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IDBI Capital
Rail Vikas Nigam (Buy)
Target: ₹25
CMP: ₹19.30
Rail Vikas Nigam Ltd (RVNL) is engaged in the business of constructing rail infrastructure, i.e., new lines, doubling, gauge conversion, railway electrification, metro projects and workshop.
RVNL’s execution (revenue) was up 2 per cent y-o-y in Q1FY21 versus last five years revenue CAGR of 37 per cent. Lower increase in the execution versus past trend is due to lockdown in April. Q1FY21 EPS forms 20 per cent of our FY21 EPS estimate.
RVNL works on an asset light model which requires the contractor to provide machineries, plants and stores for execution and MoR makes available the working capital (funds) to execute a project.
We expect execution to improve as out of RVNL’s order book of ₹80,600 crore, 44 per cent are firm orders and execution is in progress. Stock trades at 5x FY22E EPS and offers a dividend yield of 6 per cent and 7 per cent for FY21 and FY 22).
We like RVNL for order book with near and long-term execution visibility (capex plan of Indian Railways), pass though business model, experienced management, and valuation 5x FY22 EPS.
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