Top Railway Shares in India 2024: Railway Companies to Add to Your Watchlist

The Indian Railways has been undergoing a remarkable transformation. Thousands of crores are being poured into revamping the infrastructure, connecting new regions, and enhancing passenger facilities.

A post-election 2024 mega-modernisation plan envisions investments of Rs 10-12 trillion (tn) over the next five years.

This ambitious plan will transform the railways with world-class facilities and initiatives for enhanced passenger experience like faster refunds and the upcoming super app.

Additionally, the expansion of Vande Bharat trains in various categories, economic corridor development, station revamps, and metro network expansion, have also added to the fire.

India is also embarking on a technological leap with the development of a homegrown bullet train.

This project uses a blend of strategic collaboration (in the western corridor) and a domestic manufacturing focus (in the norther, southern and eastern corridors).

As a result, investors are increasingly turning their attention to top Indian Railway companies, anticipating favourable returns.

However, the potential for gain extends beyond industry stalwarts like IRCTC, RVNL, and IRFC.

Bearing this in mind, we break down the Indian Railway value chain and highlight key players that will capitalise on this transformative opportunity.

I) State-owned monopolies

The list encompasses state-owned giants that hold a monopoly within their respective segments, wielding significant influence across the railway ecosystem.

They cater to a wide range of specialities, ensuring the smooth functioning of the railways.

# 1 IRCTC

At the top of our list, we have IRCTC.

IRCTC acts as the central hub for online railway ticketing in India. The company enjoys a monopoly as the sole authorised entity for this service.

It generates revenue through convenience fees associated with each booking. For passengers seeking food and beverages on trains or at major railway stations, IRCTC remains the only option.

It holds exclusive rights to manage catering services across these locations, ensuring travellers can access meals and refreshments throughout their journeys.

IRCTC has established itself as the go-to source for hydration on trains. It's "Rail Neer" brand is the only authorised provider of packaged drinking water at stations and on trains, a designation granted by the Ministry of Railways.

This strong market position allows IRCTC to capitalise on the upcoming growth within Indian Railways. As the network expands and the number of trains increases, the demand for catering services is bound to rise.

Future railway expansion plans could potentially solidify IRCTC's dominant role even further.

This explains the robust growth reported by the business.

Between 2019-2023, the sales and net profits have grown at 5-year CAGR of 18.9% and 35.6% respectively.

The returns have been robust with the Return on Capital Employed (RoCE) and Return on Equity (RoE) averaging at 49.2% and 34.6% respectively.

IRCTC Financial Snapshot (2019-23)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	27.17%	19.66%	-63.24%	126.97%	87.24%
Operating Profit Margin (%)	25.25%	34.38%	35.12%	50.54%	39.44%
Net Profit Margin (%)	16.50%	22.66%	24.08%	35.11%	28.40%
Return on Capital Employed(%)	47.70%	62.00%	19.19%	53.90%	63.01%
Return on Equity (%)	30.61%	43.03%	13.51%	39.66%	46.26%

Data Source: Ace Equity

Looking ahead, IRCTC is poised for a surge in business as the demand for railways increases.

With their established presence in crucial passenger touchpoints, IRCTC is a key beneficiary of Indian Railways' growth trajectory.

To know more about the company, check out its financial factsheet and quarterly results.

#2 IRFC

Next on our list is IRFC.

The state-owned Indian Railway Finance Corporation is the dedicated financing arm of Indian Railways.

The company's core function lies in mobilising funds through capital markets to finance the acquisition or creation of railway assets.

These assets, encompassing locomotives, coaches and wagons, are then leased back to Indian Railways under long-term agreements.

IRFC acts as a financial intermediary, leveraging its expertise in project financing and risk management, with decades of experience.

This expertise will be invaluable in structuring and managing the financing of the government's ambitious new train acquisition program.

The Indian government's capital investment in railway expansion translates into a substantial funding requirement for Indian Railways.

IRFC's strategic positioning as the financing arm makes it a prime beneficiary of this growth. IRFC also boasts a robust financial profile with a clean record (nil gross NPA) and low operating expenses.

Between 2019-2023,l with the revenue and net profit have grown at a 5-year CAGR of 16.8% and 25.9%.

