Rail-related stocks in focus; IRCTC, IRCON hit new lifetime highs

Shares of railway-related companies which are state-owned, such as Indian Railway Catering and Tourism Corporation (IRCTC), IRCON International, and Rites, have outperformed the markets since the last Union Budget on July 5, 2019.

From the private sector, Hind Rectifiers and Siemens, too, outpaced the benchmarks during the period. The S&P BSE Sensex was up 3.7 per cent since July 5 last year. However, Larsen & Toubro, Kernex Microsystems, NBCC, and Texmaco Rail were down in the range of 13 per cent to 41 per cent on the BSE.

Indian Railways (IR) significantly increased its annual capital expenditure from Rs 40,000-50,000 crore to Rs 1.3 trillion in the financial year 2018-19, while the budget for 2019-20 stands at Rs 1.59 trillion. It is also undertaking ambitious projects such as India’s first high-speed rail and dedicated freight corridors.

“Complementing Railways, Metro projects in multiple cities are under expansion, in construction or planning stage. All these put together provide multiple business opportunities to industry players,” FICCI said in a detailed report on ‘Opportunities for Capital Goods Industry with Indian Railways and Metros’.

Among individual stocks, IRCON International (up 8 per cent at Rs 492) and IRCTC (up 5 per cent at Rs 1,098) hit their respective all-time highs on Wednesday.

IRCTC zoomed 243 per cent against its issue price of Rs 320 per share. The company made its market debut on October 14, 2019.

IRCTC is the only entity authorized by the Indian Railways to provide catering services to railways, online railway tickets and packaged drinking water at railway stations and trains in India. It has a dominant position in online rail bookings/packaged drinking water with around 73 per cent/45 per cent market share, respectively.

According to CRISIL, online rail bookings are expected to grow at approximately 8 per cent compound annual growth rate (CAGR) to reach approximately 425-435 million in FY24, with e-booking penetration rising approximately 81 – 83 per cent during the same period.

Based on various parameters like high entry barrier business, strong earnings profile, diversified business segment, healthy return ratio, debt free status, and most importantly monopoly business, analysts have a positive view on the company.

IRCON International is trading above its IPO issue price of Rs 475 for the first time since listing on September 28, 2018.

“Although increasing capex outlay by railways/roads is a big opportunity for IRCON, concerns around returns on infrastructure projects and funding related issues appear to be key challenges for the company. With a strong execution track record, IRCON is well placed to benefit from the government’s rising infrastructure focus,” analysts at SBICAP Securities said in recent report.

Hind Rectifiers has seen its share price soar 107 per cent to Rs 261 from the level of Rs 126 on July 5, 2019. The stock of electronic components hit an all-time high of Rs 269 on January 15, 2010.

In the first half (April-September) of the financial year 2019-20, Hind Rectifiers’ earnings before interest, tax, depreciation and amortisation (EBITDA) more than doubled to Rs 23.19 crore from Rs 5.57 crore during the same period last fiscal. Its net sales grew 47.6 per cent to Rs 152 crore against Rs 103 crore in the corresponding period of previous year.

The company is engaged in designing and manufacturing industrial power electronics and power conversion equipment. The growth story of Hirect has been entwined closely with that of the Indian Railways, the latter being among the largest and longest client relationships of Hirect.