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Buy Rites Ltd For Target Rs.274- HDFC Securities

Our Take:

Rites is a Miniratna (Category-I), Schedule ‘A’ Central Public Sector Enterprise under the aegis of Ministry of Railways with experience spanning over 45 years in over 55 countries. Rites offers diversified portfolio of services like consultancy services, leasing services, turnkey construction projects, sale of power generation and exports. Rites has a long – standing history of business relationships and collaboration with several central and state government ministries, departments, corporations, authorities and public sector undertakings. We believe Rites will be able to reap benefits from the Government’s continuous thrust on infrastructure development evident by its all recent initiatives. Its robust order book gives revenue visibility for next 2-3 years backed by diversified mix of orders across segments.

Valuations & Recommendation:

Rites’ 9MFY21 results were impacted due to the pandemic and consequent disruptions. As the situation normalizes, execution will improve going forward. Rites has robust order book of Rs 6534cr as of Dec-2020 spread across categories giving immunity from any sort of concentration risk. The order book constitutes 71% of orders from Govt. and PSU and 29% from others. Rites has been debt free company for more than a decade with RoE of over 20% and a healthy dividend yield of ~6%. With planned 34% increase in budgetary capex for rail (lasting upto 2030), Metro and Infra projects the company sees foreseeable double digit growth in FY22 over FY20. We estimate Revenues/EBITDA/PAT to grow at a CAGR of 16/20/21% respectively over FY21E-23E on the back of healthy order book and improvement in execution of orders going forward. Investors can buy the stock on dips in Rs 244-247 band and add further in Rs 223-226 band for base case target of Rs 274 and bull case target of Rs 296 over the next 2 quarters.

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