Titagarh Rail Systems - Rolling Stock Gathers Momentum: Systematix Initiates Coverage With A 'Buy' Rating

Systematix Research Report

We initiate coverage on Titagarh Rail Systems Ltd. with a 'Buy' rating and a target price of Rs 1,202, based on 28 times price to earnings ratio on FY26E.

Titagarh Rail Systems, India’s largest wagon manufacturer, is slated to immensely benefit from Indian railways’ plan to spend $750 billion on rail infrastructure. This entails adding-

1. nearly 50% to the existing freight wagons infrastructure,

2. a huge metro system, and

3. high-speed Vande Bharat trains.

Titagarh Rail Systems’ strong order book of Rs 282 billion provides robust revenue visibility for the next ~four years. The company has already bagged orders worth Rs 23 billion for metro cars and Rs 240 billion for 1,280 Vande Bharat coaches (with joint venture partner) outlying opportunities for another ~8,000 coaches to be awarded by the Indian railways in the coming few years.

On the freight side, the company’s plan to expand capacity to ~1,000 wagons/month from ~700 currently, bodes well for its growth.

Titagarh Rail Systems’ tie-up with Bharat Heavy Electricals Ltd. for Vande Bharat and RK Forging for wheel manufacturing (Titagarh Rail Systems has signed a contract with Indian railways to supply 80,000 wheels/annum for 20 years) would enhance its capabilities and open various sustainable growth opportunities.

Despite the marginal rise in working capital cycle, we expect Ebitda margin to hover at 11.3%-11.7% during FY24E-FY26E, with return on equity of 24-25%.

We forecast a robust 35%/43%/54% compound annual growth rate in the company’s revenue/Ebitda and PAT during FY23- FY26E, respectively.

Key risk: Change in the government’s policy or any sharp fall in Indian railways capex.

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