And there’s very good reason for this.
In the Union Budget earlier this year, the railway sector was the biggest beneficiary. A record ₹2.4 trillion (tn) was allocated for the Indian railways. Part of the funds will be used for the railways’ ambitious plan to lay about 100,000 km of new track over the next 20-25 years.
Improving India’s railway infrastructure has always remained a priority but never before has the government shown such serious interest. The regulatory environment lacked clarity before. But this has now changed… and the stock market has noticed.
The sector got a huge boost this week after reports emerged that Indian government will introduce a production-linked incentive (PLI) scheme for train component makers. This serious effort is part of the country’s effort to attract foreign manufacturing firms and reduce dependence on imports.
The government has also approved the ₹576.13 billion (bn) green mobility scheme, seven multitracking rail projects worth ₹325 bn to add 2,339 km of track , and an upskilling and concessional credit scheme worth ₹130 bn.
Recently, the railways gave a procurement order for 1.54 million (m) forged wheels that are made in the country to reduce dependence on imports.
Institutional investors are very interested in railway stocks these days and retail investors have also joined the party now.
Railway stocks saw a run-up on Wednesday, 16 August, as soon as the markets opened. So, should you consider the best railway stocks in India?
Before we answer that question, let’s take a look at the railway stocks opportunity and how you could play it. It’s important to select the stocks within the sector very carefully as not all companies stand to benefit.
First here’s what Rahul Shah, co-head of research had to say about railway stocks…
If India must grow at 8-9% on a consistent basis, we need to invest in all kinds of infrastructure, including rail. And if rail infrastructure is given a massive push, sector companies will be among the prime beneficiaries.
As per estimates, the country is well on its way to construct more national highways and rail lines in the decade between 2015-2025 than it has cumulatively done between 1950 and 2015.
Huge capex announcements have already been made and more are in the offing. In fact, quarterly results for these stocks are already sending out feelers about the good times ahead.
So let’s check out 5 Indian railway stocks you should keep an eye on…
# Under the Radar Railway Stock
Jupiter Wagons does not get as much attention that Titagarh Rail Systems or Texmaco Rail. And that’s understandable. It’s a small company after all. But that doesn’t mean it can’t be a wealth creator.
It’s an Indian private manufacturer of railway wagons, passenger coaches, wagon components and castings headquartered in Kolkata, West Bengal. It manufactures coaches for the Indian Railways and many other private companies.
In India, Jupiter Wagons is the only sectoral player to be accredited by the prestigious American Association of Railways.
Along with wagons, the company also manufactures other products.
- High-end brake systems for high speed trains and metro coaches
- Freights cars for transportation of loose cement and food grains, among others
- Top-of-the-line fire-fighting vehicles
- Solid waste management vehicles to meet the growing urban needs
- Trains sets/mainline electric multiple unit (MEMU)/ electric multiple unit (EMU) for mass rapid transit system
In the financial year 2023, the company’s sales grew by 75.5% to ₹20,682.5 m on the back of a growing order book.
Softening input prices combined with volume growth in sales drove profit higher in FY23. Net profit came in 152% higher at ₹1,252.8 m.
Apart from the railway sector, the company is also expanding its reach in road transportation and marine transportation.
In the road segment, the company forayed in to manufacturing electric vehicles (EVs). In June last year, it entered into joint venture with GreenPower, a wholly owned subsidiary of GreenPower Motor.
GreenPower is a publicly listed firm based in the US and Canada specialising in electric commercial vehicles (ECVs) in the passenger transportation and freight transport markets.
# Railway Safety Stock
Kernex Microsystems, an IT company that stands to benefit from the government’s big push towards railway safety. It’s one of the major companies providing transport-related equipment and services.
The stock came into the limelight after government’s decision to accelerate the implementation of the Kavach system following the tragic accident in Odisha.
The company is in the business of designing, developing and deployment of train collision avoidance systems in Indian Railways. The company holds an exclusive license for the manufacturing, installation and maintenance of anti-collision systems in India.
Kernex Microsystems has been involved in various projects with Indian Railways and other railway authorities. They have contributed to the modernisation and improvement of railway safety and signalling infrastructure in India.
