8 Best Railway Stocks to Watch Out as Modi 3.0 Amps up Rs 12 Trillion Investment

The Indian Railways, once the lifeblood of the nation's transportation system, is now transforming into potential goldmines for investors.

This metamorphosis is fueled by thousands of crores being poured into revamping infrastructure, connecting regions, and enhancing facilities.

This transformation has ignited a stock market rally, with some top railway stocks witnessing gains of up to 400% in the past year, creating a wave of multi-baggers.

However, recent months haven't been without a few hiccups, with March 2024 seeing some volatility.

But a deeper look reveals a more compelling story. Gone are the days of import dependence.

Indian Railways have become a domestic powerhouse, manufacturing their own locomotives and carriages.

This shift towards self-sufficiency creates a powerful narrative for investors seeking exposure to a thriving and strategically important industry.

Let's delve deeper to explore the specific factors that will further drive the rally.

Mega Modernisation Plan

Indian Railway has prepared a modernisation plan for post-election 2024, with an investment of Rs 10 to 12 trillion (tn) over the next five years for transforming railways with modern world-class facilities.

The new ticket refund mechanism would secure returns within 24 hours, replacing the existing three-day to one-week refund process.

Railways will introduce a comprehensive 'super App' with all railway-related capabilities, including ticket purchase and cancellation, live train monitoring, and food bookings on trains.

Vande Bharat trains will be introduced across India in three categories, Vande metro on routes of less than 100 kms, Vande chair car on 100 to 550 kms routes, and Vande Sleeper for routes of over 550 kms.

The Railways have proposed three economic corridors spanning over 40,000 km, with a total investment of about Rs 10 tn.

Over 1,300 railway stations will be refurbished using private funding. The renovated stations will have world-class facilities like retail malls and airport-style waiting lounges.

Metro networks will be expanded in additional urban areas. Metro is now operational or has been launched in 20 metropolitan cities.

Homegrown Bullet Train

India has begun the development of an indigenous bullet train expected to exceed speeds of 250 kilometres per hour (km/h), according to a media report.

This train would surpass the speed of any current trains within the Indian Railways network. It is constructed on the Vande Bharat platform, which currently reaches a maximum speed of 220 kilometres per hour.

The design process is currently in progress at the Integral Coach Factory (ICF) in Chennai, under the supervision of Indian Railways.

Globally, high-speed trains are those operating at speeds over 250 kilometres per hour, such as the French Train a Grande Vitesse and the Japanese Shinkansen.

India is using Japanese technology for the bullet trains planned for the Ahmedabad to Mumbai route. These trains, part of the Shinkansen E5 series, have a top speed of 320 km/h.

The Vande Bharat trains are developed domestically by ICF. These indigenous bullet trains will operate on the recently announced north, south, and east corridors. The new corridors will be using more Indian technology and domestic manufacturing.

These developments will complement the existing Western Corridor, which was established through collaboration with Japan, incorporating their advanced technology.

The Japan International Cooperation Agency (JICA) is extending a soft loan of approximately Rs 400 bn for the Mumbai-Ahmedabad High-Speed Rail project, with the total project cost exceeding Rs 1.1 tn.

The National High-Speed Rail Corporation Ltd (NHSRCL), responsible for executing the bullet train project, recently reported the completion of 300 kilometres of pier work.

Furthermore, the acquisition of land for the entire 508-kilometre stretch was finalised in January.

Which Railway Stocks Are Set to Benefit?

Here's a list of railway stocks that could benefit from these moves. These are not recommendations.

#1 Rail Vikas Nigam (RVNL)

Leading the list is Rail Vikas Nigam.

RVNL was incorporated in 2003 by the government of India. It is engaged in implementing various types of rail infrastructure projects assigned by the Ministry of Railways.

Some of its projects include doubling, gauge conversion, building new lines, major bridges, and railway electrification.

The company also takes up projects to set up metro lines in metropolitan cities and suburban networks.

So far, the company completed 120 projects, and 72 are under implementation.

This massive investment in new trains by the Indian Railways bodes well for Rail Vikas Nigam.

This is because RVNL acts as a crucial executing agency for various Indian Railway projects.

While not the sole player in the market, RVNL holds a significant position due to its strong government backing, expertise in project management, and track record of successful project completion.

This opens up ample opportunities for RVNL to participate in the development and execution of these projects, leveraging its expertise in project management, financing, and construction.

#2 IRCTC

Second on the list is the Indian Railway Catering and Tourism Corp (IRCTC).

IRCTC, which entered the primary markets by listing in October 2019, enjoys a strong monopoly. It has a 100% market share in the rail network.

IRCTC is the only entity authorised by Indian Railways to offer online railway tickets. The company charges convenience fees in the range of Rs 15-30 per ticket.

It's also the only entity authorised to manage catering services on trains and major static units at railway stations.

While the Rs 10 tn investment in new trains primarily targets infrastructure improvement, it can provide several benefits for IRCTC.

