Top 4 Railway Stocks Under Rs 200 to Add to Your Watchlist

After a long time, the Indian Railways are executing projects better than ever.

India has the fourth-largest railway system in the world due to its extensive network of rail tracks that almost encircle the whole country.

More than 1.4 million (m) people are employed along its 67,850 km of travel. As a result, the railway industry is India's largest employer.

As we have watched railway stocks surge 100% or more, most investors have been wondering what would happen next.

To put things into context, railway stocks have seen a historic rise in their stock prices in the past two years. Some had gone from less than Rs 20 to as high as Rs 100 during the bull market.

Due to its scale and extensive network of connections to many industries, the railway industry is expected to see a massive growth in demand for its services.

Not only does this demand bode well for just railway stocks, but also to the businesses that produce railway components.

In this article, we'll take a look at the top railway stocks below Rs 200 that still have enough headroom to grow.

#1 IRFC

First on this list is IRFC.

The company is the financing arm of the Indian Railways. It's a government of India enterprise, under the ministry of railways (MoR).

IRFC's principal business is to borrow funds from the financial markets to finance the acquisition/creation of assets which are then leased out to the Indian Railways.

The Indian Railways' is reportedly planning to roll out a substantial Rs 250 billion (bn) tender. Its objective is to secure a fleet of 60,000 wagons during the upcoming July to September 2023 quarter.

This is a major procurement order, expected to boost the revenue and profit of IRFC, which finances the purchase of railway assets.

The railway ministry is also aiming to manufacture trains to export to markets in Europe, South America, and East Asia by 2025-26.

As per the railway ministry, by FY26, India plans to export standard-gauge Vande Bharat trains. The plan, if realised, will place India on par with eight countries that have the capability to manufacture trains with speeds of 180 kmph or more.

IRFC's strong balance sheet size with nil gross NPA, low overheads, and the Indian Railways' huge capex needs, bode well for the company's growth prospects over the long term.

The company is also planning to diversify its financing portfolio. This evolution will encompass new dimensions of railway projects, notably dedicated freight corridors, high-speed rail initiatives, and the development of smart railways.

Recently at the G20 summit, India, US, and Saudi Arabia announced plans to build an economic corridor that would link South Asia with Europe via the Middle East.

This announcement suggests a strong railway and shipping connectivity network among the countries as it integrates railway routes.

Projects like these take decades to fully implement, so it can add a lot of value over the coming years for stocks involved.

To know more, check out IRFC's factsheet and its latest quarterly results.

#2 Texmaco Rail

Next on this list is Texmaco Rail.

The company is the largest supplier of wagons to the Indian Railways, with strong in-house capabilities for designing special purpose wagons for core sectors such as cement, coal, alumina, chemicals fertilisers, thermal power projects, and more.

It also manufactures sugar mill machinery, industrial boilers, cryogenic and pressure vessels, chemical plant equipment, and agro-machinery such as power tillers.

Railway ancillary stocks have seen a massive spike in their stock prices as they've been rewarded with massive orders which has given a big boost to their future earnings visibility. Texmaco Rail is no exception as the company's stock price is at an all-time high.

A good way to analyse whether the company's growth prospects look stronger than ever is to compare its order book with the current marketcap.

A large order book relative to a smaller marketcap may indicate undervaluation and strong future earnings, while the opposite scenario could signal overvaluation or operational inefficiencies.

In its latest concall, the company's management said that their order books are full and the company is now looking for new orders.

Texmaco has an order book of around Rs 80 bn. This is almost twice the size of its current marketcap of Rs 44 bn. This could indicate the company has strong revenue prospects, provided it can efficiently fulfil its orders, particularly the Rs 54 bn in rolling stock.

The company is currently producing around 500 wagons per month for Indian Railways and aiming to consistently exceed 500.

Texmaco recently posted its Q2 results where the company's consolidated revenue from operations saw a robust growth of 66% YoY, amounting to Rs 8 bn.

