After a more than 43 percent jump in the stock in 2023 YTD, brokerage house Elara Securities reiterated its “sell” call on RITES with a target price of ₹370, indicating a drop of more than 21 percent.
The stock has gained 23.5 percent in the last 1 year. It hit its record high of ₹584 on September 11, 2023, but has shed more than 19 percent from its peak. However, it advanced more than 54 percent from its 52-week low of ₹305.60, effective December 26, 2022.
2023 has been a volatile year for the stock with it giving positive returns in 6 and negative in 5 of the 11 months so far. It rose the most in July, up 25 percent and lost the most in February, down 1.5 percent.
In the September quarter, the company reported a 23.49 percent drop in its consolidated net profit to ₹101 crore in return ₹132 crore in the year-ago period. The company’s income from operations also fell 11.68 percent to ₹582 crore in Q2 FY24 from ₹659 crore in the corresponding period last year.
Let us now understand why the trading remains bearish on the stock.
Gets LOA on diesel locos but loses wagon order to competitor: RITES has received a Letter of Award (LOA) to supply 10 diesel locomotives worth $37.7 million or ₹313 cr to CFM, Mozambique (Ports & Railways). The company is likely to procure diesel locomotives from the Integral Coach Factory (ICF). However, an order for 300 high sided wagons was awarded to a competitor where RITE had earlier been declared L1. The estimated order size for wagons was ₹200 crores.
Evaluation: The brokerage took into account inflows of ₹500 crore from Mozambique on RITE’s L1 positioning. Based on the recent announcement, it assumes a lower inflow; as a result, Elara kept revenue and earnings estimates unchanged in FY24E but reduced them by 2 percent each in FY25E and FY26E. It expects earnings CAGR of 12 percent during FY23-26E with ROE and ROCE of 22 percent each during FY24-26E as the WC cycle remains low despite the increase in turnkey construction along with a strong dividend yield of 3.4 percent for FY24E.
Disclaimer: The opinions and recommendations made above are those of individual analysts or trading companies, and not of Mint. We advise investors to check with certified experts before making any investment decision.
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Updated: 23 Nov 2023, 16:26 IST
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