IRFC Financial Snapshot (2019-23)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	1.03%	20.55%	17.51%	28.73%	17.89%
Operating Profit Margin (%)	99.56%	99.51%	99.28%	99.41%	99.61%
Net Profit Margin (%)	20.25%	23.78%	28.00%	30.00%	26.52%
Return on Capital Employed(%)	6.38%	5.76%	5.02%	5.12%	5.32%
Return on Equity (%)	11.68%	11.54%	13.34%	15.84%	14.66%

Data Source: Ace Equity

The RoCE and RoE has averaged a 5-year CAGR of 5.5% and 13.4%, respectively.

Looking ahead, the company has plans to strategically diversify its financing portfolio, venturing into new dimensions of railway infrastructure projects.

This evolution positions IRFC to play an even greater role in propelling the modernisation and expansion of the Indian railway network.

To know more about the company, check out its financial factsheet and quarterly results.

#3 RailTel Corporation of India

Third on our list is RailTel Corporation of India.

RailTel Corporation of India is a leading PSU telecommunications infrastructure provider. It focuses on offering high-speed broadband and networking services to the railway sector. It also offers comprehensive data centre solutions.

RailTel enjoys a unique privilege - the exclusive right to lay optical fibre cables and provide telecom services across the massive 60,000-km Indian Railways' network.

It's portfolio comprises, transformation and systems management, hosting and co-location services, as well as the development of a secure and energy-efficient infrastructure.

Beyond this core function, RailTel has diversified into telecom networks, data centres, and hosting services and project execution.

RailTel's financial performance paints a compelling picture of stability and profitability.

Railtel Corporation of India Financial Snapshot (2019-23)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	0.70%	12.51%	20.99%	11.79%	27.02%
Operating Profit Margin (%)	33.64%	33.18%	26.36%	25.81%	21.55%
Net Profit Margin (%)	11.12%	12.51%	10.34%	13.49%	9.63%
Return on Capital Employed(%)	14.90%	14.60%	14.65%	19.70%	16.81%
Return on Equity (%)	8.78%	10.61%	10.24%	14.22%	11.91%

Data Source: Ace Equity

Between 2019-2023, the sales and net profit have reported a 5-year CAGR of 14.2% and 3.7%, respectively.

The returns have been strong, with the RoCE and RoE averaging at 16.1% and 11.2%.

RailTel maintains a debt-free balance sheet, a significant advantage in today's economic climate.

Railtel's experience of over two decades, coupled with its strategic relationship with Indian Railways, positions it as a preferred partner for government projects.

The company has been entrusted with implementing critical initiatives like the National Knowledge Network (NKN), Bharat Net and the USOF-funded optical fibre connectivity project in North-Eastern India.

Its collaboration with Indian Railways also extends to the installation of an IP-based video surveillance system at 6,049 railway stations across the country.

RailTel Corporation of India is a financially strong and profitable telecom player with a strategic advantage within the Indian Railways network.

It's consistent profitability, impressive growth, and debt-free balance sheet, positions it for continued success.

To know more about the company, check out its financial factsheet and latest quarterly results.

#4 Container Corporation of India (CONCOR)

Fourth on our list is the Container Corporation of India.

Container Corporation of India, popularly called CONCOR, is India's largest railway logistics company.

The company is the undisputed leader, commanding a 75% market share in containerized rail transport.

CONCOR's dominance stems from its enviable first-mover advantage. Until 2006, it operated as the sole player in the industry, building a vast and efficient network that remains unmatched by any competitor.

While new entrants emerged after 2006, none have been able to replicate CONCOR's well-established infrastructure and extensive reach.

This robust network, combined with economies of scale, grants CONCOR pricing power and cost efficiency.

However, the past three years have presented challenges.

Between 2019-2023, the sales and net profit have reported a 5-year CAGR of 4.2% and 2.1%, respectively.

Consequently, its FY23 return ratios (10.6% RoE and 14.7%RoCE) have also shown weakness.

CONCOR Financial Snapshot (2019-23)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	5.42%	-6.60%	-1.40%	17.93%	7.40%
Operating Profit Margin (%)	29.86%	29.41%	20.19%	25.67%	26.23%
Net Profit Margin (%)	17.31%	6.13%	7.67%	13.56%	14.12%
Return on Capital Employed(%)	16.64%	5.56%	7.04%	13.84%	14.73%
Return on Equity (%)	12.44%	3.98%	4.95%	10.06%	10.68%

Data Source: Ace Equity

Over the past few years, the company has been spending a lot on expansion. Most has gone towards multi-modal logistics parks and other infrastructure.

