Keeping up their upward journey, shares of Titagarh Rail Systems (formerly known as Titagarh Wagons) recorded a new all-time high of ₹450 apiece in Monday's trade. The shares have delivered remarkable performance in CY23 so far, generating a return of 101.34%, soaring from ₹223 apiece to trade at the current level of ₹449.
This stellar performance was attributed to the company's robust financial numbers for FY23 and strong order inflows with ongoing transformation in the railway sector. In addition, the stock has risen 2095% to date from its March 2020 low of ₹20.45 apiece.
Going forward, domestic brokerage firm, Antique Stock Broking, projects that the stock will continue its bullish trend and potentially reach levels of ₹694. The brokerage has identified several key factors that support this optimistic outlook.
Passenger rail systems: the new growth driver
The company is executing orders to manufacture 204 coaches for the Bengaluru Metro (stainless steel body) and 102 coaches for the Pune Metro (aluminium body). Supported by its erstwhile subsidiary, Firema of Italy (for Pune Metro) and CRRC of China (which placed Bengaluru Metro orders on TRSL), the company is qualified to bid for most of the upcoming metro tenders, the brokerage noted.
Recently, the company, in a consortium with BHEL, won a prestigious order to supply 80 Vande Bharat trains to the Indian Railways, valued at ₹120 billion (including a 35-year maintenance contract).
The company is augmenting its coach manufacturing capacity by 3x from 240 coaches a year to 840 coaches a year over the next two years, it highlighted.
Freight rail systems: full throttle!
Further, the company is increasing its wagon manufacturing capacity from 8,400 wagons per year to 12,000 wagons per year in FY24. The company had got a large order to supply 24,177 wagons in May-22 (valued at ₹78 billion) to be supplied over three years, which will ensure strong growth in the segment over FY23–25, Antique stated.
Given the growing share of railways in transport logistics, demand from the private sector, and exports, the brokerage believes that wagon demand in the country will grow at an average of 30,000 units per year.
An order of approximately 90,000 wagons are already under active consideration. TRSL is the largest player and has the most competitive cost structure, which will help it maintain a market share of 30%–35%, it noted.
Backward integration: propulsion systems and wheels
“TRSL's traction motor has been developed with the help of Firema, and the company has the capability to manufacture various ratings of traction motors. Traction converter is under development, jointly with ABB. The propulsion systems, once approved by the Indian Railways, will be a critical input for the company's future plans in the passenger segment,” said the brokerage.
Recently the company, in a JV with RK Forgings, has also bagged the contract to supply Indian Railways with 1.54 million wheelsets over 20 years (80,000 wheels per annum from the 3rd year), and the JV is setting up a wheel plant with a capacity of 200,000 wheels per year.
Outlook and valuation
Antique expects the company to post an earnings CAGR of 53% over FY23–26E and generate an average RoE of more than 25%. TRSL's stock has meaningfully appreciated in the past year, led by a near doubling of profit in FY23. Yet, at 12x FY25E earnings, the stock is cheap and does not capture TRSL's long-term growth potential, it said.
Recognizing this opportunity, the brokerage has initiated coverage on the stock with a 'buy' rating, setting a target price of ₹694 apiece, based on 20x FY25E earnings. This target price represents a new all-time high for the stock and implies a potential upside of 54.56% from its current market price.
03 analysts polled by MintGenie on average have a 'strong buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.