Which Companies Build Metros and Vande Bharat Trains in India?

Among the biggest buzzing stories in the Indian stock market recently was the mega spending plan announced by the Indian railways. We believe, there are significant opportunities for investors in the great Indian railway boom.

In this editorial we will cover the top stocks that could benefit specifically from the development of metro systems and the Vande Bharat network.

Please note, the plan is much bigger that what we will cover here. This editorial will focus on the opportunities in the exciting Vande Bharat and metro spaces.

Here's a quick update of the relevant plans outlined by the Indian railways.

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

Union Railways Minister Ashwini Vaishnav shed light on the upgrade that aims to cater to the nation's evolving transportation needs and eliminate waiting lists in the long term.

Among the major projects in this grand plan are metro trains and Vande Bharat trains.

As per the Indian Railways, 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 km routes, and Vande sleeper for routes of over 550 km.

Also, metro networks will be expanded in additional urban areas. Metros are now operational or launched in 20 cities so far in India.

With this massive fund allocation, the railway sector has garnered significant attention in the stock market. Some railway companies will be the prime beneficiaries.

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

#1 Rail Vias Nigam Ltd (RVNL)

Rail Vias Nigam Ltd (RVNL) was incorporated in 2003 by the government of India. It's engaged in implementing various types of rail infrastructure projects assigned by the Ministry of Railways.

RVNL does not manufacture rail coaches. It's a railway infrastructure development company.

Infrastructure needs to be developed so that the rail coaches can operate. This is way we believe this PSU will likely be the biggest beneficiary of the massive spending plan of the Indian railways.

The company has vast experience in this field. 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 RVNL. This is because the company 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.

The new spending plan of the Indian Railways opens up ample opportunities for RVNL to participate in the development and execution of these mega projects. It can leverage its expertise in project management, financing, and construction to grow its revenue and profits in the near future.

For more details, check out RVNL's fact sheet and quarterly results.

#2 Titagarh Rail Systems

Titagarh Rail Systems is mainly engaged in the manufacturing and selling of freight wagons, passenger coaches, metro trains, ships, etc.

It's 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.

Back in June 2023, a consortium led by Titagarh Rail Systems and BHEL won a significant Vande Bharat order worth Rs 240 billion (bn). The order was for manufacturing 80 fully assembled Vande Bharat sleeper train sets by 2029 and maintaining them for a period of 35 years.

The significant investment by the Indian Railways in acquiring new trains aligns well with Titagarh Rail Systems' core business of manufacturing rolling stock.

The company stands to benefit from increased orders, revenue growth, and potential diversification opportunities, making it a key player in the expansion of the Indian rail network.

Going forward, the company is looking for strategic partnerships to drive growth. It's also looking to capitalise on the government's Make in India initiative.

For more details, check out Titagarh Rail Systems' fact sheet and quarterly results.

#3 Texmaco Rail & Engineering

Texmaco Rail is part of the Adventz Group. It's the largest supplier of wagons to the Indian Railways.

The company is involved in manufacturing freight cars, auto car wagons, locomotive bogies, coach bogies, hydro-mechanical equipment, and steel casting. It's also involved in designing, supplying, installing, and commissioning mainline railway and metro tracks.

The mega spending plan of the Indian Railways will significantly increase the demand for rail wagons. This directly benefits Texmaco Rail, given its established leadership position in wagon manufacturing.

It has 5 manufacturing plants in West Bengal and Chhattisgarh. The company also has strong in-house capabilities for designing special purpose wagons for sectors such as cement, coal, alumina, chemicals fertilisers, thermal power projects, and more. It's among the largest suppliers of freight cars in India.

It supplies its products to several companies, including Indian Railways, Grasim, Vedanta, ACC Cement, Adani Ports, and SAIL. It's currently manufacturing 500 wagons a month and is aiming to hit 1,000 in the next few years. It's also working on backward integration to reduce costs and improve margins.

The company has recently strengthened its balance sheet with a qualified institutional placement (QIP) of equity shares. This equity infusion was through a preferential allotment QIP worth Rs 7.5 bn.

For more details, check out Texmaco Rail & Engineering's fact sheet and quarterly results.