The logistics major will end the financial year 2024 with a total capex of Rs 6 bn.

Looking ahead, the company stands to benefit from a multitude of tailwinds.

These include the commencement of operations for the dedicated freight corridor (DFC) project from CONCOR's Khatuwas terminal, good demand in domestic containers, a healthy fleet of rakes, and a network of strategically located terminals across the country.

Despite recent setbacks, CONCOR's established network, economies of scale, and strategic expansion plans, will ensure it remains the dominant force in India's rail logistics landscape.

To know more about the company, check out its financial factsheet and latest quarterly results.

II) Railway EPC Companies

We've explored four government-owned giants, but the Indian Railways transformation story extends far beyond them.

The following list of companies are the EPC players in the railway sector. These companies are the architects of the railways' infrastructure revolution.

They handle the entire project lifecycle from design and engineering to procurement of materials, and construction.

#1 RITES

RITES, a central public sector undertaking under the Ministry of Railways, has carved a niche as a multidisciplinary engineering and consultancy organisation.

The company offers a comprehensive range of services encompassing the entire project lifecycle, from concept to commissioning, across various facets of transport infrastructure and related technologies.

A string of recent order wins has bolstered RITES' near-term revenue visibility.

These include a Rs 4.1 billion (bn) contract for infrastructure development at IIT-Bhubaneswar, a Memorandum of Understanding to support North Eastern Electric Power Corporation (NEEPCO) with rail infrastructure projects, and a Rs 3.1 bn pact with CFM Mozambique for the supply of diesel locomotives.

These triumphs contribute to RITES' robust order book position, which stood at a healthy Rs 54 bn as of the December 2023 quarter.

Significantly, nearly half of this order book comprises high-margin consultancy services, ensuring strong profitability.

Between 2019-2023, the sales and net profit have registered a 5-year CAGR of 10.6% and 9.9%, respectively. The returns have been strong, with the RoCE and RoE averaging at 29.9% and 21.7%, respectively.

Rites Financial Snapshot (2019-23)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	35.72%	22.05%	-26.69%	36.92%	-0.56%
Operating Profit Margin (%)	33.59%	33.43%	29.90%	27.64%	28.21%
Net Profit Margin (%)	21.38%	22.98%	20.46%	18.44%	19.03%
Return on Capital Employed(%)	31.20%	34.29%	23.48%	30.07%	30.52%
Return on Equity (%)	21.13%	25.05%	17.68%	22.07%	22.42%

Data Source: Ace Equity

Looking ahead, RITES aspires for double-digit bottom-line growth. It is witnessing encouraging growth in the quality assurance (QA) sector, particularly among non-Indian Railway clients.

The company remains committed to its core consultancy business while strategically integrating a new vertical focused on sustainability, aligning with current environmental priorities.

RITES is actively pursuing international expansion, targeting new markets with different railway gauges, particularly those employing cape gauge.

This strategic move is expected to generate export revenue that will start flowing by financial year 2025.

The company anticipates a stable annual revenue base of approximately Rs 4-5 bn from rolling stock exports.

To know more about the company, check out its financial factsheet and latest quarterly results.

#2 Rail Vikas Nigam (RVNL)

Sixth on the list is Rail Vikas Nigam.

Rail Vikas Nigam (RVNL), established in 2003 by the Indian government, is a critical player in the country's rail infrastructure development.

The company acts as the Ministry of Railways' execution arm, undertaking various projects including doubling existing lines, gauge conversion, new line construction, major bridges, and railway electrification.

RVNL is expanding its reach into metro line development for major cities and suburban networks. So far, the company has a successful track record, having completed 120 projects with 72 currently underway.

Between 2019-2023, the revenues and net profit have grown at a 5-year CAGR of 21.8% and 20.1%. The returns have been robust, with the RoCE and RoE averaging at 15.2% and 18.1%, respectively.

RVNL Financial Snapshot (2019-23)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	31.30%	42.61%	8.82%	25.02%	5.43%
Operating Profit Margin (%)	8.59%	7.51%	10.51%	10.23%	11.06%
Net Profit Margin (%)	6.83%	5.21%	6.44%	5.73%	7.00%
Return on Capital Employed(%)	13.99%	12.19%	15.69%	16.27%	17.83%
Return on Equity (%)	16.53%	15.90%	18.44%	18.56%	20.81%

Data Source: Ace Equity

RVNl's strong performance and government backing, positions it well to benefit from India's massive investment in new trains and rail infrastructure.

