RVNL, Ircon, IRCTC, RailTel & RITES: Brokerages see up to 51% crash in these 5 railway stocks; check latest targets

Railway stocks, particularly the PSU owned, have remained the blue-eyed boys of Dalal Street lately. The state-owned railways stocks including Rail Vikas Nigam (RVNL), Ircon International, RITES, RailTel Corporation of India, and Indian Railway Catering & Tourism Corporation (IRCTC) have delivered multibagger returns to investors.

These PSU counters, before the recent correction from their respective 52-week highs zoomed up to 2,100 per cent in last 18-24 months period. However, the recent round of profit booking and mixed set of performance in the June 2024, coupled with elevated valuations has turned analysts cautious on them, who anticipate up to 50 per cent crash in these stocks.

Shares of RITES Ltd surged 230 per cent in the last two years, to hit 52-week high at Rs 826.15 in February 2024. However, the stock has corrected nearly 20 per cent from those levels to Rs 666 on Tuesday. Its profit dropped 26.84 per cent, while revenue tumbled 24.48 per cent on a year-on-year (YoY) basis the first quarter of the ongoing financial year.

The management refrained from giving any revenue guidance but guided for growth in Ebitda & PAT moving ahead. It also guided for more export orders moving ahead. Owing to higher competitive intensity, pressure on margin will persist, said Axis Securities with a ‘hold’ rating and a target price of Rs 660 on the RITES.

Elara Capital lowered its EPS estimates 34 per cent for FY25E and 27 per cent for FY26E on delay exports execution from FY26E. However, it raised its target price to Rs 815 from Rs 750 earlier, with an accumulate rating, given that margin may hit bottom in FY25 and recovery in consultancy & exports to begin.

Indian Railway Catering and Tourism Corporation Ltd doubled investors wealth in the last two years period to hit 52-week high at Rs 1,148.30 on May 22, 2024. The stock has corrected 20 per cent since then. The state-run railway ticketing player’s net profit grew 33 per cent YoY to Rs 308 crore, while revenue from operations was up 12 per cent YoY to Rs 1,120 crore in Q1FY24.

IRCTC’s top-line was broadly in-line with estimates, operational performance was weak with Ebitda margin of 33.5 per cent, said Prabhudas Lilladher (PL). “We believe growth in internet ticketing division has plateaued with e-booking penetration at 83 per cent and expectation of a mid-single digit growth in volumes over FY24-FY26E,” it said.

Rising share of low yielding UPI transactions will limit the scope for margin expansion, added PL. ” EPS estimates remain broadly intact given the segment commands lower margin. Scope for earnings surprise is limited given growth in high margin internet ticketing division has plateaued,” it said with a ‘reduce’ rating and a target price of Rs 822.

Shares of RailTel Corporation of India Ltd soared more than 580 per cent in the last 24-month to scale Rs 618 level in July 2024. The stock has corrected nearly 25 per cent in the last one month. It reported a 25.2 per cent YoY increase in net profit to Rs 48.7 crore, while revenue from operations increased 19.4 per cent YoY to Rs 558.1 crore in quarter ended on June 30, 2024.

Railtel Corporation of India’s (Railtel) Q1FY25 net profit grew 27 per cent YoY to Rs 48.7 crore which is within the company’s guidance of growth of 25–30 per cent. Railtel expects telecom revenue to grow 9–10 per cent while projects’ revenue is anticipated at Rs 2,000 crore driving total revenue growth of 25-30 per cent in FY25E, said ICICI Securities.

Considering the project business’ EBIT margins are only 5–6 per cent, achieving guided stable margin for FY25 can be challenging arithmetically. Railtel hopes for an acceleration in its order book driven by the large capex planned by Indian Railway. We raise our EPS estimates by 3 per cent for FY25–26E on lower depreciation cost, it said with a ‘sell’ tag and revised target price of Rs 315.

Ircon International’s shares zoomed 775 per cent in the last two years to rise to Rs 350 mark on July 15. The stock has wiped out 25 per cent of its value from its peak to Rs 265 on Tuesday. The railway firm had reported a 19.5 per cent YoY fall in its net profit at 224, while its topline de-grew 17 per cent YoY to Rs 2,287.1 crore for June 2024 quarter.

Ircon Q1FY25 PAT came in-line with estimates but operating performance was weak as Q1FY24 revenue declined 17 per cent and adjusted Ebitda margin at 6.8 per cent was flat QoQ. IRCON guides revenue growth to be flat on YoY basis in FY25 and Ebitda margin to be maintained at the same level, said IDBI Capital.

“Its order win has been lukewarm and order book has seen weakness at Rs 26,000 crore. This we understand could impact revenue of FY25E/26E, partially could be seen in H2FY25. Opportunity remains huge for IRCON and thus awaits order win. We value IRCON on SOTP with target price of Rs 272,” it added with a ‘hold’ tag.

Shares of Rail Vikas Nigam Ltd zoomed nearly 2,100 per cent in the last two years to Rs 647 in mid-July 2024. The stock has dropped 13 per cent from those levels in a month. RVNL reported 35 per cent YoY decline in its consolidated net profit at Rs 224 crore, while its revenue from operations during the April-June 2024 period fell 27 per cent YoY to Rs 4,074 crore.

RVNL in 1QFY25 reported a weak set of numbers with revenue declining by 27 per cent YoY and PAT at falling 35 per cent YoY. Though it guided that one-off has impacted the results and execution should improve from 2QFY25 and close FY25E with flattish revenue versus FY24. Its order book at Rs 83,200 crore (4x TTM revenue) continues to provide visibility, said Antique Stock Broking.

“We have modelled in a revenue increase of 10 per cent and 15 per cent for FY26E and 27E and expect it to report an EPS of Rs 8.7 and Rs 9.8 respectively. This implies it trades at a valuation of 65 times and 58 times at its FY26E/27E EPS. We resume coverage with ‘sell’ rating and a SoTP-based target price of Rs 283 on the stock,” it said, suggesting a more than 50 per cent fall.