Rail Vikas Nigam Shares Jump 20% After 12% Equity Changes Hand on NSE

Rail Vikas Nigam shares soared 20% to hit a new 52-week high.

Rail Vikas Nigam Limited (RVNL) shares jumped 20% to Rs 105, hitting a new high on the National Stock Exchange (NSE) in intraday trade on Tuesday after 12% of the state-owned firm’s total share capital changed hands. Over the past two sessions, the stock surged 37% from Rs 76.90 on Friday, April 21, 2023.

Exchange data showed that about 251 million shares changed hands on the NSE as of 2:58 pm, representing 12% of RVNL’s total share capital.

RVNL mainly adopts turnkey projects and undertakes the entire project development cycle from conceptualisation to commissioning, including the design phase, preparation of estimates, invocation and award of contracts, project and contract management, etc.

RVNL follows an asset-light business model, which helps it maintain a low fixed asset component, helping it keep its balance sheet stress-free and reduce days of inventory. RVNL, a project executing agency working for and on behalf of the MoR (Ministry of Railways), has a strong order profile and could play a key role in developing the railway infrastructure in India.

Management expects revenue to grow at a CAGR of over 20% over the next few years, supported by strong order books and new order inflows.

Last month, a joint venture between Russian firm Transmashholding (TMH) and RVNL emerged as the lowest bidder to manufacture and maintain 200 lightweight Vande Bharat trains. The consortium bid around Rs 58,000 crore, out of a cost of Rs 120 crore, to manufacture a set of trains.

Earlier this month, RVNL and Siemens India became the lowest bidder (L1) for Mumbai Metro Line 2B of the Mumbai Metropolitan Region Development Authority (MMRDA). The project is estimated to cost around Rs 378.16 crore.

Meanwhile, Indian Railways has formulated the National Railway Plan (NRP) for India 2030. The plan aims to create a “future-ready” railway system by 2030. The NRP aims to develop a strategy based on operational capacity and commercial policy initiatives to increase railways’ modal share of freight to 45%. The plan aims to create capacity ahead of demand, which will cater to future demand growth up to 2050, and increase rail’s modal share to 45% of freight volumes and maintain it there. This could significantly increase RVNL’s order book and revenue.

RVNL is now also starting to participate in tenders in other countries. Some two decades of experience in India as one of the main executing agencies for railway projects will help the company evaluate, bid and execute projects in other countries. Many countries around the world are considering expanding and improving their railway networks. It will also diversify its revenue geographically, reducing its risk and reliance on Indian Railways.

The government has recently expressed its intention to introduce competition among the PSUs to allocate jobs by the Railway Board. This may affect order flow to some extent. Efforts to improve rail transit infrastructure by adding new lines, doubling existing lines, electrification, etc., will continue to provide the company with a steady business flow.

Analysts at HDFC Securities said in their January 2023 report that the execution of larger projects from a low base could drive growth in the coming years. However, the stock trades above its bullish fair value of Rs 86.50 per share.

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