Titagarh Rail Systems Q1 Review - Weak Result On Lower Execution; Maintain Hold: Systematix

Systematix Report

Titagarh Rail Systems Ltd. reported weak numbers due to disruption in wagon manufacturing owing to lower contract labour force due to the general election and peak summer season. Net revenue declined 0.8% YoY/-14.2% QoQ to Rs 9 billion led by 17.2% QoQ decline in freight rail systems business to Rs 8.4 billion.

Titagarh Rail manufactured 2073 wagons during Q1 FY25 (versus 2700 wagons QoQ and 1835 wagons YoY). However, passenger rail systems witnessed a surge in its revenue and rose 71.3% QoQ to Rs 609 million on higher sale of traction motors.

However, dispatch of metro coaches dipped to just three during Q1 FY25 versus 12 in Q4 FY24 and six in Q1 FY24. Traction motors sale increased to 78 in Q1 FY25 versus 18 QoQ. Gross margin declined 43 basis points QoQ to 22.8% as the contribution from low-margin PRS went up during Q1 FY25. FRS’s Ebit margin (Including OI) declined 48 bps QoQ (-93 bps YoY) to 12.1%, while PRS’s margin jumped 414 bps QoQ (223 bps YoY) to 6.1% in Q1 FY25.

Ebitda for the quarter was Rs 1.0 billion, declined 15.2% QoQ, translated to an Ebitda margin of 11.3% (-13 bps QoQ). Consequently, net profit also declined 15% QoQ to Rs 670 million (+8.5% YoY). The company expects PRS to achieve 12-15cars/month run-rate by end of FY25 and 72cars/month by end of FY27.

Overall, we largely keep our estimates unchanged and introduced FY27E financials. We forecast 30%/28%/33% compound annual growth rate in its revenue/Ebitda/profit after tax during FY24-FY27E.

We rollover our target price to FY27 and assign 35 times on FY27E (10% discount to Jupiter Wagons). which gives a new target price of Rs 1,758. We maintain 'Hold' rating on the stock.

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