Its expertise in project management, financing and construction makes it a natural choice for executing new lines, station redevelopment, and other crucial initiatives.

Recent recognition as a Navratna company grants RVNL greater autonomy in project execution, capital expenditure and international ventures.

This empowers it to attract top talent and pursue opportunities beyond India's borders. The company has already secured a significant overseas project worth approximately Rs 180 bn (bn) with Kyrgyzstan and is actively exploring further expansion.

RVNL's strong order book currently sits at over Rs 650 bn, encompassing railway, metro and overseas projects.

The company's recent win as the lowest bidder for a key section of the Indore metro rail project exemplifies its continued success in securing major contracts.

Beyond geographical expansion, RVNL is also forging partnerships within the rolling stock manufacturing sector, solidifying its position in the rail ecosystem.

With a confident outlook and a target order book of Rs 750 bn to Rs 1 tn, RVNL is poised for sustained growth.

As the substantial order book translates into project execution, RVNL's margins are expected to improve, further strengthening its position as a leader in Indian rail infrastructure development.

To know more about the company, check out its financial factsheet and latest quarterly results.

#7 IRCON International

Seventh on the list is IRCON International.

IRCON International, a wholly-owned government of India enterprise, is a leading player in the country's infrastructure development sector.

The company's core focus areas include railway and highway construction, engineering and construction of EHV substations and mass rapid transit systems (MRTS).

While it delivers projects across all segments, railways remain their contributors to over 90% of their revenue.

The company boasts a robust order book, ensuring a steady stream of projects over the next 1-2 years. It faces limited competition, with Rail Vikas Nigam (RVNL) being their primary competitor.

Interestingly, there's talk of a potential merger between these two entities, creating a formidable infrastructure giant.

This consolidation would not only lead to increased capital allocation but also unlock significant synergies that could propel further growth.

IRCON Financial Snapshot (2019-23)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	21.84%	11.92%	-5.29%	35.47%	43.07%
Operating Profit Margin (%)	22.44%	20.27%	16.88%	13.19%	12.30%
Net Profit Margin (%)	9.38%	9.00%	7.31%	8.03%	7.38%
Return on Capital Employed(%)	14.95%	18.56%	18.93%	17.37%	18.77%
Return on Equity (%)	11.65%	11.93%	9.12%	13.06%	15.50%

Data Source: Ace Equity

IRCON's leadership status in the sector is reflected in its consistent financial performance. Over the five years, 2019-2023, it has delivered a healthy revenue CAGR of 20% and a net profit CAGR of 13.4%.

The returns have been rangebound, with the RoCE and RoE averaging over 5 years at 17.7% and 12.3%, respectively.

The strong financial health is further bolstered by a robust balance sheet with minimal debt.

Looking ahead, IRCON International is well-positioned to leverage its expertise and government backing to contribute significantly to India's infrastructure development goals.

To know more about the company, check out its financial factsheet and quarterly results.

#8 K&R Rail Engineering

Eight on our list is K&R Rail Engineering.

K&R Rail Engineering has become a leading force in India's private railway siding construction.

The company provides comprehensive Engineering, Procurement, Construction and Commissioning (EPCC) services, acting as a one-stop shop for clients.

Its expertise extends beyond construction, encompassing independent techno-economic and engineering surveys, planning and project management, ensuring a smooth journey for private railway projects.

K&R Rail boasts a strong execution record (having completed railway projects over Rs 25 bn), translating into a significant revenue surge in FY23.

Its commitment to timely project completion has earned the company repeat business from a prestigious clientele, including Ramco Cements, ACC and Tata Projects.

K&R Rail Engineering Financial Snapshot (2019-2023)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	-25%	113%	1%	50%	58%
Operating Profit Margin (%)	6%	7%	7%	6%	4%
Net Profit Margin (%)	3%	2%	3%	3%	2%
Return on Capital Employed(%)	2.40%	2.50%	4.50%	6.20%	3.9
Return on Equity (%)	7.70%	6.90%	13.20%	16.20%	12.10%

Data Source: Ace Equity

This explains the surge in business. Between 2019-2023, the sales and net profits have grown at a 5-year CAGR of 30.3% and 170.2%, respectively.

The returns have been rangebound, with the RoCE and RoE averaging at 13% and 11%, over the same period.

