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Axis Securities
RITES (Buy)
CMP: ₹281.85
Target: ₹328
Key takeaways: a) RITES standalone order book stand at ₹5,833 crore (about 3x FY19 revenue). Management expect pick up in H2 would help them end FY20 with over ₹8000 cr order book. Order book is expected to grow by +17 per cent in FY20 over FY19 which provides strong revenue visibility for next 2-3 years.
Railways projects have started to roll out and RITES would be key beneficiary of this across all the transportation sector. Order book is well diversified with high margin consultancy and low margin turnkey business contributing 41 per cent each. 16 per cent pertains to exports order whereas as leasing business contributes least at 2.5 per cent.
b) EBIDTA margin in Q2FY20 at 26.3 per cent rose by 130 bps on quarterly basis due to strong execution while increasing turnkey contribution resulted in fall in margins on yearly basis. Operating margin for consultancy is 48 per cent for Q2FY20 while Turnkey business generated improved 4.2 per cent operating margin. Turnkey order book is witnessing strong traction and stands similar to that of consultancy, however, execution period of turnkey projects is higher than consultancy. Consultancy business contribution in total revenue would remain stable in near term.
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