As the Indian Railways expands its fleet, the demand for catering services on trains and at railway stations may also increase. IRCTC, being the sole entity authorised to manage catering services, stands to benefit from this increased demand.

#3 Titagarh Rail Systems

Third on the list is Titagarh Rail Systems.

The company is mainly engaged in the manufacturing and selling of freight wagons, passenger coaches, metro trains, ships, etc.

It is one of India's largest wagon manufacturers, with a capacity of 8,400 wagons per annum.

Titagarh receives a significant portion of its revenue from the Indian Railways.

The significant investment by the Indian Railways aligns well with Titagarh Rail Systems' core business of manufacturing rolling stock, making it a beneficiary.

#4 Texmaco Rail

Fourth on the list is Texmaco Rail.

The company is the largest supplier of wagons to the Indian Railways, with strong in-house capabilities for designing special purpose wagons for core sectors such as cement, coal, alumina, chemicals fertilisers, thermal power projects, and more.

With the manufacturing plan of bullet trains in India, the demand for wagons for passengers is expected to surge significantly.

This growth directly benefits Texmaco Rail, given its established leadership position in the wagon manufacturing sector.

#5 IRFC

Fifth on the list is IRFC.

The company is the financing arm of the Indian Railways. It's a Government of India enterprise under the Ministry of Railways (MoR).

IRFC's principal business is to borrow funds from the financial markets to finance the acquisition/creation of assets, which are then leased out to the Indian Railways.

This capital-intensive project by the government will create a substantial funding requirement for the Indian Railways. IRFC, established as its dedicated financing arm, is perfectly positioned to benefit.

IRFC possesses expertise in project financing and risk management, gained through experience with previous railway projects.

This expertise will be valuable in structuring and managing the new train acquisition program financing.

#6 IRCON International

Sixth on the list is IRCON International.

Ircon International Limited (IRCON) is an integrated engineering and construction PSU, specialising in large and technologically complex infrastructure projects in a variety of sectors, such as railways, highways, and so on.

It specialises in railway projects on a turnkey basis.

In line with the government's modernisation plan for transforming railways with modern world-class facilities, the company is set to benefit with its specialisation in technologically complex infrastructure projects.

#7 RITES

Seventh on the list is RITES.

The company is a leading player in India's transport consultancy and engineering sector.

The company offers consulting for railways, airports, highways, and ports in India and abroad.

It also offers services such as third-party inspection, quality assurance, project management, export of rolling stock and modernisation of railway workshop projects.

The company stands poised to reap significant benefits from the government's modernisation agenda aimed at transforming railways with state-of-the-art facilities.

Given its expertise in handling technologically intricate infrastructure projects, the company is well-positioned to capitalise on this opportunity.

#8 Railtel Corporation of India

Last on the list is Railtel Corporation of India.

The company is one of the largest telecom infrastructure providers in the country. It is owned by the Government of India under the Ministry of Railways (MoR).

This gives it the privilege of owning the exclusive right to lay optical fibre cables and provide telecom-related services along the 60,000-route km of the Indian Railways' network.

Through this setup, it offers a telecom infrastructure that can host other telecom players at railway stations.

Besides, it offers diversified services that include telecom networks, data centre and hosting services, and project execution.

The government plans to increase Vande chair car on 100 to 550 km routes and Vande Sleeper for routes of over 550 km.

The company, being one of the largest telecom infrastructure providers in the country and owned by the Government of India under the Ministry of Railways (MoR), stands to benefit significantly from the plan to increase Vande chair car and sleeper services on railway routes.

Conclusion

While this stocks are set to benefit, here's the thing to keep in mind while hoping to earn from the railway sector.

One limitation of Indian railway stocks is their susceptibility to regulatory changes and government policies.

The railway sector in India is heavily regulated, and decisions made by regulatory bodies or changes in government policies can significantly impact the operations and profitability of railway companies.

This includes issues such as fare hikes, changes in freight rates, or alterations in investment plans, which can affect the financial performance and stock prices of railway companies.

Further, Indian Railways carries a significant debt burden, which can limit their ability to invest in upgrades and expansion plans. This debt can also restrict dividend payouts to shareholders.

This massive Rs 10-12 tn modernisation plan will help Indian railways to keep pace with economic growth. This investment will cover crucial aspects such as track laying, safety technology, and station upgrades.

For the financial year 2023-24, Indian Railways was given a budget of Rs 2.4 trillion by the government. Of this, 70% has already been used.

This highlights the need for funds. The proposed procurement of trains will involve maintenance contracts and specific conditions mandating their production within India, leveraging existing railway infrastructure.

The Indian Railways at present operates 10,754 daily train trips, and the plans to add 3,000 more trains aim to eradicate waiting lists.

This will enhance the performance of companies operating in the railway sector, providing them with more opportunities.

With so many triggers for growth, railway stocks could potentially benefit over the near term.

However, conduct thorough research before you invest in any of them. Sustained research must not be compromised despite the positive odds.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...