Titagarh Rail Systems Ltd. gets a 'buy' rating from HSBC Global Research, given the Indian government's plan to get up to 45% of freight onto the rails by 2030 from the current 27%.
This will increase the demand for freight waggons, creating a significant growth opportunity for the company, HSBC said in a July 18 note.
Titagarh's simplifying of its business and the steady signing of partnerships have prepared it to take advantage of this opportunity and generate a good return on equity, the brokerage said.
The company reported a total income of Rs 2,822 crore during fiscal 2023, compared to Rs 1,485 crore during the previous fiscal. It also posted a net profit of Rs 130 crore in FY23, against a loss of Rs 0.32 crore in the previous fiscal.
Currently, the waggon manufacturer has a joint venture with Bharat Heavy Electricals Ltd. for the supply of 80 Vande Bharat trains. It also has a joint venture with Chinese firm CRRC Nanjing Puzhen Co. for the supply of 34 train sets to the Bangalore Metro Rail Corp.
HSBC Global Research on Titagarh Rail Systems
Initiates a 'buy' rating with a price target of Rs 730 apiece.
Expects earnings per share to more than double over the next three years to Rs 29.27, against Rs 12.51 currently, with a high-teens ROE.
Freight Rail Systems contributes to 81% of the company's business, with a strong 6.6x order backlog.
Confident of the company generating profits in the future, as it fulfils its orders on time and has had healthy margins in recent quarters.
Expects a 1.8-time jump in wagon shipments from fiscals 2024 to 2026, with Ebitda margins expanding by 100 basis points.
Higher volume of shipments will be driven by operating leverage and higher contributions from profitable private customers.
Though passenger wagons sales contribute only 19% to the company's business, more rolling stock orders will come, given the recent Vande Bharat contract and other metro projects under construction.
Expects a seven-fold increase in passenger coach shipments from fiscal 2024 to 2026, contributed entirely by the existing order backlog. Ebitda margins will rise from 4.2% in the last financial year to 7.5% by fiscal 2026 as operations ramp up.
Forecasts a 2.5-time jump in profit from fiscal 2023 to 2026, with an average return on equity of 18% and a more diversified business.
Key risks include a significant dependence on government-owned Indian Railways and slower-than-expected execution of its order backlog.
Shares of Titagarh Rail Systems surged as much as 10.06% intraday, compared to a 0.41% gain in the benchmark Nifty 50 as of 3:15 p.m. The stock traded at Rs 594.6 apiece during market close.
All six analysts tracking the company maintain a 'buy' rating, according to Bloomberg data.
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