However, a potential risk lies in the company's dependence on a select few top clients; any order cancellations from these key players could pose a challenge.

Looking beyond India, K&R Rail recently signed a significant MoU for a half billion dollar cable car project in Nepal, showcasing its expanding capabilities.

Additionally, it is setting its sights on international expansion. To tap into the Middle East market, they established a wholly-owned subsidiary, K&R Global LLC, based in Dubai.

K&R Rail Engineering is making strategic moves to boost profitability. The company recently added niche product lines with high margins and promising sales volume. By the financial year 2025, it expects these value-added products to contribute 25% of its revenue.

The first two quarters of the financial year 2024 witnessed continued profit growth and improved operating margins, positioning the company for a promising future with a robust order book and efficient execution.

While the promoters have modestly reduced their holdings, they still maintain a comfortable majority stake and the company remains debt-free.

To know more about the company, check out its financial factsheet and quarterly results.

III) Locomotive and Wagon Manufacturers

Having explored the monopolistic giants catering to the Indian Railways, let's shift our focus to the other set of heavyweights - the companies that manufacture the locomotives and wagons that form the backbone of the Indian Railways.

#1 Titagarh Rail Systems

Titagarh Rail Systems, formerly known as Titagarh Wagons, is a prominent player in India's private rolling stock manufacturing sector.

The company is one of India's largest wagon manufacturers, boasting a capacity of 8,400 wagons per annum.

Since its establishment in 1984, it has grown into a diversified supplier, catering to both passenger and freight segments.

Its product portfolio encompasses freight wagons (including loco shells, bogies and couplers), electric propulsion equipment (traction motors and control systems) and passenger coaches (including EMUs, MEMUs and metro trains).

Titagarh leverages a strong domestic presence with a well-established foundry operation and manufacturing facilities across India.

The company has also expanded its global reach through a subsidiary, Titagarh Firema SpA, based in Italy.

Titagarh Rail Systems Financial Snapshot (2019-23)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	0.22%	0.13%	-0.14%	-0.05%	0.89%
Operating Profit Margin (%)	7.44%	8.77%	6.94%	12.45%	11.01%
Net Profit Margin (%)	3.33%	3.28%	-1.24%	5.30%	4.84%
Return on Capital Employed(%)	5.27%	7.84%	4.75%	9.69%	18.58%
Return on Equity (%)	6.24%	7.35%	-2.34%	9.26%	14.91%

Data Source: Ace Equity

It has capitalised on Indian Railways' modernisation initiatives, growing significantly in recent years.

Between 2019-2023, Titagarh's sales have reported a 5-year CAGR of 16.5%.

However, the net profit has been erratic, growing strongly in the financial years 2022 and 2023. Consequently, the returns have been weak, with the RoCE and RoE averaging at 9.2% and 7.1%, respectively over a 5 year period.

Looking ahead, Titagarh is well-positioned to benefit from ongoing investments in the Indian railway network.

A significant portion of its revenue comes from Indian Railways and the government's push to acquire new trains.

This perfectly aligns with the company's core business. This translates to increased order opportunities, potential revenue growth and even diversification prospects.

Going forward, the company seeks to capitalize on the government's "Make in India" initiative by forging strategic partnerships that leverage domestic manufacturing capabilities.

To know more about the company, check out its financial factsheet and quarterly results.

#2 Texmaco Rail & Engineering

Texmaco Rail & Engineering is a dominant force in the Indian wagon manufacturing sector.

The company caters to both passenger and freight needs, offering a comprehensive range of products. This includes freight cars, auto car wagons, loco and coach bogies, hydro-mechanical equipment and steel castings.

Texmaco's expertise extends beyond manufacturing; it also designs, supplies, installs and commissions mainline railway and metro tracks.

The company boasts a strong production base with five manufacturing facilities across West Bengal and Chhattisgarh.

It's a leading supplier of freight cars in India, serving not only Indian Railways but also prominent names like Grasim, Vedanta, ACC Cement, Adani Ports and SAIL.

The company acknowledges historical fluctuations in profitability due to raw material price volatility.

However, Texmaco has implemented proactive measures to improve operational efficiency and cost reduction. These efforts are reflected in their rising profit margins over the past years.

