Fundamental Analysis Of Titagarh Rail Systems: The Indian Railway system has a long and fascinating history, and has been a trusted means of transportation for both people and goods throughout India. Despite its age, the sector continues to grow and evolve, presenting significant investment opportunities. One such company contributing to this sector is Titagarh Rail Systems Ltd. In this article, we shall conduct a Fundamental Analysis Of Titagarh Rail systems and try to analyze the potential outlook of the company.
Fundamental Analysis Of Titagarh Rail Systems
We’ll begin our Fundamental Analysis Of Titagarh Rail systems Ltd by becoming acquainted with the company’s operations and products. Following that, we’ll go into the stock’s financials. The article concludes with a highlight of plans and a summary.
Industry Overview
The government allocated Rs. 2.40 Lakh Cr towards railway-Capex which is the highest ever allocation, with a 51% bump over the previous year. The allocation toward rolling stock was at Rs. 37,581 crore, double of previous year.
Indian Railways recorded its best-ever performance achieving an originating Freight loading of 1512 MT in FY23, as compared to 1418 MT achieved in FY22. There was an increased supply of Coal to Powerhouses, with 569 MT of coal being moved as against 485 MT in FY22.
The Indian Railways placed the highest-ever order for about 72,000 wagons last year. Reports hint towards orders being placed for an additional 40,000 wagons. This is poised to increase the share of railways in freight transportation from about 27% – 45% by 2030.
With the commissioning of the New Dadri-New Rewari section, freight transportation can be seamlessly done from the hinterlands of Uttar Pradesh to the Western ports of India.
DFC is a vital initiative under the National Logistics Policy and is aimed at reducing the cost of logistics from 15% (approx.) of the country’s GDP to 8% by 2030.
The freight infrastructure capacity augmentation by DFC is crucial in achieving the Indian Railways’ target of 3000 MT freight loading by 2027. This will certainly lead to an increase in traffic which will result in demand for wagons.
Company Overview
Titagarh Railsystems Ltd, formerly known as Titagarh Wagons Limited was established as a rolling stock foundry unit in 1980.
The company began by manufacturing railway castings for the Indian Railways and later transitioned to producing freight wagons. Today, it has become a leading mobility provider with a strong presence in India and Italy.
The company’s customers include Indian Railways, Metro Authorities, private sector customers, and the Ministry of Defence.
Currently, the business of the company is divided into two segments:
1. Freight Rail Systems: Under this segment, the company manufactures Wagons, bogies, Loco Shells, couplers, its components, designs and constructs Warships, Passenger Vessels, Tug and specialized equipment for Defence, Bridges Girders, etc.
2. Passenger Rail Systems: Under this segment, the company designs and manufactures Metro, Passenger Coaches, EMUs, Train Sets, Mono Rail, Propulsion equipment, Traction Motors, and their components.
Revenue Contribution and Order Book
As of FY23, the Freight Rail Systems contributed to 76.47% and the Passenger Rail Systems contributed to 23.53% of the company turnover. At the end of FY23, the company had orders worth Rs.14,830 Crores from Freight Rolling Stocks and orders worth Rs. 12,716 Crores from Passenger Rolling Stocks
Titagarh Rail Systems – Financials
Using the annual reports declared by the company, we will now conduct a Fundamental Analysis Of Titagarh Railsystems Ltd.
Revenue and Net Profit Growth
From the profit and loss account, we can see that the company’s revenue was impacted due to COVID-19, which can be seen in its FY21 and FY22 results.
During FY23, the revenues had increased significantly and were reported at ₹2822.17 crores. The increase in revenues is attributed to the largest order the company has received towards its Freight Rail Systems segment.
This order was for the manufacture and supply of 24,177 Wagons valued at over Rs. 7,800 Crore as of May 2022. This is required to be executed over 39 months.
The profits of the company follow a similar trend. From FY19 to FY22, the company reported Net Losses. During FY23, the company reported a net profit of ₹176 crores.
Note: The Net results for FY22 and FY23 take into consideration the losses of ₹78.48 crores and ₹8.9 crores, respectively from its discontinued operations.
