RVNL achieves 100% stock CAGR in 3 years

RVNL As you know, most railway stocks have emerged as multibaggers due to the government’s emphasis on the railway industry. India has the fourth largest rail network in the world, after the United States, Russia and China. Indian Railways operates 13,523 passenger trains and 9,146 freight trains on its network, operating at an average daily speed of 50.6 km/h.

The 2024 interim budget also had a positive impact due to announcements in the infrastructure sector, including rail corridor program and retrofitting of 40,000 regular railway bogies as per Vande Bharat standards.

So what does the future look like for Rail Vikas Nigam Limited, the most prominent railway PSU company, considering the importance placed on the railway industry by the Indian government? Let’s take a closer look at the article!

The future of RVNL

The future of the Indian railway industry seems to depend on greater developments and innovations. The Ministry of Railways has been allocated ₹2.55 million for the fiscal year 2024-25 by the government in the interim Union Budget.

Over the next three years, 100 PM-GatiShakti cargo terminals will be built for the multimodal logistics facility. The Ministry of Railways also plans to spend $31.58 billion (about Rs 2.6 billion) on capital projects in 2023-2024, up 6% from the previous year. A cargo terminal for the 100 PM-GatiShakti multimodal logistics facility is scheduled to be developed over the next three years.

There is another important development you should be aware of: the concept of Public-Private Partnership (PPP). Indian Railways is exploring this model to attract private investment for development of railway stations. Under this model, investors will receive funding of 40% of the project cost and can use the platform and space on the tracks commercially.

So, considering that Rail Vikas Nigam Limited has returned around 250% over the past year, could it present an investment opportunity for the future given the government’s drive to invest in rail? Well, let’s take a closer look at the business to understand.

Company Overview

Rail Vikas Nigam Limited (RVNL) was established in January 2003 as a pivotal company for the execution of railway projects. The company has expanded to date with 24 locations and 30 operational Project Implementation Units (PIUs), creating an extensive footprint.

Although the company primarily engages in railway-related business, its portfolio extends beyond the railways and is not limited to domestic borders, including infrastructure such as subways, railways, tunnels and monumental bridges.

In addition, we have led key projects such as seamless multi-mode connectivity, electrification, expansion of the rail network into previously unconnected regions, and transition from regional to global rail infrastructure.

The company has adopted an asset-light model and is also following a turnkey approach. We carry out projects at all stages from project development to implementation, effectively translating concept into commissioning.

business division

Doubling/new line/gauge conversion

During FY 2023, Rail Vikas Nigam Limited crossed the 1000 km commissioning mark for new routes, doubling and gauge conversions. A total of 863.02 km of projects were completed this year, including 67.06 km of New Line, 497.88 km of Doubling, 271.12 km of railway electrification, and 26.96 km of Metropolitan Transport Project (MTP). Additionally, 334.59 km of railway electrification has been completed as part of the doubling project.

railway electrification

Following the Ministry’s emphasis on commissioning railway electrification projects, the company began railway electrification work of 299.3 route km (681.6 track km) on major routes this year.

Signals and Communications

The company has core expertise in the field of Signaling and Telecommunication (S&T), providing signaling solutions for efficient and safe operation of Indian Railways trains.

In the most demanding projects involving Doubling, Third Line, New Line and Gauge Conversion, RVNL plays a key role in providing EI installations to Indian Railways.

hill railway project

In FY2023, the company made significant progress in its hail rail projects, including Bhanupali-Bilaspur-Beri section in Himachal Pradesh, Budni-Barkhera- 3rd Line project in Madhya Pradesh and Rishikesh-Karnaprayag section in Uttarakhand. Rail Vikas Nigam Limited has commissioned two tunnel boring machines for the first time in the Himalayan geology of Indain Railways.

workshop

RVNL has expertise in planning and delivering state-of-the-art railway workshops and enhancing the capabilities of production units. We have completed 13 workshop projects through 2021-22. During this financial year, we completed four workshop projects and one subway depot.

subway project

When it comes to the metro sector, the Kolkata metro project has faced ongoing challenges including permissions, land acquisition and obstruction from local authorities. The Pamban Vertical Lifting Bridge, the only Rameshwaram movable bridge in the country, is scheduled for completion in 2023-24.

special purpose vehicle

Rail Vikas Nigam Limited has led the formation of five joint venture special purpose vehicles (SPVs) in collaboration with various stakeholders including ports, mines and state governments to execute rail connectivity projects.

RVNL’s equity investment of Rs 1143.70 crore, along with additional equity contributions from project partners and financing through financial institutions, was instrumental in kick-starting the project worth Rs 11816 crore.

RVNL-Finance

In FY 2023, RVNL recorded a 4.63% surge in revenue, reaching ₹20,282 crore as compared to ₹19,382 crore in FY 2022. Over a four-year period from fiscal 2020 to fiscal 2023, the company recorded a solid compound annual growth rate (CAGR) of 12%.

At the same time, net profit saw a significant increase, rising 28% from ₹1,110 crore in FY2022 to ₹1,421 crore in FY2023. The cumulative growth over four years from fiscal 2020 to fiscal 2023 has resulted in net profit achieving an impressive CAGR of 23%.

RVNL’s financial performance reflects its strategic positioning and operational efficiency in each fiscal year, highlighting its continued upward trajectory.

The asset-light approach results in significantly better return on equity (ROE) and return on invested capital (ROCE). In this framework, the main actor (in this case MoR) supplies all the machinery, plant and shops required to execute the project. This approach effectively manages working capital and keeps inventory levels in check. This also allows the company to focus on areas in which it has expertise, ultimately generating optimal returns for its investors.

conclusion

The market order volume for the quarter ending Q3 2024 was ₹65,000 crores. Notably, in the first quarter of FY24, revenue grew by 8% and profit after tax increased significantly by 21%, helping RVNL cross the ₹10,000 crore milestone within the period for the first time in its history.

However, it is important for investors to note that although Rail Vikas Nigam Limited caters to a variety of customers, its primary source of revenue is Indian Railways. This over-reliance poses risks due to factors such as reduced budget allocations or reduced government incentives, especially during periods of declining rail business. To mitigate these risks, the company must strengthen its presence in the non-rail sector.

Considering these factors, the following questions arise: Can the company maintain its historic growth trajectory? Please share your thoughts in the comments section below.

Written by Nalin Surya

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