#4 Jupiter Wagons

Jupiter Wagons is a prominent manufacturer of railway wagons, wagon components, and load bodies for commercial vehicles in India.

It a major supplier to the India Railways but it also caters to commercial vehicle companies like Tata Motors, M&M, etc.

The Indian Railways is concentrating on improving its network all across the country to meet the growing demand for travel and logistics. Due to this, Jupiter Wagons has profited enormously over the last few years.

It jumped on the railway opportunity when it acquired Commercial Engineers & Body Builders Co Ltd (CEBBCO) through a stressed asset sale. This acquisition increased its wagon manufacturing capacity.

At present, Jupiter Wagons is one of the largest wagon manufacturers in India, with a capacity of 9,600 wagons per annum. This capacity has enabled the company to bid for and secure several orders over the last five years.

These orders have been secured from both the government as well as private companies. This steady flow of orders has helped the company grow its revenue tenfold.

In fact, the company is now investing funds to increase its production capacity to 12,000 by June 2024. This will increase the company's order execution speed.

Going forward, the company has a good change of keeping up its momentum in order execution. This should maintain its revenue and profit growth over the medium term.

To know more, check out Jupiter Wagons' financial factsheet and quarterly results.

#5 BHEL

This is a not a company that one might expect to see on a list like this. But there is no doubt that Bharat Heavy Electricals Ltd (BHEL) is going to be a big beneficiary of the Indian Railways' mega spending plan.

The company is a leading integrated power plant equipment manufacturer in India. But in the past one year or so, it has bagged a slew of orders from Indian railways.

BHEL has been supplying locomotives, electrics for EMU/MEMU, propulsion systems, traction motors, traction alternators, traction transformers, among other components, to the Indian Railways.

The company is aiming to be a valuable partner in the Indian Railways' plan of modernising its network, the expansion of Vande Bharat trains, etc.

Along with Titagarh Rail Systems, BHEL won a significant Vande Bharat order. The order was for manufacturing 80 fully assembled Vande Bharat sleeper train sets by 2029 and maintaining them for a period of 35 years.

This was the first ever mega order won by the company from Indian Railways. The order value was Rs 240 billion (bn). This is expected to the first of many mega railway orders the company can win.

BHEL has signed a Memorandum of Understanding (MoU) with the Indian railways for setting up a greenfield mainline electric multiple unit coach factory in Bhilwara, Rajasthan.

Recently, Rail Infrastructure Development Company of Karnataka invited bids for 306 A/C, metro-like coaches for the Bengaluru Suburban Railway Project. BHEL was among the qualifying companies.

The company's stock jumped recently after it announced a strategic partnership agreement (SPA) with HIMA Middle East FZE, Dubai, for the railway signalling business. HIMA Middle East FZE is a wholly owned subsidiary of HIMA Paul Hildebrandt GmbH, Germany.

The future certainly looks bright for BHEL in the railway business.

For more details, check out BHEL's fact sheet and quarterly results.

Railway Ancillary Companies

Apart from the companies mentioned above, investors should also look at the railway ancillary companies that are driving modernisation and efficiency.

Just like auto and auto ancillary stocks, the performance of railway and railway ancillary stocks go hand in hand. Check our detailed editorial on these stocks here - Top 7 Railway Ancillary Stocks to Play the Railway Theme in 2024.

Keep these stocks on your watchlist as the Indian Railways focuses on upgrading its railway infrastructure to achieve higher efficiency and reliability.

Conclusion

The massive spending plan will help Indian railways modernise and keep pace with travel and freight demand. In addition to acquiring rolling stock, this investment also covers crucial aspects such as track laying, safety technology, and station upgrades.

The proposed procurement of trains will also involve maintenance contracts and specific conditions mandating their production within India. This will be done to leverage existing railway infrastructure.

Along with the big plans for metro trains, Vane Bharat trains, and bullet trains, the Indian Railways, plans to add 3,000 trains overall to eradicate waiting lists.

This will enhance the performance of companies operating in the railway sector, providing them with many growth opportunities. With so many triggers for growth, railway stocks could potentially benefit over the short and medium term.

However, it's important to conduct thorough research before considering investments in any railway stock. Sustained research must not be compromised despite the strong growth prospects.

Happy investing.

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...