
Brokerage firms continue to remain positive on RITES Ltd after a mixed set of numbers in the September 2024 quarter. The PSU stock, which turned mutlibagger in the recent rally, has seen a sharp correction in the last sessions. However, analysts tracking the stock have upgraded the counter post recent correction, but have chopped their target prices.
RITES reported a 25 per cent drop in the net profit on a year-on-year (YoY) basis to Rs 82.5 crore. The company had clocked a net profit of Rs 110.2 crore in the year ago period. The railway company's revenue for the quarter declined 7.1 per cent YoY to Rs 541 crore in Q2FY25 from Rs 582.4 crore in the same period last year.
Ebitda for the quarter also fell 23 per cent YoY to Rs 106.4 crore, while Ebitda margins for the quarter narrowed 390 basis points (bps) to 19.7 per cent for the reported quarter. RITES has declared its second interim dividend of financial year 2025 at Rs 1.75 per share, for which November 15 was fixed as record date.
RITES continued to witness a decline in topline and margin due to a shift from nomination to competitive bidding in consultancy. However, robust order wins in exports through FY24-25 have led to an export orderbook of INR 13bn as of Q2, which is likely to see execution from FY26, said Elara Capital.
"We lower our target price to Rs 365 (from Rs 408) due to delayed execution in exports and lower margin given the rise in competitive bidding. We upgrade RITES to 'buy' from 'accumulate' after the recent correction. A rebound in exports with robust order inflows makes RITES a favorable play in infrastructure," it said.
Listed in June 2018, shares of RITES Ltd settled at Rs 274.70 on Tuesday, rising 1.53 per cent for the day, commanding a total market capitalization slightly more than Rs 13,200 crore. However, the stock has corrected nearly 34 per cent from its 52-week high at Rs 413.08 hit in February 2024.
RITES' Q2FY25 PAT was below consensus estimates and Ebitda margin declined to 19.6 per cent sequentialy, with margins impacted by a slowdown in execution during the monsoon and a dip in QA segment margins due to increased competition, said IDBI Capital. It is working to strengthen its international quality assurance segment and is venturing into Middle-East, it said.
"The order book, at Rs 6,600 crore, is equivalent to 2.5 times FY25E revenue. The key stock catalysts are order inflow and the stabilization of consultancy margins. We have retained 'hold' rating on the stock with a target price of Rs 326. We will turn bullish on the stock once margins in exports and consultancy stabilize," it said.
Incorporated in 1974, RITES is under the aegis of Indian Railways. It is a multi-disciplinary consultancy organization in the fields of transport, infrastructure, and related technologies. It provides a comprehensive array of services under a single roof and believes n transfer of technology to client organizations.
The management did not provide specific revenue guidance but indicated expectations for growth in Ebitda and profit and it signalled an increase in export orders in the future, said Axis Securities. However, due to higher competitive intensity, margin pressure is expected to persist, it said.
"New orders are being secured through a competitive bidding process, leading to a reduction in the share of nomination-based orders to 37 per cent, which is exerting pressure on margins. We roll over our estimates to FY27 and upgrade recommendation from 'hold' to 'buy' with a target price of Rs 325," said Axis Securities.