12 May IRCON- The Next RVNL?

IRCON – will it make a New Lifetime High?

Shares of railway public sector undertakings (PSUs) have become top performers in the stock market.

The government’s substantial investment in nationwide rail infrastructure development has attracted investors looking for promising opportunities

Experts in the market firmly believe in the sector’s potential, particularly with the upcoming introduction of high-speed trains and the ambitious goal of achieving 100% electrification of the rail network by 2023.

Additionally, In the latest budget, the finance minister announced an astonishing ₹2.4 lakh crore capital expenditure for the Indian Railways, marking a significant boost to the sector. This substantial increase, 71% higher than last year’s budget and almost 9 times higher than previous provisions, demonstrates the government’s strong dedication to transforming India’s railway infrastructure.

These developments present new avenues for growth and profitability, making Indian railway stocks an appealing choice for investors seeking to capitalize on this thriving sector.

One of the biggest beneficiaries of the recent announcements is -Ircon International Ltd.

The Technical as well as Fundamental analysts , both are bullish on the stock.(To learn more about Stock Analysis one can enroll for our Stock Market Learning Courses, here)

Here is Why….

Also Read: Why This Fundamentally Strong EV Stock is on a Bullish Run in a Bear Market?

The Analysts’ Views:

According to AK Prabhakar, Head of Capital at IDBI Capital,

IRCON stock looks attractive with a cash reserve of around Rs 4,000 crore from a market cap size of more than Rs 7,000 crore. He predicts that the stock may further scale up to hit the Rs 100 mark in the near future, although he advises investors to book profits at those levels and explore other options.

Vaishali Parekh, Vice-President – Technical Research at Prabhudas Lilladher, notes that

April has been a great month for railway stocks, with many counters seeing significant rallies toward their 52-week highs. IRCON has also rallied almost 60% from March’s close with significant volume, breaking above its previous high of Rs 66. However, after a strong rally, the stock has entered the overbought zone, and any consolidation or short-term correction near the Rs 66 level may present a good buying opportunity.

Osho Krishan, Senior Analyst – Technical & Derivative Research at Angel One, said

“IRCON has seen a vertical rally in the past three weeks on the back of robust volumes. On the technical chart, the stock has witnessed a strong breakout around Rs 64-65 levels and soared to clock a new lifetime high. Post such a strong rally, there is some probability of profit booking in the counter. However, from a broader term perspective, the stock looks strong and has the potential to continue its uptrend. As far as levels are concerned, the support lies around the mentioned breakout zone, and till it sustains above the same, the undertone is likely to remain bullish and dips should be utilized to add long positions.”

More To Read:Tata Motors share hit 52-week high; can it breach Rs 700 mark?

Company Overview

Establishment and Ownership:

Ircon International Limited (Ircon) is an Indian public sector undertaking (PSU) in the infrastructure sector.

The company was established in 1976 and operates under the administrative control of the Ministry of Railways.

Infrastructure Expertise:

Ircon specializes in infrastructure development, with a focus on transportation projects.

The company is involved in the construction of
railways,
highways,
bridges,
tunnels, and
airport runways.

For example, the company has successfully executed major railway projects such as the Eastern Dedicated Freight Corridor and the Sivok-Rangpo Rail Line.

The construction of the Chenab Bridge in Jammu and Kashmir, is known as the world’s highest railway bridge.

Domestic and International Presence:

Ircon’s global footprint includes projects in
Malaysia,
Bangladesh,
Iraq,
Ethiopia,
Algeria,
Sri Lanka, and
Nepal, among others.

For instance, Ircon played a significant role in the construction of the Dhaka-Mymensingh Railway Line project in Bangladesh.

Revenue Streams:

Ircon generates revenue through various sources, primarily from project execution and consultancy services.

The company earns income through the construction and maintenance of infrastructure projects, including both lump-sum contracts and annuity-based projects.

Diversification of Project Portfolio:

Ircon diversifies its project portfolio to mitigate risks and capitalize on emerging opportunities.

The company balances its involvement in railway projects with highway projects, ensuring a mix of different infrastructure sectors.
Emphasis on Niche Projects:

Ircon strategically focuses on niche projects within the infrastructure sector, such as tunneling, complex bridges, and high-speed trains.
This approach allows Ircon to leverage its specialized expertise and differentiate itself in the market.
Sustainability and Innovation:

Ircon incorporates sustainable practices and innovative solutions into its projects.
The company adopts advanced technologies, green initiatives, and energy-efficient designs to minimize environmental impact.

Order Book and Revenue Growth:

-Order book as of 31st December 2022 stands at Rs. 38,023 crores with 50-50 percentage between nomination and competitive bidding orders.

-IRCON expects a 15-20% increase in turnover for FY24, refocusing on fresh order book from March/April onwards.