Texmaco Rail & Engineering Financial Snapshot (2019-23)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	59.71%	-0.32%	-4.12%	-5.20%	34.30%
Operating Profit Margin (%)	9.24%	8.94%	7.86%	8.96%	6.61%
Net Profit Margin (%)	3.63%	-3.42%	0.20%	0.67%	0.44%
Return on Capital Employed(%)	9.45%	-0.31%	5.73%	6.39%	6.24%
Return on Equity (%)	6.67%	-6.46%	0.34%	1.00%	0.86%

Data Source: Ace Equity

Between 2019-2023, the sales have surged at a 5-year CAGR of 14.2%. Much like its peers, the company has also reported a dip in profitability, recovering in the last few years.

As a result, the returns have been volatile with the RoCE and RoE dipping to 6.2% and 0.9% in the financial year 2023.

Looking ahead, Texmaco has ambitious growth plans. It aims to double the wagon production capacity from 500 to 1,` by Indian Railways' ambitious 15-year expansion plan.

This growth trajectory presents opportunities for long-term partnerships, technological advancements and collaborative projects between Texmaco and Indian Railways.

To know more about the company, check out its financial factsheet and quarterly results.

#3 Siemens (locomotives)

The Indian arm of the largest industrial manufacturing company in Europe, Siemens India operates as an electric equipment manufacturer.

Siemens has a long history of providing cutting-edge railway technology, making them a valuable partner for Indian Railways.

It's multifaceted approach positions them as a one-stop shop for Indian Railways' technological needs.

From advanced signalling to cutting-edge locomotive technology and electrification solutions, Siemens is a key player driving the modernisation of Indian Railways.

In January 2023, the company won it's biggest-ever railway order. It won an order of around Rs 260 bn.

It includes an order of 1,200 locomotives from the Indian railways. These 1,200 locomotives will be delivered over the period of 11 years followed by a maintenance period of 35 years.

The recent earnings report of Siemens suggests that it's all set for another year of bumper earnings as private capex turns around the laggard cycle.

The company's order book and earnings growth anticipated over the next two years suggests that the best is yet to come.

Between 2019-2023, the company's revenues have grown by a 4.1% CAGR, the profits have also grown by 4.6% CAGR in the same period.

With no debt on its books, the business has generated an average RoE of 20.3% in the past 10 years.

Siemens Financial Snapshot (2019-23)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	16%	2%	-24%	33%	22%
Operating Profit Margin (%)	13%	15%	14%	13%	13%
Net Profit Margin (%)	7%	8%	8%	8%	10%
Return on Capital Employed(%)	11.3	13.1	8.3	10.4	11.5
Return on Equity (%)	18	20.2	11.8	14.6	16.2

Data Source: Ace Equity

The management of Siemens intends to be a part of the process of developing an efficient railway sector and in return gain big orders.

To know more about the company, check out its financial factsheet and quarterly results.

#4 Bharat Heavy Electricals Limited

Bharat Heavy Electricals Limited (BHEL) is a prominent player in India's infrastructure development space.

The company has established itself as a leading integrated power plant equipment manufacturer, catering to diverse sectors like power, transmission, transportation, renewable energy, oil and gas, and even defence.

It's core strength lies in its comprehensive service portfolio, encompassing design, engineering, manufacturing, erection, testing, commissioning, and servicing of a wide range of products.

BHEL, capitalising on the Indian Railways' modernisation push, has secured a slew of significant orders in the past year.

A notable achievement was the Vande Bharat project, where BHEL, as part of a consortium led by Titagarh Rail Systems, secured a landmark order in June 2023.

The contract, valued at approximately Rs 240 bn, entails manufacturing and maintaining 80 fully assembled Vande Bharat sleeper train sets by 2029, marking the first mega order entrusted to an Indian consortium by Indian Railways.

BHEL's financial performance reflects this positive momentum. Between 2019-2023, driven by a healthy order book, the revenue has grown steadily at a CAGR of 9.2% over the past three years.

The company has emerged from a period of net losses, reporting a net profit of Rs 4.7 bn in the financial year2023, a significant turnaround from the net loss of Rs 26 bn three years prior.

BHEL Financial Snapshot (2019-23)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	6%	-29%	-19%	23%	10%
Operating Profit Margin (%)	9%	2%	-16%	6%	6%
Net Profit Margin (%)	3%	-7%	-16%	2%	2%
Return on Capital Employed(%)	2.00%	0.00%	0.00%	0.40%	0.40%
Return on Equity (%)	3.20%	-4.90%	-9.90%	1.70%	1.80%
Revenue Growth (%)	0.1	0.2	0.2	0.2	0.2

Data Source: Ace Equity

BHEL's prospects show promise. The company recently qualified for bids to procure 306 air-conditioned metro-like coaches for the Bengaluru suburban railway project by the Rail Infrastructure Development Company of Karnataka.