It offers products which include LxGuard, TrainSHIELD, SAFEL, and more. The company is currently working on the Ch Ipyana Buzurg (excl)-Kanpur (EXCL) section on the North Central Railway for installing a train collision avoidance system.
Going forward, the company aims to enhance railway operations, increase efficiency, and ensure passenger safety through their innovative technological solutions.
# A No Brainer
Indian Railway Finance Corporation (IRFC) is engaged in the business of borrowing funds from the financial markets to finance the acquisition/creation of assets which are then leased out to the Indian Railways or any entity under the Ministry of Railways.
The company generates revenue from lease income. Its sole objective is to raise money from the debt capital markets to part-finance the plan outlay of Indian Railways. The funds are used for acquisition of new rolling stock assets to be leased to the Indian Railways to build railway infrastructure.
With substantial investments from the Indian government directed towards the railway domain, the outlook for IRFC appears promising.
The railway sector in India sets to flourish at an impressive compound annual growth rate (CAGR) of 7.5% between 2022 and 2027. This growth trajectory is set to fuel IRFC’s financial prospects, riding on the increasing demand for funding in this expanding sector.
IRFC plans to diversify its financing portfolio in future. This evolution will encompass new dimensions of railway projects, notably dedicated freight corridors, high-speed rail initiatives, and the development of smart railways.
On 28 July 2023, IRFC formally entered into a Memorandum of Understanding (MoU) with RITES. The objective is to establish a framework for collaborative efforts to enhance IRFC’s involvement in extending financial support to Railway-associated projects.
# The Vande Bharat Stock
Rail Vikas Nigam Ltd (RVNL) is the construction arm of the Ministry of Railways for project implementation and transportation infrastructure development.
It was incorporated in 2003 to meet the country’s surging infrastructural requirements and to implement projects on a fast-track basis. It is a category-I Miniratna public sector undertaking (PSU) under the administrative control of the Indian Ministry of Railways.
RVNL undertakes and executes project development, financing, and implementation of rail related infrastructure. Hence, the shift in the government’s focus to improve Indian railways’ condition improves growth opportunities for the company.
The company has received a letter of agreement from the Ministry of Railways for the manufacturing and maintenance of Vande Bharat train sets, including the upgrade of the government manufacturing units and train-set depots.
The agreement involved a quantity of 200 train sets, with a cost per set of ₹1,200 m. No wonder even any piece of news about development of Vande Bharat trains is having a material impact on RVNL share price.
RVNL in consortium with Siemens India, emerged as the lowest bidder (L1) for Mumbai Metro line 2B of Mumbai Metropolitan Region Development Authority (MMRDA). The project is estimated to cost around ₹3.8 bn.
The same consortium has bagged two separate orders from Gujarat Metro Rail Corporation. The orders are for Surat Metro Phase 1 (over 40 km covering 38 stations and 2 depots) and Ahmedabad Metro Phase 2 (over 28 km covering 23 stations and 1 depot).
RVNL has now started participating in tenders of other countries as well. The experience of around two decades in India of being one of the lead execution agencies for railway projects would help the company to evaluate, bid and execute projects in other countries.
# Railway Capex Play
Pitti Engineering is one of the companies which can benefit big time from the increased capex for railways.
It manufactures value added and unique components through machining and lamination process for several end-user industries in India and international markets.
Pitti Engineering makes customised products for customers. As a result, it became the only supplier for those products which established its long term relationship with counterparties. Some of them include General Electric, Siemens, ABB India, Cummins India, among others.
In the railway segment, Pitti Engineering supplies components for most of the products that Indian Railways uses in terms of freight locomotives, electric freight locomotives, and passenger trains.
The company has registered strong growth in revenues and profits on the back of an improvement in total capacity.
In FY23, the company is undertaking a capex of ₹1 bn. It has other capex plans lined up too. It will spend ₹2.7 bn on production capacity at its Aurangabad facility. Once this is done, it will take up an additional capex of close to ₹2 bn between 2024-25.
Some construction got delayed in the second quarter of 2023. Its order book also declined marginally, but still stands at ₹8.8 bn.
It’s a solid play on the massive capex boom in the Indian Railways.
More on Indian Railway Stocks
As you’re interested in profiting from the Indian railway boom, here are some useful links.
Happy investing!
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com