-Top line growth is expected to be 10% to 15% for next year, with JV profits expected in 3 to 4 years.
Segment-wise Performance:

-Ircon is focusing on execution rather than securing new orders but continuing to bid for normal railway projects while focusing on niche projects such as tunneling, complex bridges, and high-speed trains.

-The company is not bidding for low-ticket projects and will focus on niche projects from next financial year onwards.

-The company’s highway projects are mostly under construction, and IRRs have been good so far, but returns will be spread over the O&M period.

Subsidiaries and JV Companies:

-Ircon has 11 subsidiaries, including 9 road and highway SPVs and 5 coal connectivity companies.

-Subsidiaries and JV companies have a positive business model and return ratios, and there are no plans for divestment of stake in these companies.

-Turnover of about 300 crores addition from JVs and subsidiaries,

-with Q3 revenues from J&K project about 620 crores,

-Sivok-Rangpo project about 540 crores, and

-DFCC project about 200 crores.

Capex and Investments:

-CAPEX investments of about 260 crores in nine months period,

-with expected investments of 50 crores for FY23 and

-500 to 600 crores for FY24 mainly in highway projects and partially in renewable and coal JVs.

-The company has committed equity of about 2,500 crores for its highway projects,

-out of which it has put in about 1,100 to 1,200 crores.

-The highway projects are both toll and annuity-based, and the returns are attractive with target IRRs of 13% to 14%.

-Ircon International Limited is exploring the possibility of monetizing these projects after a certain point to use the capital for other projects.

Dividend, Guidance, and Other Updates:

-EPS has gone up to Rs. 2.02 per equity share, and the Board of Directors approved an interim dividend of Rs. 1.80 per share on the face value of Rs. 2 per share.
-Pipeline bids for government and international projects are in progress but numbers cannot be disclosed yet.

Fundamentals and Financials:

-Standalone and consolidated EBITDA margins have reduced due to one-time adjustments but should improve in the next quarter.

-Q3 FY23 revenue was Rs. 2,347 crores, 33% higher than Q3 FY22, with a PAT of Rs. 190 crores, 40% higher than last year.

-Company estimates revenue of 9,000-9,500 crores for Q4, but it depends on execution efforts.

• Market Cap₹ 7,966 Cr.
• Current Price ₹ 83
• High / Low₹ 89.5 / 34.8
• Stock P/E 10.6
• Industry PE 32
• PEG Ratio 0.89
• Book Value ₹ 52.5
• Price to book value 1.63
• Dividend Yield 2.91 %
• Return over 1year 103 %
• ROCE  14 %
• ROE  13 %
• OPM 7 %
• Qtr Profit Var 40.2 %
• Qtr Sales Var 33.2 %
• Free Cash Flow ₹ 1,365 Cr.
• Promoter holding 73.2 %
• FII holding 3.99 %
• Chg in FII Hold 1.28 %
• DII holding 1.87 %
• Chg in DII Hold 0.05 %
• Public holding 20.7 %

Low Risk Associated with Ircon International Limited

Government Backing:

Ircon is a government-owned public sector undertaking (PSU) under the administrative control of the Ministry of Railways in India.
The company benefits from the government’s support, which provides stability and assurance to its operations.
The government’s involvement mitigates certain risks and provides a sense of security to investors and stakeholders.

Strong Track Record:

A strong track record enhances confidence in Ircon’s project management capabilities and reduces execution-related risks.

Established Presence in the Infrastructure Sector:

The company’s long-standing presence and industry knowledge contribute to its ability to navigate challenges effectively.
Ircon’s established position reduces uncertainties associated with newer or less experienced firms in the sector.

Government Investment in Railway Infrastructure:

The government’s increased spending on railway projects presents a growth opportunity for Ircon and reduces the associated risk.
For example, the government’s substantial capital expenditure plan for the Indian Railways, as announced in the budget, signifies its commitment to improving the railway infrastructure and boosts the sector’s outlook.

Sector Stability and Demand:

The infrastructure sector, particularly railways, and highways, is essential for economic development and connectivity.
Ircon’s focus on transportation infrastructure ensures a steady demand for its services.

The sector’s stability and long-term growth prospects reduce the risk associated with Ircon’s operations.

Positive Industry Outlook:

The infrastructure sector in India, supported by government initiatives and investments, exhibits a positive outlook.

But the biggest risks in investing in any PSU are

-Government disinvestment

-Potential change in Government Policy

One must be prepared for it before investing.

——————-
This electric vehicle EV stock is on the rise to reach an all-time high (ATH) in the current falling market. Here is the reason why…Read More

“Why This Fundamentally Strong EV Stock is on a Bullish Run in a Bear Market?”

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies are their own and not that of the website or its management. Aceink.com advises users to check with certified experts before taking any investment decisions.