Source – https://www.moneycontrol.com/news/business/stocks/railway-psu-stocks-in-free-fall-irctc-rvnl-down-up-to-30-from-this-years-highs-12254111.html
Publisher – Money Control
Key railway stocks have seen a correction of as much as 30 percent from their recent highs, including yesterday’s steep fall in PSU stocks. The crackdown in railway stocks is because of execution not keeping pace with growth expectations and fears of a slowdown in order inflows ahead of elections, said analysts.
Multiple factors behind fall in railways stocks
The railways segment has been under pressure due to a variety of reasons. One of the reasons could be due to profit booking as the stocks had been on a rally, right up till last week, said experts. The second reason is the not-so-stellar results. “The street was expecting a bumper set of results from the railway companies and that has not been the case,” says Sunny Agrawal, Head of Fundamental Research, SBI Securities.
Stretched valuations have also been a concern for the segment, where the up move in the stock prices without a similar earnings growth have made the stocks look much more expensive than the last five-year average, said Niket Shah, Fund Manager, MOSL.
Shah added that another issue for the segment has been order inflows. While there have been a lot of order inflows for the segment, from ordering the actual execution takes a lot of time. Given the order book has not been strong, some of the stocks may not be able to meet their order guidance for the year.
Also, with general elections looming on the horizon, the segment could also see a sudden decline in major government orders, a factor which could impact the entire PSU bucket.
The recent budget has also added pressure to railway stocks. According to experts, the market was anticipating higher allocation.Agrawal of SBI Securities said that a spillover effect could also be a reason for the sharp correction for railway stocks. Overall, even non-railway PSU stocks have announced their results which were also not as per market’s expectation. “So there could be some spillover effect from that disappointment,” he says.
At close on February 12, RVNL, which reported its Q3FY24 results on February 8, saw its share price fall 11 percent to Rs 230. The stock has fallen 33.4 percent since the year’s high on January 31. In Q3FY24, net profit for RVNL declined 6.2 percent year-on-year (YoY) to Rs 358.6 crore and revenue for the same period fell 6.4 per cent to Rs 4,689.3 crore.
RVNL, according to analysts at IDBI Capital, is facing challenges of an inconsistent order inflow although they have diversified across segments. “RVNL which started as a railway EPC company is moving to other sectors for growth and thus margin trajectory is key to watch going ahead,” the report added. IDBI Capital has a hold call on the stock with a revised target price of Rs 248 and a valuation of 30x FY26E.
Stock of IRCON also fell 11.49 percent and closed at Rs 196.80. The stock has fallen 29.87 percent since the year’s high on January 20. For Q3FY24, IRCON reported a 29 percent YoY increase in net profit to Rs 244 crore. In their post-earnings review, analysts at IDBI Capital have given the stock a hold call with a 21X FY26 valuation and target price of Rs 216. While the quarter has been good, analysts noted that the order win has been lukewarm and the order book has seen weakness at Rs 29,400 crore (9MFY24) vs Rs38,000 crore YoY. “This we understand could impact revenue of FY25E and FY2026E. Given strong run up in the stock price we have lowered our rating to HOLD,” the report added.
Railtel fell 8.8 percent and closed at Rs 363 on February 1. The stock has fallen 17.3 percent since the year’s high on January 25. Revenue for Q3FY24 grew 47 percent YoY to Rs 674.81 crore while net profit grew to Rs 62.14 crore compared to Rs 31.95 crore in the previous fiscal.
IRCTC, which is expected to announce its Q3 results on February 12 fell 8.42 percent from Rs 983.80 on January 19. On February 12, the stock fell 4 percent to close at Rs 901.
Stocks for IRFC also fell 30 percent from the year’s high.
Railway stocks have been on a rally over the last year but not all investors have been onboard. In a recent conversation with Moneycontrol, veteran investor Madhusudhan Kela said that while he found value in some PSU stocks he was not so bullish on railway stocks. “At the current levels, I am not comfortable investing in railway stocks,” he said.
Will railway stocks continue to fall?
According to the experts, one could expect to see another day of correction following which consolidation is likely.
“I don’t think it will correct materially from here, but I think they should consolidate. While the order book has grown, and I think the stocks have gotten rerated, fundamentally, if you look at them today, they’re still expensive. I would not be surprised that, you know, they will see some correction to a consolidation kind of a phase,” Shah said.
There could be a 10 to 15 percent more downside in these companies, he said.
