Not IRFC OR RVNL, But This Railway Stock Below Rs 1,000 Recommended To BUY; 31% Upside In Near Term

All railway stocks have declared their Q3 earnings for FY24, and they have broadly been a bittersweet symphony. However, amidst this, there is one railway stock trading below Rs 1,000 that has been recommended to buy for a potential 31% upside ahead. And it's not the popular giants IRFC or RVNL, but Titagarh Rail Systems, another multibagger, another rising star of the railway sector.

Titagarh Rail is currently up by 373% from its 52-week low of Rs 203 apiece. On February 14, the stock ended at Rs 959.45 apiece, up by 2.40%. Titagarh is a small cap holding a market cap of Rs 12,921.27 crore.

The company was among the first ones to declare their Q3 results in early February. In Q3FY24, the company's Standalone Net Revenues for Q3FY24 stood at Rs. 954.68 crores with a growth of 24.57%, while EBITDA margin stood at 11.59% with Rs. 110.67 crores, an increase of 52.30% Y-o-Y. Net Profit stood at Rs. 75.03 crores, an increase of 91% over Q3FY23.

Moreover, Titagarh's order book is valued at Rs. 27,466 crores and exhibits good diversification among both the business segments - Freight Rolling Stock and Passenger Rolling Stock.

On February 5th, in its financial report, Umesh Chowdhary, Vice Chairman and Managing Director, of Titagarh Rail Systems Ltd. said, "The Company's robust performance in Q3 FY24 is a reflection of our sustained operational momentum. On a year-over-year basis, the Freight Rolling Stocks/Passenger Rolling Stocks recorded substantial growth. The Government's unwavering emphasis on the building of world-class rail infrastructure in India makes us enthusiastic about higher and sustained growth in the upcoming quarters."

In its latest research note, Antique Stock Broking said, "Titagarh Rail Systems (TRSL) continues to deliver a robust performance during the quarter reporting a 25%/ 52%/ 91% YoY growth in revenue/ EBITDA/ PAT respectively. Strong execution in the freight rail segment coupled with operating leverage resulted in a 210 bps expansion in EBITDA margin to 11.6%, in line with our estimates. The order book (ex. forged wheels) stands robust at INR 212 bn supported by private wagon, Vande Bharat, Ahmedabad Metro & Surat Metro orders the company received, providing strong visibility
of 5.6x TTM revenue."

Further, Antique's note added, that while TRSL is India's undisputed leader in the wagon manufacturing space, now it is also among India's very few integrated manufacturers of passenger rail systems. We believe that the company has created a manufacturing set-up that is difficult to replicate, and can grow its turnover to over INR 90-100 bn over the next five years.

Antique believes that given the growing share of railways in transport logistics, demand from the private sector and exports, the wagon demand in the country will grow at an average of 30,000 units per year. Therefore, the brokerage expects the freight segment to deliver a revenue CAGR of 33% over FY23-26E.

Also, the brokerage expect capacity utilization to improve going forward due to the multiple metro projects the company has in its pipeline and hence expect the passenger segment to deliver a revenue CAGR of 55% over FY23-26E.

Accordingly, on the valuation, Antique's note added, "We believe that TRSL has the strategy and the plan ready for sustained growth in the long term. We expect the company to report 62% earnings CAGR over FY23-26E, and generate strong RoE and RoCE of 22% and 30% in FY26. TRSL has an investment plan of INR 6-7 bn over the next three years. We believe it recently concluded fund raising coupled with the expected strong cash flow generation in the next few years will support the company in meeting its growth objectives. We retain a BUY rating on the stock with a TP of INR 1,252 (25x its FY26E EPS)."

Titagarh Rail Systems Limited (TRSL) offers mobility solution to billions with its prominent presence in both the Passenger and Freight Rail Systems including railway wagons, components, passenger coaches (EMU/MEMU) and Metro Coaches. TRSL is the largest private sector manufacturer of railway wagons and an established player in passenger coaches.

The Company has been awarded the largest-ever order for wagons by Indian Railways in addition to the orders for the manufacture and supply of Metro Trains for Pune Metro and Surat Metro projects. TRSL is also the co-recipient of prestigious orders for Vande Bharat trains & Forged Wheels. The full aluminium body Metro Coaches for Pune are being manufactured at its state-of-the-art facilities in Uttarpara, West Bengal, with the design developed in partnership with its Italian venture.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.