Buy Texmaco Rail & Engineering Ltd For Target Rs.50 - Sushil Finance
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Favorable Outlook for the Indian Railways Sector
The Indian Railways has made the highest ever total planned capex of Rs.2,15,058 cr this year out of which Rs. 1,07,100 cr for capital expenditure has been allocated in the General Budget. Opportunities in the Dedicated Freight Corridors under Public-Private Partnership (PPP) mode, urban mobility, multi-tracking congested routes and the target of Indian Railways to complete 100% electrification by 2023 would benefit Texmaco.
Proven Track Record and Diversified Operations
Texmaco has a longstanding history of manufacturing wagons in India, making it one of the largest players in the industry. The company has diversified its operations into manufacturing hydro-mechanical equipment, heavy steel structures, process equipment and steel foundry products. With its acquisition of Kalindee Rail Nirman Ltd and Bright Power Projects Ltd, the company strengthened its Rail EPC offerings. The steel structures and bridges divisions execute large infrastructure projects for railways and roadways. Texmaco’s steel foundry is the largest in the country, possessing manufacturing capabilities ranging from 50 to 5,000 kg castings.
Access to state-of-the-art technology; modern business practices through JVs and healthy demand outlook
Through its Joint Ventures with Wabtec and Touax Rail, Texmaco has access to the best in class technology of rail products as well as the rapidly growing wagon leasing segment. The demand for the company’s services and products is healthy with the developments taking place in the Indian Railways sector.
OUTLOOK & VALUATION
We have forecasted a revenue growth of 5% CAGR over FY20-24E where we expect revenue for FY24E at Rs. 2,227 cr, EBITDA at Rs. 245 cr at an EBITDA margin of 11% and Net Income of Rs. 97 cr. We estimate FY24E EPS at Rs. 3.87 and assign a PE multiple of 13x to arrive at a target price of Rs. 50, which is an upside of ~52% from today’s price of Rs. 33. We initiate coverage on Texmaco Rail & Engineering Ltd. with a BUY rating, over an investment horizon of 24-30 months.
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