Titagarh Rail's Price Target Raised By HSBC After Q1 Profit Surges
The brokerage maintained a 'buy' rating on the company and raised its target price to Rs 750 apiece from Rs 730 apiece
Titagarh Rail System Ltd.'s revenue and earnings per share estimates, as well as its price target were upwardly revised by HSBC Global Research, citing a significant jump in demand for wagon and passenger coaches over the next few years.
The brokerage maintained a 'buy' rating on the largest wagon maker and an emerging leader in passenger coaches and raised the target price to Rs 750 apiece from Rs 730 apiece. The company is capitalising on the government's thrust to increase freight transportation by rail and modernise passenger rail transportation, the brokerage said.
Titagarh Rail System Q1 FY24 highlights (YoY):
Revenue rose 72.3% to Rs 910.76 crore.
Ebitda jumped nearly fourfold to Rs 106.11 crore.
Ebitda margin at 11.7% versus 5.4%
Net profit surged to Rs 61.78 crore from Rs 1.2 crore in Q1 FY23.
Earnings and Margin Expansion
The company's first-quarter performance was driven by robust growth in both freight and passenger rail system revenue, according to HSBC Global.
The standout contributor to this growth was the freight rail systems business, which reported a 13% segment operating margin. However, the passenger rail system margin experienced a sequential decline of 2.1%, settling at 3.9%.
The company's order backlog includes two framework contracts that it won in consortium with another firm.
The first, a contract to manufacture 80 Vande Bharat sleeper trains in consortium with Bharat Heavy Electricals Ltd. Titagarh's share in this contract amounts to Rs 11,800 crore, the brokerage said.
The second, to manufacture and supply 15,40,000 forged wheels over a span of 20 years for Indian railways in consortium with Ramkrishna Forgings Ltd. Titagarh's share in this order is Rs 6,300 crore, the brokerage said.
Management Commentary
Titagarh affirmed that the planned capacity expansion for the freight and passenger segments is progressing as scheduled, according to the company's first-quarter earnings call. The company anticipates an increase in wagon shipments from 650–700 per month in Q1 to 1,000 per month by the end of the financial year.
Titagarh's success extends to winning wagon orders worth Rs 4.43 billion from the private sector, HSBC said.
Currently, the private sector contributes approximately 20% to the overall freight rolling stock order book, indicating a healthy collaboration, it said.
HSBC Global Research on Titagarh Rail
The brokerage has raised the price target to Rs 750.
It has also increased expectations for revenue by 2–4% and EPS by 3–9% for FY24–26e.
The research firm expects a significant jump in wagon and passenger coach shipments over FY23–26e, driving a 30% revenue compound annual growth rate over the same period.
Moreover, a 2.5x jump in profit is expected over FY23–26e, with an average return on equity of 18%.
The brokerage values the company using a one-year forward target PE multiple of 30x, which is applied to the FY26e EPS estimate and then discounted back to June 2023.
HSBC Global Research acknowledges some downside risks, including significant dependence on one government-owned entity (Indian Railways) and a potential slower-than-expected execution ramp-up of its order backlog.
Shares of Titagarh Rail Systems rose 5.43% to Rs 668.85 apiece, compared to a 0.02% fall in the benchmark Nifty 50 as of 12:11 p.m.
Total traded volume so far in the day stood at 1.5 times its 30-day average. The relative strength index was at 85.53, implying that the stock may be overbought.
All six analysts tracking the company maintain a 'buy' rating, according to Bloomberg data. The average 12-month consensus price target implies a downside of 10.8%.