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This Indian Railways-backed stock jumps 38% in 3 months. Should you buy?

Indian Railways wholly-owned subsidiary RailTel Corporation of India has clocked a fresh 52-week high on exchanges. Investors are upbeat on the company after it posted recording a healthy upside in revenue front with sequential improvement in profitability. RailTel trades below 140 on BSE and has given double-digit returns to its investors in a shorter period. The stock has risen by a whopping nearly 38% in three months. On Tuesday alone, the stock surged by a little over 10%. Analysts are optimistic about RailTel over its strong outlook for the second half of FY23 and have suggested buying in the stock.

On BSE, RailTel stock climbed over 10% on Tuesday by hitting a new 52-week high of 137.70 apiece. However, the stock ended at 135.90 apiece up by 8.63%. Its market cap is around 4,361.55 crore.

RailTel shares in a month have climbed by nearly 29% on Dalal Street. Meanwhile, due to the current strong uptick, the shares have now given at least 37.9% gains in three months. The stock was less than 100 on August 16, 2022. Year-to-date, the stock has surged by nearly 18% on D-Street.

In the second quarter, RailTel’s consolidated net profit was around 55.24 crore — more than doubled from 25.85 crore in Q1FY23. However, Q2 PAT dipped from 67.50 crore in the second quarter of FY22. Revenue from operations was robust at 428.71 crore in Q2FY23 — increasing from 358.49 crore in Q2FY22 and 376.85 crore in Q1FY23.

Should you buy RailTel shares?

In its report, ICICI Securities Research Analysts Sanjesh Jain and Akash Kumar highlighted that Railtel’s EBITDA was down 8.6% YoY (up 50% QoQ on normalisation of its telecom services) to Rs1 billion as project services margin continued to be depressed (EBIT margin: 3.4%).

However, the analysts note also said that Railtel shared strong guidance: 1) revenue/ EBITDA growth of 20% in FY23 and beyond; 2) project business revenue of Rs10 billion in FY23 (Rs15 billion possible in FY24 with a pick-up in execution); order book is healthy at Rs45 billion (reassessment has led to a decline from Rs58 billion from Q1FY23); 3) addition of new services especially consultancy, as well as monetisation of certain assets, will provide an upside; and 4) Kavach and allied services will likely lend significant delta to EPS.

The note added, “We increase our EPS estimates by 3-11% over FY23EFY24E, and target price to Rs160 (from Rs120), as we raise the P/E multiple to 18x FY24E EPS (earlier: 17x). Maintain BUY. Risks: Slower revenue growth particularly in project services, and lower margins in telecom services.”


Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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