01 Aug Railway Stocks-Running At the Speed of Bullet Train-Why?
25% in 10 days: Why RailTel Rallied So Much- Buy, Sell, Hold?
The Indian stock market is on a roll, with the benchmark index inching closer to an all-time high of 20,000. Within the thriving infrastructure sector, the railway sector is showing strong momentum.
Railtel Corp of India was a major gainer among railway stocks, gaining around 8 percent to hit a 52-week high of Rs 178.50 per share.
Indian Railway Finance Corporation Ltd. (IRFC) surged around 7 percent to hit a high of Rs 41.70 per share on the BSE.
Also Read: IRFC @ 52 Week High: Buy, Sell, Hold: What Analysts Say?
Railway stocks have been performing exceptionally well and seem poised for continued growth in the coming months and quarters.
Recent reports suggest that Indian Railways is considering introducing more non-AC general category trains between major cities to cater to low-income passengers and migrant workers. Traditionally reserved for festive seasons, these trains could now run throughout the year, starting from early 2024, offering improved amenities.
In a sector where all shares are performing well, RailTel stands out exceptionally with 25% gains within 10 days.
Also Read: Buy or Sell: Sumeet Bagadia’s 3 Stock Recommendations for This Week
So, Why Railtel rallied so much?
The answer is here,
Strong Management Commentary:
Chairman and Managing Director, Sanjay Kumar, has expressed optimism about the company’s revenue growth potential.
He believes that RailTel could earn five times its revenue in the next five years.
This positive outlook is supported by the company’s strong order book of 4500+ crores as of March 31, 2023, indicating a healthy pipeline of projects.
RailTel has formed partnerships with over 250 business associates for a range of projects spanning information technology, health education, smart cities, and data centers, as stated by Kumar.
The combined opportunity size for these projects is estimated to be Rs 1 lakh crore over the next six to seven years. Within this opportunity, Kavach and LTE-R represent a substantial worth of Rs 30,000 crore.
The Technicals
• The stock has given a pivot breakout after a stage-one cup-with-handle pattern formation on the daily chart along with above-average volume.
• The stock is trending above all key moving averages on the multi-time frame charts along with strong momentum.
• RailTel’s share has been experiencing substantial trading volumes, surpassing the one-month average volume over the course of the past week.
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Company Info:
RailTel Corporation of India Limited, established in 2000, is a public sector undertaking (PSU) and a leading telecommunications infrastructure provider in India.
The company’s headquarters are situated in New Delhi, and it operates under the administrative control of the Ministry of Railways, Government of India.
Overview of Business:
RailTel specializes in providing state-of-the-art telecommunications and information technology solutions to the Indian Railways and various other industries.
The company focuses on establishing a robust, high-speed, and reliable network infrastructure that enables seamless communication and connectivity across the nation.
Product Overview:
RailTel offers a diverse range of innovative products and services tailored to meet the specific needs of its clients. Some of its prominent products include:
RailWire: RailWire is a high-speed broadband service offered by RailTel, connecting railway stations, business establishments, and rural communities. It ensures high-speed internet access, promoting digital inclusion and empowering people with digital opportunities.
Telepresence Services: RailTel’s telepresence services provide cutting-edge video conferencing solutions, facilitating virtual meetings and collaboration between geographically dispersed teams. This saves time, resources, and enhances productivity.
National Long Distance (NLD) Services: RailTel’s NLD services deliver reliable, cost-effective, and secure long-distance connectivity to businesses and organizations across the country.
Data Center Services: The company offers state-of-the-art data center facilities, ensuring secure and efficient hosting of critical applications and data for its customers.
Managed Network Services: RailTel provides comprehensive managed network services, overseeing the entire network infrastructure of clients to ensure seamless operations and optimal performance.
ICT Services: RailTel’s Information and Communication Technology (ICT) services encompass a wide array of solutions, including cloud services, cybersecurity, and network monitoring.
RailTel’s unwavering commitment to excellence, cutting-edge technology, and customer-centric approach has earned the company a prominent position in the Indian telecommunications industry. As it continues to expand its network and offerings, RailTel remains dedicated to spearheading India’s digital transformation and fostering connectivity across the nation
Fundamental Analysis of RailTel Corporation of India Ltd.:
Profit Margins and Caution in Bidding:
The company aims to maintain its EBIT margins at 6-7% for projects and 19-20% for telecom services.
To achieve this, RailTel is being cautious in bidding for projects with better margins, intending to remain in the 6 to 7% bracket.
This cautious approach shows the company’s focus on profitability and prudent project selection.
