RITES shares: PSU railway stock down 37% from 52-week high; key trigger, target price

PSU railway stock RITES Ltd has fallen 37 per cent from its 52-week high levels, but Antique Stock Broking sees scope for further downside ahead. An execution uptick in exports and incremental order inflows are the key catalysts for the stock going ahead, the brokerage said as it suggested a 'Hold' rating on the stock.

RITES reported a 16 per cent YoY decline in Q3 revenues, which was 17 per cent below the consensus estimate. Segment-wise, turnkey segment revenue declined more than expected. Also, Ebitda declined 31 per cent and Ebitda margin was lower at 20.4 per cent against 24.7 per cent in the year-ago quarter and 19.6 per cent in the September 2024 quarter.

On the other hand, its profit was supported by higher other income, due to one-off insurance settlement. RITES is an engineering and consultancy organisation providing a range of services from concept to commissioning in all facets of infrastructure.

On Thursday, the stock was trading at Rs 258.80, up 2.43 per cent. The scrip hit a 52-week high of Rs 413.08 on February 27, 2024.

Antique said it has cut its EPS estimates by 8-10 per cent for the railway PSU over FY25-27 to factor in the weak numbers and compression in export margin. On revised estimates, it said the stock trades at 26 times FY27 EPS. It suggested a revised target price of Rs 243 on RITES against Rs 325 earlier, valuing the company at 25 times FY27 EPS.

"The company announced a dividend of Rs 1.9 per share, till date dividend per share is Rs 4.9 (FY24 at Rs 9). Given that we expect PAT to decline in FY25, we expect a DPS of Rs 6.7 (dividend yield of 3 per cent)," Antique said.

RITES order book has increased sequentially to Rs 8,000 crore, which was 3.5 times its trailing 12-month revenues. It saw order inflow of Rs 2,000 crore in 3QFY25, with 65% inflow in the turnkey segment and the remaining in consultancy and others.

"FY25E is expected to be weak on revenue and margin. But execution should improve from FY26E as export revenue commence," the brokerage said.

RITES' blended Ebitda margin has been on a declining trend since the historic high of 30 per cent, owing to the increased share of competitive orders in execution. The margin is expected to bottom out at the 20 per cent range. In FY26, the base period will reflect these lower margins, Antique Stock Broking said.