The table below shows the total income and net profit of Titagarh Railsystems Ltd for 5 financial years:
| Year | Total Revenue(₹ In crores) | Profit after tax (₹ In crores) |
|---|---|---|
| 2023 | 2822.17 | 125.71 |
| 2022 | 1485.23 | -0.68 |
| 2021 | 1545.49 | -18.78 |
| 2020 | 1800.34 | -36.14 |
| 2019 | 1591.69 | -22.52 |
| 4-year CAGR growth | 15.39% | NA |
Margin Analysis
Looking at the margins of the company, we can see that the operating profits of the company are low due to high raw material expenses. This has mainly resulted in the low net profit margins of the company.
The table below shows the operating profit margins and net profit margins of Titagarh Railsystems Ltd for 5 financial years:
| Year | Operating Profit Margin | Net Profit Margin |
|---|---|---|
| 2023 | 9.45% | 4.98% |
| 2022 | 10.68% | -0.03% |
| 2021 | 4.05% | -1.24% |
| 2020 | 0.37% | – 2.04 % |
| 2019 | 1.22% | -1.31% |
Return Ratios: RoCE and RoE
The poor performance of the company from FY19 until FY22 can be reflected in the company’s very low return ratios.
On a Positive Note, these ratios have improved significantly in FY23 and were reported at an ROE of 13.51% and an ROCE of 18.58%.
This indicates an improved return to the capital invested by the shareholders and improved efficiency in the utilization of the company resources.
The table below shows the ROE and RoCE of Titagarh Railsystems Ltd for 5 financial years:
| Year | ROE | ROCE |
|---|---|---|
| 2023 | 13.51% | 18.58% |
| 2022 | -0.03 | 9.96% |
| 2021 | -2.34% | 4.75% |
| 2020 | -4.57% | 1.98% |
| 2019 | -2.70% | 0.81% |
Debt & Interest Coverage Ratio
If we look at the company’s leverage situation, we can notice that the company’s debt-to-equity proportion has decreased significantly in FY23. This indicates that the company uses its funds to run its operations.
During FY23, the company reported an interest coverage ratio of 3.35. This means the company has just earned enough profits to additionally cover its interest payments 1 time.
The table below shows the leverage ratios of Titagarh Railsystems Ltd for 5 financial years:
| Year | Debt to Equity | Interest Coverage Ratios |
|---|---|---|
| 2023 | 0.26 | 3.35 |
| 2022 | 1.02 | 2.87 |
| 2021 | 1.01 | 0.93 |
| 2020 | 0.95 | 0.36 |
| 2019 | 1.1 | 0.19 |
Titagarh Rail Systems – Future Plans
So far we looked at the previous fiscals’ data for our Fundamental Analysis Of Titagarh Railsystems Ltd. In this section, we’ll try to make sense of what lies ahead for the company and its investors.
- The company has enhanced its Titagarh and Bharatpur facilities to 1000 Wagons. This is to achieve improvements in the supply chain and enhance its productivity.
- Over the next two years, the company has planned to invest approximately ₹650 crores towards enhancing its capacity and infrastructure.
- The company has tied up with International players for technology support for the new age wagon and to get a major chunk of the new tender which has been planned by Indian Railways.
- The company plans to increase its export share for Freight Wagons, Casting, and other Components. Furthermore, it explores the possibility of exporting passenger trains, metros, etc.
- The Company is working towards localizing the production of the entire propulsion systems by FY 2025
Key Metrics
We are almost at the end of our Fundamental Analysis Of Titagarh Railsystems Ltd. Let’s take a quick look at the stock’s important metrics.
| Particulars | Figures | Particulars | Figures |
|---|---|---|---|
| CMP | ₹ 1,099.15 | Market Cap (Cr.) | ₹ 13,739 Cr |
| EPS | 16.76 | Stock P/E | 58.61 |
| RoCE (%) | 18.58 % | RoE(%) | 14.91 % |
| Promoters Holding | 44.97% | Debt to Equity | 0.26 |
| Net Profit Margin(%) | 4.84% | Operating Profit Margin(%) | 9.45% |
Conclusion
As we conclude our Fundamental Analysis Of Titagarh Rail systems, we can conclude that, though the company has suffered losses previously, it has a good potential to grow in the future.
This can be attributed to the company’s strong order book, its discontinuation of loss-making operations, and the plans it has laid out for the future.
What are your thoughts on the future of Titagarh Rail system? Please share in the comments section.
Written by Aaron Vas
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