After 350% surge in 1 year, 'cheap' Titagarh Rail Systems shares receive 63% upside target!

Shares of Titagarh Rail Systems (erstwhile Titagarh Wagons) have rallied 352 per cent in the last 12 months, but that could not stop Antique Stock Boking initiating a coverage on the stock with a 'Buy' rating, as it feels "a jewel in the making" and could be a long-term wealth creation opportunity.

The brokerage has set a share price target of Rs 694 on the stock, suggesting 63 per cent potential turns. In the initiation report on the stock, Antique Stock Broking said India's largest wagon manufacturer has transformed itself into a complete railway transportation company, with a successful entry into the passenger transport sector.

"While Titagarh Rail Systems is India's undisputed leader in the wagon manufacturing space, now it is also among India's very few integrated manufacturers of passenger rail systems. We believe that the company has created a manufacturing set-up, which is difficult to replicate, and has the capacity to grow its turnover to over Rs 9,000-1,0000 crore over the next five years," it said.

Antique Stock Broking said Titagarh Rail Systems may post earnings growth of 53 per cent compounded annually over FY23-26E, and generate an average return on equity (RoE) of 25 per cent. The Titagarh Rail Systems stock has meaningfully appreciated in the past year, led by a nearly doubling of profit in FY23.

"Yet, at 12 times FY25E earnings, the stock is cheap and does not capture Titagarh Rail Systems' long-term growth potential. We initiate coverage on the stock with BUY rating and a target price of Rs 694, based on 20 times FY25E earnings," it said.

Titagarh Rail Systems is an integrated manufacturer of passenger rolling stock, with the capability to produce coachs, propulsion systems, and bogies at its modern Kolkata facility. The company is executing orders to manufacture 204 coaches for Bengaluru Metro and 102 coaches for Pune Metro (aluminum body).

Supported by its erstwhile subsidiary, Firema of Italy (for Pune Metro) and CRRC of China (which placed Bengaluru Metro orders on TRSL), the company is qualified to bid for most of the upcoming metro tenders, Antique Stock Broking said.

"Recently, TRSL in a consortium with BHEL, won a prestigious order to supply 80

Vande Bharat trains to the Indian Railways, valued at Rs 12,000 crore (including a 35-year maintenance contract). The company is augmenting its coach manufacturing capacity by

3 times from 240 coaches a year to 840 coaches a year over the next two years. TRSL is

favorably placed in the upcoming metro tenders of Ahmedabad and Surat. We believe

that the PRS segment, along with propulsion system, can have a potential of Rs 9000 crore

on full utilisation," it said.

PRS stands for Passenger rail systems.

Also, Antique Stock Broking noted that the company is increasing its wagon manufacturing capacity from 8,400 wagons per year, to 12,000 wagons per year in FY24. The company had got a large order to supply 24,177 wagons in May (valued at Rs 7800 crore) to be supplied over three years that, Antique said, will ensure strong growth in the segment over FY23-25.

"Given the growing share of railways in transport logistics, demand from the private sector and exports, we believe that wagon demand in the country will grow at an average of 30,000 units per year. Order of approximately 90,000 wagons are already under active consideration. TRSL is the largest player and has the most competitive cost structure, which will help it maintain a market share of 30-35 per cent," it said.

Titagarh Rail Systems has an investment plan of Rs 600 crore over the next three years, and has recently proposed to raise Rs 289 crore through the issue of equity shares to a large investor on preferential basis.

Antique Stock Broking believes that this, and the expected strong cash flow generation in the next few years, will support the company meet its growth objectives. It said, given the growth potential beyond FY25E, superior returns and the company's management quality, valuations are very attractive, and provide a long-term wealth creation opportunity.

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