Titagarh Rail Systems shares: Up 273% in 1 year, can this railway stock rise further? 

Shares of Titagarh Rail Systems, formerly known as Titagarh Wagons Ltd, climbed 9 per cent in the previous session to take its one-year return to 273.43 per cent. If one were to go by Nuvama, the stock has potential to hit Rs 1,475 over the next 12 months. Systematix Institutional Equities, on the other hand, believes a further re-rating may take a pause and investors would wait for propulsion to begin (2 years hence), Vande Bharat order to execute in a meaningful way and wheelset business to start, likely by FY28.

The wagons and coaches manufacturer logged a 64 per cent year-on-year (YoY) surge in profit at Rs 79 crore in the March quarter against Rs 48.20 crore YoY. Revenue from operations, Titagarh Rail Systems said, climbed 8 per cent to Rs 1,052.4 crore in the March quarter against Rs 974.20 crore in the year-ago quarter.

Ebitda margin rose 160 basis points YoY to 11.4 per cent, aided by operating leverage. The company ended the quarter with an order book of Rs 28,100 crore of which Rs 14,800 crore is to be executed over next three–five years. 

The management expects work on the Bengaluru, Surat and Ahmedabad metro rail coaches in the current fiscal, and to deliver 950–1,000 wagons per month. 

"Titagarh Rail Systems is benefiting from surging railway capex. We are revising up FY25/26 EPS estimates by 3 per cent/7 per cent and the target P/E to 42 times (from 40 times). Maintain ‘BUY’ with a revised target price of Rs 1,475 (earlier Rs 1,309).

On Thursday, the stock closed at Rs 1,212.70 on BSE. Nuvama's target suggests a 22 per cent potential upside on Titagarh Rail Systems.  Systematix Institutional Equities has downgraded the stock to 'Hold' from earlier 'Buy'.

"We forecast an Ebitda margin of 12.1 per cent/11.6 per cent for FY25E/FY26 as the higher contribution of low-margin PRS would hurt margins. We raise our target price marginally upwards to Rs 1,285 from earlier Rs 1,258 based on 33 times PER on FY26E. Since the stock has increased over 15 per cent since our last note, we downgrade the stock to HOLD from earlier BUY," Systematix Institutional Equities said.

Nuvama said Titagarh Rail Systems' wagon division is now operating at full tilt and produced 1,089 wagons in March 2024, about 2,700 wagons in Q4FY24 and 8,400 wagons in FY24. The management is looking to produce 950–1,000 wagons per month in FY25, which will then ramp-up to 1,000 wagons/month consistently. 

Nuvama said the company has long-term orders of Rs 13,300 crore, of which Rs 6300 crore is Titagarh Rail Systems' share of forged wheel order and Rs 7,000 crore pertains to the company’s share in Vande Bharat AMC JV. 

In the March quarter, the company won an order worth Rs 1,910 crore for manufacture and supply of 4,463 BOSM Wagons from the Indian Railways.

"The Pune Metro Rail coach order is largely over (TRS dispatched 14 trains in FY24 or roughly four cars/month), resulting in decline in revenues/margins for the passenger segment in Q4FY24. Going ahead, the company expects to commence work on the Bengaluru Metro rail coach order. Work on the Ahmedabad and Surat Metro rail coach orders should also pick up later this fiscal," Nuvama said.

By end-FY25, Titagarh Rail Systems expects to produce 15–20 cars per month. Due to operating leverage, the company expects margins in the passenger coach segment to rise to 10 per cent. 

Once the propulsion system (being produced in partnership with ABB) comes through over the next few years, margins in the segment could touch 14–15 per cent," Nuvama said.