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Axis Securities Report
Rites Ltd.'s reported a mixed set of Q2 FY24 numbers with revenue of Rs 582 crore (down12% YoY),due to poor performance in the exports business and lower revenue in the quality assurance segment.
Its Ebitda stood at Rs 138 crore (down24% YoY), and adjusted profit after tax at Rs 110 crore (down 12%YoY).
The company registered Ebitda Margins of 23.7% in Q2 FY24 (our estimate: 27.8%) as against 27.5% in Q2 FY23.
The profit margins moderated due to a change in revenue mix, with exports being almost nil and higher turnkey revenue. The increase in other income is primarily attributed to the dividend (final - FY23 and first interim - FY24) of Rs 26.77 crore by Railway Energy Management Company Ltd.
Rites booked consultancy sales of Rs 321 crore (up 6.4% YoY), export sales of Rs 1 crore (down 99% YoY), leasing sales of Rs 31 crore (down 11.8% YoY), and turnkey sales of Rs 224 crore (down 6.3% YoY). The Ebitda margins of consultancy/leasing/turnkey stood at 44%/40%/1% respectively.
Outlook
Higher capex outlay in the budget 2023-24 for Railways and Highways has provided the company with large opportunities to grow its business verticals.
Rites has a robust order book position witha clean balance sheet,high return ratios, and a healthy dividend payout.
However, heightened competitive intensity in the majority of its business verticals isexpected to keep margins under pressure.
We expect the company to post revenues/Ebitda/adjusted profit after taxT growth of 9%/4%5/% compound annual growth rate respectively over FY23-25E.
Valuation and recommendation
The stock is currently trading at 22 times and 18 times FY24E/FY25E earning per share.
We value the company at 17 times FY25 EPS to arrive at a target price of Rs 420/share, implying a downside of 5% from the current market price.
Key risks to our estimates and target price
Slower order wins may impact revenue growth.
Higher competitive intensity may impact margins.
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