.

Increased push on Infra development: The government initiatives such as like Gati Shakti Master Plan, National Infrastructure Pipeline, Bharatmala, Expressways, National Rail Plan, High-speed trains, Sagarmala etc. to develop world class infrastructure in India are expected to benefit incumbent like RITES. With higher Capex for Railways in Budget 2022, the company is eyeing new consultancy tenders from Metro and High-speed Rail Projects along with Railways. Being a leading player in the transport consultancy, RITES is expected to be a significant beneficiary of the Indian Railways' infrastructure push. Opportunities within railways such as track doubling, electrification, 3 rd line, and up-gradation of signaling systems along with railway station development offer significant headroom for future growth.

Robust financials and high dividend payout: We derive adequate operational comfort from the company's strong financials (with net cash and cash equivalents of Rs 725 Cr as of 30th Sep'22), high ROE and ROCE, and a high dividend payout (70% in FY22). We expect the company's financial matrix to remain healthy from a medium to long-term perspective.

Valuations

Axis Securities has said, "We continue to like the company's execution capability and its order book position, clean balance sheet and high dividend payout and expect Revenues/EBITDA/APAT to grow at a CAGR of 18%/18%/14% respectively over FY21-24E. We value the company at 15x FY24 EPS of Rs.27."

Disclaimer

The stock has been picked from the brokerage report of Axis Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.