Shares of Titagarh Rail Systems have experienced a significant pullback over the past four months, declining 38% from their record high of ₹1,896.50 on June 27, 2024, to around ₹1,178 on the Bombay Stock Exchange (BSE) today. Despite the sharp correction, the multibagger stock attracted strong buying interest during today’s trading session, rising 8.42% to an intra-day high of ₹1,185.70, suggesting that investors see value at current levels.
A Closer Look at Titagarh Rail’s Performance
Titagarh Rail has been a standout performer over the last few years. The stock has delivered multibagger returns of 1,072% in the last three years and an impressive 645% in just two years. However, this recent decline raises the question: Can the stock recover to its previous highs, or even breach the ₹1,500 mark?
Market Sentiment and Technical Indicators
At the current market price, the firm’s market capitalization stands at ₹15,844 crore, with a total of 2.37 lakh shares exchanged hands today, generating a turnover of ₹27.33 crore. Despite the correction, the technical indicators provide mixed signals.
- The Relative Strength Index (RSI) of 36.2 suggests that the stock is neither overbought nor oversold, indicating neutral momentum.
- In terms of moving averages, Titagarh Rail is trading above its 5-day, 10-day, and 20-day averages but below its 30-day, 50-day, 100-day, 150-day, and 200-day moving averages. This suggests that the stock may face some resistance in the near term, but recent buying interest could signal a potential trend reversal.
SBI Securities’ Bullish Outlook
Despite the recent dip, SBI Securities has maintained a bullish outlook on the stock, choosing Titagarh Rail as its Diwali pick and assigning a price target of ₹1,510. The brokerage firm has highlighted several key factors supporting its positive stance:
- Growing Demand for Rail Infrastructure: The demand for rail-related infrastructure is expected to grow significantly, backed by the government’s focus on modernizing the railways and increasing the capacity for freight and passenger transport.
- Attractive Rail Value Chain Opportunities: Titagarh Rail is well-positioned to capitalize on opportunities in the rail value chain, including the manufacturing of freight wagons, metro coaches, and other rolling stock.
- Increased Infrastructure Spending: The government’s continued focus on infrastructure development, especially in the rail sector, provides a favorable backdrop for companies like Titagarh Rail to grow.
- Policy Support: The company benefits from policy initiatives aimed at promoting Make-in-India and boosting the local manufacturing ecosystem.
According to SBI Securities, the stock is currently trading at FY25E/FY26E P/E multiples of 43.7x/31.6x, based on its consensus earnings estimates. The firm believes that Titagarh Rail has significant growth potential in the coming years, making it a strong investment candidate for long-term investors.
Earnings and Financial Performance
Despite the stock’s long-term potential, Titagarh Rail’s recent earnings report in June 2024 was less than stellar. The company reported a subdued Q1 performance, with net profit rising just 8.4% year-on-year to ₹67 crore, compared to ₹61.79 crore in the same period last year. Revenue also slipped by nearly 1% to ₹903 crore, down from ₹910.80 crore in the corresponding quarter of the previous fiscal year.
Moreover, EBITDA (earnings before interest, taxes, depreciation, and amortization) fell 4.1% to ₹101.7 crore, from ₹106.1 crore in the prior year. This decline in revenue and EBITDA performance resulted in a 50 basis point contraction in the company’s EBITDA margin, which shrank to 11.2%.
While these numbers may raise concerns, analysts remain optimistic that the company can rebound in the upcoming quarters, especially as Titagarh Rail’s Q2 earnings are scheduled for release on October 26, 2024. Investors are keenly watching the upcoming results, which could provide greater clarity on whether the company is on track to meet its growth projections.
Risks to Growth
Despite the strong potential, there are notable risks that could impact Titagarh Rail’s growth trajectory:
- Slowdown in Railway Capex: Any reduction in the Indian government’s capital expenditure (capex) on the railways could negatively affect Titagarh’s revenue growth. The company’s heavy dependence on Indian Railways for orders leaves it vulnerable to shifts in public spending priorities.
- High Competitive Intensity: The railway manufacturing sector in India is highly competitive, with several players vying for government contracts. Increased competition could lead to pricing pressure and impact margins.
- Royalty Payments and Dividend Payouts: As seen with other firms in the sector, concerns about the company’s royalty payments and dividend payout policies may continue to weigh on investor sentiment.
Growth Drivers: Can the Stock Breach ₹1,500?
Despite the risks, several growth drivers support the possibility of Titagarh Rail reaching or surpassing the ₹1,500 mark in the near term:
- Strong Market Position: Titagarh Rail is one of the largest manufacturers of rolling stock in India, including freight wagons, passenger coaches, metro trains, and train electricals. The company’s diversified product portfolio provides a buffer against market volatility and ensures consistent demand across different segments.
- Government Contracts and Policy Support: Titagarh Rail’s participation in government projects such as Make-in-India and the modernization of Indian Railways provides a solid pipeline of contracts that could support future revenue growth. The government’s focus on improving rail infrastructure, combined with favorable policies, bodes well for companies operating in this space.
- Utility of Metro and Passenger Coaches: The company’s foray into metro train manufacturing is another key growth area. As Indian cities continue to expand their public transport systems, demand for metro coaches and related infrastructure is expected to rise, creating new opportunities for growth.
- International Expansion: In addition to its domestic operations, Titagarh Rail has been expanding its presence in international markets, particularly in Europe, through its subsidiary Titagarh Firema. This provides the company with access to new revenue streams and reduces its dependence on the Indian market.
A Promising Long-Term Bet with Short-Term Volatility
Titagarh Rail Systems has experienced a sharp correction in recent months, but the stock’s long-term growth potential remains intact. The company’s leadership position in the Indian rail sector, combined with strong demand for infrastructure development, provides a compelling investment case.
While short-term volatility may persist due to concerns over valuation and the broader market environment, the stock’s rebound today suggests that investors are beginning to see value at current levels. With SBI Securities assigning a price target of ₹1,510, the possibility of the stock breaching the ₹1,500 mark in the coming months appears realistic, especially if the company can deliver strong earnings in the upcoming quarters.
However, as with any investment, potential investors should carefully consider the risks and consult with financial advisors before making a decision. Long-term investors with a high-risk tolerance may find Titagarh Rail to be an attractive investment, given its strong fundamentals and growth prospects.