This Under the Radar Company is Betting Big on Very Exciting Businesses

Sometimes, the best way (and the best time) to enter a sector can be through the back door. For example, HEG provides an investor, the backdoor entry to invest in the steel sector.

HEG does not directly manufacture or trade steel, but it manufactures furnaces in which steel is manufactured. Hence, its performance is directly linked with the performance of the entire steel sector.

Back door companies often remain under the radar, which often works out in favour of investors. Mainstream companies often trade at expensive valuations because they attract wide traction while backdoor companies may trade at fair valuation.

In this article, we will talk about one such under-the-radar company that can give you a back door entry into the railway sector along with tailwinds from the high growth EV sector.

The company's interesting line of business gives it a unique opportunity to be at the centre of the sectoral tailwinds.

The stock in question is none other than Jupiter Wagons. Let's look at how the company's business makes it a backdoor firm for the railway sector. It all starts with how companies interlink with the railways sector.

As the name suggests, Jupiter Wagons is an Indian private manufacturer of railway wagons, passenger coaches, wagon components and castings headquartered in Kolkata, West Bengal. It manufactures coaches for the Indian Railways and many other private companies.

In India, Jupiter Wagons is the only sectoral player to be accredited by the prestigious American Association of Railways.

Along with wagons, the company also manufactures other products. The company's total product portfolio includes products such as:

• High-end brake systems for high speed trains and metro coaches
• Freights cars for transportation of loose cement and food grains, among others
• Top-of-the-line fire-fighting vehicles
• Solid waste management vehicles to meet the growing urban needs
• Trains sets/mainline electric multiple unit (MEMU)/ electric multiple unit (EMU) for mass rapid transit system

It was clear from Budget 2023 announcements, that the government is determined to boost the development of the railway sector.

In the budget 2023 speech, finance minister Nirmala Sitharaman announced an outlay of Rs 2.4 trillion (tn). This is the highest outlay for the railway sector. It's about 9 times the outlay made in 2013-14.

With big development plans, the demand for brake systems, freight cars, wagons, electric multiple units, etc. is expected to multiply.

This back door company should be on your watchlist because of its noteworthy performance on the bourses. Let us take a look at how the company's share price performance pleased it investors in last one year.

Financial performance of Jupiter Wagons

The company's revenues took a sharp hit in financial year 2020 because a lot of its international business suffered owing to the deadly pandemic taking over the world. The company was quickly back on its feet as revenues grew at a faster pace than the pre-pandemic period in FY23.

In the financial year 2023, the company's sales grew by 75.5% to Rs 20,682.5 million (m) on the back of a growing order book.

Softening input prices combined with volume growth in sales drove profit higher in FY23. Net profit came in 152% higher at Rs 1,252.8 m.

Financial performance (2019 - 23)

Particulars	FY19	FY20	FY21	FY22	FY23
Sales (Rs in m)	2,158.00	1,257.00	9,958.00	11,784.00	20,682.50
Growth (%)		-41.8	692.2	18.3	75.5
Net profit (Rs in m)	887	-1	534	497	1,252.80
Net profit margin (%)	41.1	-0.1	5.4	4.2	6.1
Basic EPS (%)	9.9	0	1.4	1.3	3.2

Data source: Equitymaster

Peer comparison

The company operates in an interesting line of business but it's not the only one. Titagarh Rail Systems is one of the biggest listed peers for the company.

Let us compare the financial performance of both the companies.

Comparative Analysis

Particulars	Jupiter Wagons	Titagarh Rail Systems
Total revenues (Rs in m)	20,682	27,800
Operating Profit (Rs in m)	2,490	2,510
Net Profit (Rs in m)	1,210	1,260
EPS (Rs)	3.1	10.9

Data source: Equitymaster

Titagarh Rail Systems is a bigger name in the railway sector. Being one of the key players involved in wagon manufacturing, the company has wide experience in the field.

Jupiter Wagons is in break-neck competition with Titagarh Rail Systems and its revenue and net profit seem to suggest that the company is giving a tough fight. But only time will tell which of these two companies will prevail to win.

If we look at the valuations, Titagarh Rail Systems is slightly more expensive on PE basis.

Valuation and Share Price Comparison

Particulars	Jupiter Wagons	Titagarh Rail Systems
PE ratio (times)	55.4	58.6
P/B ratio (times)	9.6	6.9
1-year (%)	194.6	390.6
2023 so far (%)	88.6	127.6

Data source: Equitymaster

What next for Jupiter Wagons?

The biggest tailwind for Jupiter Wagons is the government's focus on railway development.

The increased budget allocation is intended to develop world-class railway infrastructure, significantly scale up freight operations, and enhance passenger service. This will also go a long way in the achievement of the railway sector target of loading three billion tonnes of freight by 2040.

All this points to significant growth opportunities for each of Jupiter Wagons' business line - wagons for freight transportation and coaches for passenger transportation.

It will also boost the sales of locomotives and braking systems as well as the supply of railway infrastructure and other components.

Apart from the railway sector, the company is also expanding its reach in road transportation and marine transportation.

In the road segment, the company forayed in to manufacturing electric vehicles (EVs). In June last year, it entered into joint venture with GreenPower, a wholly owned subsidiary of GreenPower Motor.

GreenPower is a publicly listed firm based in the US and Canada specialising in electric commercial vehicles (ECVs) in the passenger transportation and freight transport markets.

The joint venture (JV) marked GreenPower Motor's entry into India. The JV focused on bringing in ECVs in Indian and other markets along with launch of products in the passenger transit and cargo market by FY24.

Two of the intended vehicle launch, two LCVs were already launched by Jupiter Wagons in auto expo held in January 2023.

According to the management the two EVs - Jupiter TEZ (2.2 tonne) and EV STar CC (7 tonne) - will help meet the pressing needs of the country. While Jupiter TEZ was completely manufactured in India, EV Star CC was manufactured in China.

The 2.2-tonne vehicle can be charged in 20 minutes and it can go up to 100 kilometres in a single charge. The vehicles were expected to hit the market in mid-2023.

The overall prospect of the road segment business remains favourable as demand for medium and heavy commercial vehicles is improving on the back of better monsoons, macroeconomic conditions and the need for replacement and uptake in infrastructure, mining, and construction activities.

General manufacturing activity and consumption trends have also boosted the demand for trucks.

In marine transportation, it supplies ISO Marine Containers to global and domestic customers, the demand for the same is also picking up.

The management is confident about continuing its growing trajectory given the high visibility across all its business segments and the initiative to scale newer business verticals.

How shares of Jupiter Wagons performed recently

In the past one month, Jupiter Wagons' share price has surged by 42.8%. In 2023 so far, the stock is up 88.8%.

And in the past one year, the company has given multibagger returns of 194.8%.

Jupiter Wagons shares touched a 52-week high today of Rs 187.8 and a 52-week low of Rs 53.9 touched on 1 July 2022.

The company's PE multiple comes to 55.4 and its P/BV ratio is 9.6x.

Conclusion

Jupiter Wagons is well set to capitalise on various sectoral tailwinds. Rising demand may boost the company's growth significantly.

However, investors should also keep in mind that all these growth probabilities are built on expectations. If these do not translate into numbers, then the company may not progress at all despite strong tailwinds.

Strong competition is another sign of worry for investors.

Hence, investors should carefully analyse the company on all factors to make an informed investment decision.

To know more about the company, check out the Jupiter Wagons fact sheet and quarterly results on our website.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...