Titagarh Rail Systems Gets 'Buy' Rating As HSBC Initiates Coverage

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.

• 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.