Railroad stocks with a one-year return of 400%!

Titagarh Railway System: The Indian government has been making great efforts since ‘Make in India’ was launched in September 2014. One of the most important achievements in this regard is Vande Bharat Express. This train was launched by Indian Railways as the first indigenous semi-fast train. The first Vande Bharat Express train rolled on the tracks on the New Delhi-Kanpur-Allahabad-Varanasi route on February 15, 2019.

It is also pertinent to mention that the most famous carriage and coach manufacturers played an important role in this growth. We are talking about Titagarh Rail System Limited. The project gained momentum as the Indian government increased its interest in Indian railways.

Additionally, the company’s stock price soared by a whopping 400 percent! Last year. Over three years, this stock has delivered a massive return of 1,824.58%. That’s almost a 20-fold increase in 3 years! So the important question to ask is, does the company have more upside ahead? Let’s explore.

Note: The figure above shows price movements over a three-year period.

Titagarh Railway System

Company Overview

Founded in the 1980s as a rolling stock foundry, the company is India’s leading rolling stock manufacturer. Initially, it contributed to the Indian railways by producing railway castings such as bogies and couplers. In 1997, the company achieved an important milestone by producing its first rail freight wagon.

In 2015, Titagarh entered passenger rail vehicle manufacturing by acquiring 100% stake in Italian company Titagarh Firema SpA. In late 2022, there was a significant deal between Titagarh and the Italian government, whereby the latter invested in equity shares in TFA, making TFA an associate company of Titagarh Rail Systems Limited.

The company specializes in providing state-of-the-art transportation solutions including passenger coaches, propulsion equipment, urban subways, semi-high-speed trains and a variety of carriages.

Segment Review

The company consists of two main segments: Freight Rail Systems and Passenger Rail Systems.

freight rail system

This segment includes the manufacturing of components for freight rail vehicles. Freight trains are designed to transport goods and freight. This category includes freight trains that transport a variety of goods, including raw materials, finished products, and other types of cargo.

The company manufactures wagons, bogies, loco shells, bogies, couplers and their components. During fiscal 2023, revenue from the freight rail systems segment grew 76% to ₹225.1 billion, accounting for nearly 81% of total revenue.

passenger rail system

This segment includes manufacturing components for passenger rail vehicles. Passenger rail vehicles are designed to transport passengers from one location to another. This category includes various types of passenger trains, including commuter trains, high-speed trains, and intercity trains.

The company designs and manufactures EMUs, train sets, monorails, subways, passenger cars, propulsion equipment, traction motors and their components. During fiscal 2023, revenue from the Passenger Rail Systems segment grew 171% to ₹526 million, accounting for nearly 19% of total revenue.

financial practice

Source: Annual Report

In FY 2023, Titagarh recorded a significant increase in revenue as its revenue reached Rs 278 billion, up 89.3% compared to Rs 1468 billion in FY 2023. Over the four years from FY2020 to FY2023, the company achieved a compound annual growth rate (CAGR) of 16%.

The company recorded a surplus only in 2023, and recorded deficits for five consecutive years from 2018 to 2022. However, it is important to note that losses have continued to decline over the period, with the company moving into surplus in fiscal 2023.

This improvement in financial performance was due to various operational actions taken by the Company, including the consolidation of various products to fit factory production capacity. The company has also increased capital expenditure by around Rs 100 crore for plant upgrades in the last two years.

In FY23, Titagarh maintained positive financial metrics, boasting a strong return on equity (ROE) of 13.51% and return on equity (ROCE) of 24.49%. The company’s debt to equity ratio for the same fiscal year was 0.26 compared to 0.15 in FY22, indicating a strong balance sheet. The slight increase in the debt ratio is due to an increase in borrowings.

Titagarh Railway System – Future Plans

Indian Railway Industry Scenario

India’s railway infrastructure covers a total of 126,366 km, including 7,335 stations. The 2023 federal budget has allocated a significant $29 billion to Indian Railways. It aims to transform the system by building new trains and tracks, improving passenger facilities and bringing overall infrastructure up to global standards.

Moreover, the implementation of the National Railway Plan (NRP) is poised to bring significant changes in the freight operations of Indian Railways. NRP is focused on increasing capacity and efficiency and expects freight traffic to increase four to six times over the next few years.

The government’s annual freight target is expected to jump from 14 million tonnes to 30 million tonnes by 2027, meaning it will need to increase its lorry fleet from around 336,900 currently to around 500,000 by the same year.

Additionally, Indian Railways plans to procure a historic high of 90,000 coaches by 2025, which is nearly five times the normal annual procurement. Given its historical significance, this landmark effort is expected to be a boon to Titagar, which primarily derives its revenue from freight rail vehicles.

Even the company’s passenger segment is set to benefit from the government’s ambition to transform the rail transport ecosystem with the launch of Vande Bharrat sleeper coaches and metro, suburban and freight services across the country.

Over the next few years, the government plans to manufacture 8,000 Vande Bharat coaches to bring about a major revolution in Indian railway rolling stock and semi-high-speed train sets.

an order sheet

As of 30 days^Day The company’s order book for September 2023 stands at Rs 28,212 crore, showing revenue visibility for the coming years. Of these, 49% correspond to passenger trains and 51% to freight trains.

(Source: Company Investor Presentation Q2FY24)

In the second quarter of 2024, the company entered into an agreement with Gujarat Metro Rail Corporation Limited (GMRCL) for design, manufacture, supply, testing, commissioning and training of 72 standard gauge coaches for Surat Metro Rail Phase-I project along with the order. I did. Worth about Rs. 866 cr.

It has also secured significant wagon orders (~Rs 1200 crore) from private customers in the last few months, increasing the wagon order book from private players to ~26% of the total FTRS order book.

Titagarh also plans to seize the opportunity to manufacture 200 Vande Bharat trains worth Rs 58,000 crore and sustain them for the next 35 years. Furthermore, passenger demand for IR is expected to increase by almost 2.5 times by 2051, requiring significant capacity expansion in terms of passenger handling and technology improvements.

Therefore, the ambitious plans coupled with the significant growth of Indian Railways suggest the potential for significant growth beyond its already impressive performance. The extent of this growth and its impact on the company’s valuation is still a topic of discussion and speculation. Share your thoughts in the comments below!

A work written by Nalin Surya S.

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