Capex Investment for Infrastructure Strengthening:
RailTel has planned a capex investment of around Rs. 200 Crores for the current financial year to upgrade its network, augment data center capacity, and implement automation activities.
This investment indicates the company’s commitment to strengthening its infrastructure and capability for future growth.
Diversified Revenue Streams:
RailTel’s revenue model includes various revenue recognition models, such as usage-based and license-based for data centers. The company has also partnered with 3i Infotech for Wi-Fi monetization, providing additional revenue streams.
Moreover, the company has a presence in railway projects, telecom business, and opportunities in artificial intelligence-based centralized traffic control, providing diversification in its revenue sources.
RailWire and Telecom Business Growth:
RailWire, the company’s broadband service, has shown growth with a subscriber base increase from 4.63 lakh in FY2022 to 5.21 lakh in the current year.
The company expects steady margins in the telecom business in the next year. This growth in subscribers and anticipated revenue numbers for FY2024 and FY2025 indicate the company’s potential in the telecom sector.
Growth Opportunities:
RailTel has identified growth opportunities in Long Term Evolution for Railways (LTE-R) and artificial intelligence-based centralized traffic control in railways.
Beyond railways, the company has partnerships for various projects in information technology, health education, smart cities, and data centers, with a total opportunity size of Rs. 1 lakh crore for the next six to seven years.
Strong Order Book:
The company has a robust order book of Rs. 4492 crore, with new orders worth Rs. 1632 crore received in the last six months.
Financial Performance:
RailTel has reported a YoY growth in EBITDA, and its net profit has increased by 49.36% YoY.
However, the EBITDA margin witnessed a slight contraction in Q1 FY24 compared to the same period last year.
Sequentially, net profit declined in Q1 FY24 compared to Q4 FY23.
Key Ratios:
- OPM 16.9 %
- Debt ₹ 41.8 Cr.
- Debt to equity 0.03
- Industry PE 49.4
- Qtr Profit Var 48.5 %
- Qtr Sales Var 24.1 %
- ROCE 16.3 %
- ROE 12.0 %
The Fundamentals:
- Face Value ₹ 10.0
- Market Cap ₹ 5,678 Cr.
- Current Price ₹ 177
- High / Low ₹ 178 / 94.0
- Stock P/E 32.5
- Book Value ₹ 51.4
- Dividend Yield 0.85 %
- Return over 1year 77.1 %
- PEG Ratio 8.33
- Free Cash Flow₹ 52.5 Cr.
Key Risks
Project Execution Risks: RailTel faces risks associated with project execution, including delays, cost overruns, and technical challenges.
For example, if the company encounters difficulties in implementing modern signaling projects or fails to deliver projects within the agreed timelines, it may lead to penalties or contract disputes, adversely affecting its reputation and financial performance.
Competition in Telecom Sector: The telecom sector is highly competitive, with several players vying for market share. RailTel’s telecom business, including RailWire broadband service, faces the risk of losing customers to competitors offering more attractive plans or better services.
For instance, if other telecom providers offer faster and cheaper internet services in areas where RailTel operates, it may result in customer churn.
Regulatory and Policy Risks: RailTel operates in a regulated industry, and changes in government policies or regulations can impact its operations and profitability.
For example, new regulations on data privacy or licensing requirements could increase compliance costs and affect the company’s ability to expand its services.
Cybersecurity and Data Breach Risks: As a provider of data center services and broadband connectivity, RailTel must safeguard sensitive customer data and protect against cyber threats.
A data breach or cybersecurity incident could lead to legal liabilities, reputational damage, and loss of customer trust.
Dependence on Railways and Government Projects: RailTel’s revenue heavily relies on railway projects and contracts with the government.
Any slowdown in railway infrastructure investments or delays in government approvals for projects could negatively impact the company’s financial performance.
Economic Downturn and Demand Fluctuations: RailTel’s business is influenced by the overall economic conditions in India. During economic downturns, businesses and individuals may cut back on spending, reducing demand for telecom services and data center solutions.
Geopolitical Risks: RailTel’s operations and expansion plans could be impacted by geopolitical tensions or adverse political developments in the regions where it operates.
For example, disruptions in regions due to political instability could affect network operations and project execution.
RailTel appears to be a company with strong growth potential, driven by its focus on modern signaling projects, telecom services, and expansion in the railway sector. Diversified revenue streams and identified growth opportunities further strengthen RailTel’s position in the market.
However, investors should closely monitor the company’s financial performance and margin trends to assess its ability to achieve projected revenue growth and profitability targets.
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