Top 5 Railway Stocks to Ride Indian Railways' Rs 1 Trillion Mega Revamp

The Indian travel and tourism sector has seen a robust demand in 2023, and the future looks even brighter.

India's travel sector is revving up, projected to be the 5th largest outbound travel market by 2027. The national transporter aims to ferry seven billion passengers annually, projecting an increase to 10 billion by 2030.

To meet this and to eliminate waiting lists, the number of daily trains needs to increase substantially.

In a bid to meet the surging demand in passenger travel, the Indian Railways is gearing up for a massive investment of Rs 1 trillion (tn) in acquiring new trains over the coming years.

Union Railways Minister Ashwini Vaishnaw shed light on the upgrade that aims to cater to the nation's evolving transportation needs and eliminate waiting lists in the long term.

The Indian Railways plans to procure 7,000-8,000 new train sets over the next 15 years.

This move aligns with the broader plans of enhancing passenger and domestic goods transportation capabilities.

Currently, the railways are operating 10,754 trips daily, and it plans to add 3,000 more. The railways expect to close 5,500 to 6,000 kilometres of new tracks, equivalent to 16 kilometres per day, by the end of the ongoing financial year, itself.

These initiatives aim to free up tracks, facilitating faster movement of both passengers and goods.

With this fund allocation, the railway sector has garnered significant attention, making some companies prime beneficiaries. Here are a few of them...

#1 Rail Vikas Nigam (RVNL)

Leading the list is Rail Vikas Nigam.

RVNL was incorporated in 2003 by the government of India. It is engaged in implementing various types of rail infrastructure projects assigned by the Ministry of Railways.

Some of its projects include doubling, gauge conversion, building new lines, major bridges, and railway electrification.

The company also takes up projects to set up metro lines in metropolitan cities and suburban networks.

So far, the company completed 120 projects, and 72 are under implementation.

This massive investment in new trains by the Indian Railways bodes well for Rail Vikas Nigam.

This is because, RVNL acts as a crucial executing agency for various Indian Railway projects, focusing on new lines, station redevelopment, and other developmental initiatives.

While not the sole player in the market, RVNL holds a significant position due to its strong government backing, expertise in project management, and track record of successful project completion.

This opens up ample opportunities for RVNL to participate in the development and execution of these projects, leveraging its expertise in project management, financing, and construction.

The company was recently awarded Navratna status in May, paving the way for higher autonomy concerning projects, capital expenditure, international ventures and attracting superior talent.

Going forward, the company plans to strengthen its order book.

For more details, see the Rail Vikas Nigam company fact sheet and quarterly results.

#2 IRCTC

Second on the list is the Indian Railway Catering and Tourism Corp (IRCTC).

IRCTC, which entered the primary markets by listing in October 2019, enjoys a strong monopoly. It has a 100% market share in the rail network.

IRCTC is the only entity authorised by Indian Railways to offer online railway tickets. The company charges convenience fees in the range of Rs 15-30 per ticket.

It's also the only entity authorised to manage catering services on trains and major static units at railway stations.

The company also enjoys a monopoly in packaged drinking water. It's the only entity authorised by the Ministry of Railways to manufacture and distribute packaged drinking water at all railway stations and trains under the 'Rail Neer' brand.

While the Rs 1 trillion investment in new trains primarily targets infrastructure improvement, it can provide several benefits for IRCTC.

As the Indian Railways expands its fleet, the demand for catering services on trains and at railway stations may also increase. IRCTC, being the sole entity authorised to manage catering services, stands to benefit from this increased demand.

IRCTC has a monopoly in providing packaged drinking water through its 'Rail Neer' brand. This monopoly gives the company an advantage in meeting the increasing demand for such products with the expansion of the rail network.

Moreover, the expansion plans of the Indian Railways may further strengthen IRCTC's monopoly status.

Moving forward, IRCTC is all set to boom as demand for setting up railway lines increases.

For more details, see the IRCTC company fact sheet and quarterly results.

#3 Titagarh Rail Systems

Third on the list is Titagarh Rail Systems.

The company is mainly engaged in the manufacturing and selling of freight wagons, passenger coaches, metro trains, ships, etc.

It is one of India's largest wagon manufacturers, with a capacity of 8,400 wagons per annum.

Titagarh receives a significant portion of its revenue from the Indian Railways.

The significant investment by the Indian Railways in acquiring new trains aligns well with Titagarh Rail Systems' core business of manufacturing rolling stock.

The company stands to benefit from increased orders, revenue growth, and potential diversification opportunities, making it a key player in supporting the expansion of the Indian rail network.

Going forward, the company is looking forward to more strategic partnerships and to capitalise on the government's Make in India initiative.

For more details, see the Titagarh Railsystems company fact sheet and quarterly results.

#4 Texmaco Rail

Fourth on the 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.

With 7,000-8,000 new train sets planned over 15 years, the demand for wagons for passenger and freight trains is expected to surge significantly.

This growth directly benefits Texmaco Rail, given its established leadership position in the wagon manufacturing sector.

The Indian Railways' ambitious 15-year plan opens doors for long-term partnerships and collaborative projects between Texmaco Rail and the Indian Railways.

This can pave the way for technological advancements, joint development of new wagon designs, and streamlined procurement processes.

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'.

For more details, see the Texmaco Rail company fact sheet and quarterly results.

#5 IRFC

Last on the 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.

This capital-intensive project by the government will create a substantial funding requirement for the Indian Railways. IRFC, established as its dedicated financing arm, is perfectly positioned to benefit.

IRFC possesses expertise in project financing and risk management, gained through experience with previous railway projects. This expertise will be valuable in structuring and managing the new train acquisition program financing.

IRFC's robust 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.

For more details, see the IRFC company fact sheet and quarterly results.

Conclusion

This massive Rs 1 tn plan will help Indian railways to keep pace with economic growth. This investment will cover crucial aspects such as track laying, safety technology, and station upgrades.

For the financial year 2023-24, Indian Railways was given a budget of Rs 2.4 trillion by the government. Of this, 70% has already been used.

This highlights the need for funds. The proposed procurement of trains will involve maintenance contracts and specific conditions mandating their production within India, leveraging existing railway infrastructure.

The Indian Railways at present operates 10,754 daily train trips, and the plans to add 3,000 more trains aim to eradicate waiting lists.

This will enhance the performance of companies operating in the railway sector, providing them with more opportunities.

With so many triggers for growth, railway stocks could potentially benefit over the near term.

However, conduct thorough research before you invest in any of them. Sustained research must not be compromised despite the positive odds.

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...