Weak Q3 execution and rich valuations made Antique Stock Broking keep its 'Sell' rating on Rail Vikas Nigam Ltd (RVNL) shares intact on Thursday, with a reduced target price. The downward revision in price target came as Q3 profit after tax declined 13 per cent YoY, led by a 3 per cent revenue degrowth YoY. Antique noted that Q3 margin at 5.2 per cent was similar to the base quarter's 5.3 per cent YoY amid lower other income and a higher tax rate.
"Despite a good order book, execution is expected to stay muted as projects are still in initial phase of construction (seeking approvals). RVNL has guided for flattish revenue on YoY basis in FY25E and FY26E. Post the result, we have cut our EPS estimates by 3-7 per cent over FY25-27E. We retain SELL rating on the stock with a revised SoTP based target of Rs 215 (earlier Rs 251)," Antique said. The target suggests 42.34 per cent potential downside over RVNL's Wednesday closing price of Rs 372.90.
It said the stock trades at 47 times FY27 EPS, which it said is expensive valuation. The domestic brokerage values RVNL's EPC business at 35 times FY27E EPS against 38 times earlier. It values investment and cash at book value.
"Risk to our rating is execution uptick and order wins. We have modelled inflow (LOA) of Rs 22,500-24,500 crore per annum over FY25-27," Antique Stock Broking said.
RVNL saw order inflows of nearly Rs 25,000 crore. With this, the order book has reached Rs 97,000 crore. It comprise mainly of nomination orders (49 per cent) while the remaining 51 per cent work has been secured from bidding. A total of Rs 4,500 crore worth of orders are from the international market.
Of the international orders, only 10 per cent account for competitively orders won, however, management wants to increase the share to 40-50 per cent. The Vande Bharat order is yet to be included in the order book. It is delayed due to design finalisation, with the first prototype is expected in 1HCY26 now against earlier expected 2HCY25, Antique said.
"We admit RVNL had an exceptionally strong execution (revenue) until FY22. But annual execution (revenue) over FY23-25E is largely muted. Order win and change of scope in existing order book has been there and order book too is largely the same in the last two years. Over FY25-27E, we have modelled order wins to match execution and this implies a stagnant order book," Antique id.
RVNL has signed MoUs but the actual outcome in terms of opportunity size is still unknown, it said.