Texmaco Rail shares: Nuvama cuts target price but retains 'Buy' on railway stock

Nuvama Institutional Equities has retained its 'Buy' rating on Texmaco Rail & Engineering Ltd but trimmed its price target on railway stock on concerns over higher debt post the JRIL acquisition. For the September quarter, Texmaco Rail clocked a 123 per cent surge in profit after tax on a 39 per cent YoY increase in revenues. 

"Higher debt post-JRIL acquisition leads us to slash FY25, FY26 and FY27 standalone EPS by 8 per cent, 8 per cent and 7 per cent, respectively. We continue valuing the company on a standalone basis and have not ascribed any value to JRIL as of now; maintain ‘BUY’ with a revised target price of Rs 320 (Rs 331 earlier) as we roll forward valuations to 50x Q2FY27 P/E," Nuvama said.

For the quarter, Texmaco Rail's Ebitda margin declined 100 bps YoY to 8.3 per cent. While the wagon and the Bright Power segment delivered healthy margins, the rail-EPC (Kalindee) segment clocked losses due to legacy contracts, Nuvama said.

Wagon production for Texmaco Rail in Q2FY25 came in at 2,443 against 1,967 in Q1FY25. JRIL produced nearly ,900 wagons in H1FY25 with 15–16 per cent Ebitda margins. 

Texmaco ended Q2FY25 with a net order book of about Rs 7,460 crore. This excludes the Rs 830 crore order book of JRIL. The wagon order book comprised 55 per cent of the overall order book. Private wagons contributed 13 per cent to the wagon order book. 

Nuvama said Indian Railways has already awarded 7,600 wagons YTD in FY25 while more wagon tenders are in the pipeline. Higher government targets for rolling stock procurement are positive for the company, it said. 

During the quarter, the company acquired JRIL (now rechristened as Texmaco West Rail) for Rs 615 crore to expand its product offerings amid the soaring railway capex. 

It clocked revenue of Rs 430 crore and PBT of Rs63 crore in H1FY25. It enjoys much greater profitability than the parent company as it focusses largely on lucrative private sector wagon orders, Nuvama said.

"Texmaco’s net working capital cycle improved QoQ to 180 days (183 days at end-Q1FY25). Net D/E is at a healthy 0.26x," it said.