IRCON is staying away from station projects, given there is a huge requirement of manpower with low ticket size, Antique Broking said adding that IRCON finds poor margins with tight timelines a deterrent. 
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IRCON is staying away from station projects, given there is a huge requirement of manpower with low ticket size, Antique Broking said adding that IRCON finds poor margins with tight timelines a deterrent. Antique Stock Broking has initiated coverage on IRCON International with a 'Buy' call and a target price of Rs 176, suggesting a 25 per cent potential upside over its Friday's closing of Rs 141-odd level. The brokerage said IRCON's railway-dominated order book is offering revenue visibility, noting that the company has first mover advantage in high-speed rail.
Following the development, the stock was trading 1.6 per cent higher at Rs 143.70 on BSE. IRCON, which offers railway EPC works, is looking to foray aggressively into high-speed rail, semi-high speed, solar, and road projects. IRCON is staying away from station projects, given there is a huge requirement of manpower with low ticket size, Antique Broking said adding that IRCON finds poor margins with tight timelines a deterrent.
"Historically, the Ministry of Railways awards railway projects to IRCON on a cost-plus model. During FY15–20, the aggregate railway expenditure accounted for Rs 8.5 lakh crore. The bidding model has moved to competition. From FY24, however, the rail budget capex is expected at Rs 2.9 lakh crore, which seen over a five-year perspective, can yield Rs 15 lakh crore. Further, notwithstanding the minuscule requirement of working capital and cash, IRCON has a strong credit profile that can cushion any shocks," Antique Stock Broking said.
IRCON’s order book stands at Rs 32,400 crore, as on June 30.
Antique said the total potential of high-speed rail till 2051 is Rs 15 lakh crore as per the National Rail Plan 2051.
"With Rs 17 lakh crore of work being done through the C7 package (IRCON’s share in JV) and Rs 5,100 crore of T2 package, IRCON finds that as a first mover advantage. Currently, Japanese engineers are training the company’s personnel for the Vadodara-Vapi section of doubling works. This, IRCON believes, will help it win new orders. Note, IRCON lost C4, a critical package, with its bid at Rs 36,800 crore— against L&T’s winning bid of Rs 25000 crore— underscoring the importance it attributes to margin," said Antique Stock Broking.
Antique said IRCON will not consider projects below Rs 500 crore. The higher the concentration of high-value projects, the higher the risks.
However, high order value typically has a smaller percentage of overhead cost. This improves the scope of gross profit. In addition, projects having high order value are, in the current market, subject to less competition, IRCON opines. This is partly explained by pre-qualification criteria, a high barrier to entry. Thereby, the trade-off may favour high-value projects," it said.
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