The company reported a 70% YoY rise in net profit to Rs 200 million (m) in the quarter.

Looking at the first half of FY24, the company achieved a remarkable revenue of Rs 14.6 bn, marking an impressive 86% surge compared to Rs 7.8 bn in the same period last year.

Going forward, the company is poised for a 25-30% production increase. Further, it is also exploring opportunities in related domains such as the 'Modern Train Communication System' and 'Kavach'.

To know more, check out Texmaco Rail's financial factsheet and its latest quarterly results.

#3 IRCON International

Third on this list is IRCON International.

IRCON is a railway construction company. It's a sectoral leader in transportation infrastructure among the public sector construction companies in India. It specialises in railway projects on a turnkey basis.

It caters to both, domestic as well as international markets and receives orders on a tender basis. Earlier, the company used to be nominated by the MoR for various railway projects, which shifted to competitive bidding in FY21.

In the month of August 2023, Ircon International shares saw a spike after the company posted good numbers for the first quarter of FY24 and on the back of a growing order book.

The company recently executed a contract agreement with the Sri Lanka Railways, worth Rs 1.2 bn. This project is expected to be completed in the next two years.

This is in line with the company's efforts to increase its order book and secure orders worth Rs 100-120 bn in FY24. According to the management, it could close FY24 with an order book totalling Rs 350 bn.

As of June 2023, the company's total order book stood at Rs 325 bn with railways segment contributing to majority of the chunk (Rs 236 bn). This is more than twice the size of its current marketcap (Rs 148 bn).

Going forward, the company plans to enhance its portfolio with projects in the international markets to achieve healthy profit margins offered by these projects.

It's also exploring new emerging areas for business diversification. As part of its diversification strategy, the company has entered the renewable power sector to establish a 500 MWH solar power plant with a joint venture partner.

The company's goal is to move ahead from being a construction company to a diversified company having a portfolio of BOT, DBFOT, EPC, and other contracts as well as project development and operation through subsidiaries and JVs.

To know more, check out its financial factsheet and latest quarterly results.

#4 Rail Vikas Nigam Ltd

Last on this list is Rail Vikas Nigam Ltd.

The company is engaged in the business of implementing various types of rail infrastructure projects assigned by the ministry of railways. The company actively bids for rail and metro rail projects in India.

Apart from India, the railway company is currently in the process of expanding presence in global markets. During the financial year 2023, it entered overseas markets and signed an MoU with Kyrgyzstan for an order worth approximately Rs 180 bn.

It's planning to expand its overseas presence and take up projects in several other countries.

Currently, RVNL has a strong order book of over Rs 650 bn, focusing on railway, metro, and overseas projects. This is almost 1.8x the size of its current marketcap (Rs 349 bn).

The company is confident in its ability to execute projects and maintain positive growth, targeting an order book of Rs 750 bn to Rs 1 trillion (tn).

In recent weeks, the company has secured two major orders. The first order is from the Maharashtra Metro Rail Corporation for the design and construction of an elevated metro viaduct. The project cost is Rs 3.9 bn and will be completed in the next 30 months.

RVNL also secured some more projects with Maharashtra Metro Rail worth Rs 2.6 bn.

Meanwhile, the second order is worth Rs 11 bn from the Himachal Pradesh State Electricity Board. The order is to be executed within 24 months.

Going forward, the company's margins could improve as the huge order book gets executed.

To know more, check out RVNL's financial factsheet and its latest quarterly results.

More on Indian Railway Stocks

As you're interested in profiting from the Indian railway boom, here are some useful links.

• Railway Penny Stocks in India
• Multibagger Railway Stocks
• Fundamentally Strong Railway Stocks
• Debt Free Railway Stocks
• Undervalued Railway Stocks
• Best Smallcap Railway Stocks
• Top Railway Growth Stocks

Also do watch this video by, Equitymaster's smallcap guru, Richa Agarwal, on stocks that could ride the railway capex cycle.

Happy investing!

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...