This, coupled with their robust order book exceeding Rs 1 tn as of December 2023, positions BHEL as a key player poised to contribute significantly to India's ongoing infrastructure development story.

To know more about the company, check out its financial factsheet and quarterly results.

IV) Railway Ancillary Companies

The last list of stocks comprises of the railway ancillary companies.

These forms mostly from the private sector offer a diverse range of components that keep the railways going.

The railway ancillary sector encompasses a vast array of crucial elements, including everything from passenger comfort (seats, berths, lavatory doors) to safety (signaling systems), and operational efficiency (forged wheels, inter-vehicular couplers).

#1 Oriental Rail Infrastructure

Oriental Rail Infrastructure manufactures a wide range of products for Indian Railways. This includes passenger coach components like seats, berths, chairs, and lavatory doors.

Apart from this, through its subsidiary, Oriental Foundry, the company also manufactures heavier equipment like railway rolling stock, wagons, bogies, couplers, and draft gears.

They're a leader in the seat & berth segment, holding over 50% market share. While revenue surged in FY23, profitability lagged due to a loss in the final quarter.

However, the first two quarters of this year show significant improvement, positioning ORIL for better earnings.

ORIL has consistently expanded its offerings, recently adding coupler bodies and bogies and venturing into wagon production in FY19.

Between 2019-2023, the revenue has grown at a 5-year CAGR of 19.7%.

In FY23, the company saw a steep spike in its revenue, but failed to capitalise on the profitability after posting a loss in the last quarter of the year. This explains the dip in RoE and RoCE in 2023.

Oriental Rail Infrastructure Financial Snapshot (2019-23)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	6%	92%	-17%	-22%	88%
Operating Profit Margin (%)	16%	17%	15%	19%	8%
Net Profit Margin (%)	8%	9%	7%	9%	1%
Return on Capital Employed(%)	24.7	37.9	18.6	16	3
Return on Equity (%)	10.2	17.5	10.9	10.1	5.8

Data Source: Ace Equity

However, it's all set to post better earnings this year as the performance of first two quarters was more than satisfactory and much higher compared to the previous year's quarters.

Moreover, a recent partnership with United Waggon (Russia) allows ORIL to provide design, technical details and support for modern wagons and bogies for Indian Railways.

This, along with their expanded bogie and wagon manufacturing capacity, positions ORIL for strong future growth.

To know more about the company, check out its financial factsheet and quarterly results.

#2 Ramkrishna Forgings

Ramkrishna Forgings is the country's second-largest forging company.

The company manufactures a diverse range of over 2,000 products for both auto and non-auto applications, exporting to 22 countries with a strong presence in North America and Europe.

Its exposure to railways comes from forged components for railway wagons & coaches. Apart from this, the company caters to critical sectors like earth moving & mining, general engineering, and oil exploration.

Ramkrishna Forgings recently garnered attention with a Rs 10 bn fundraising plan via a QIP to reduce debt and fuel growth initiatives.

This follows a significant achievement in 2023 - receiving a joint LOA with Titagarh Wagons to manufacture and supply forged wheels for the Indian Railways.

A dedicated manufacturing plant with a capacity of 200,000 wheels per year is being established in India, with operations expected to commence by FY26.

The company is undergoing a significant capacity expansion with a capex plan exceeding Rs 1 bn to add 25,000 tons of capacity. This cold forging press line, commissioned in Q1 FY25, is already fully booked by an OEM for a 7-year term.

Their focus on execution has translated into repeat orders and a loyal customer base. This, combined with their extensive experience, has fueled impressive growth.

Between 2019 and 2023, Ramkrishna Forgings expanded its product portfolio by 16 (up from 35), entered 3 new verticals, and grew its customer base from 153 to 218, expanding its footprint to 22 countries.

This translates to a healthy 5-year CAGR in both revenue and net profit of 16.4% and 21.2% respectively. The returns have improved, with the RoCE and RoE at 21% and 18.7% in 2023.

Ramkrishna Forgings Financial Snapshot (2019-23)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	30%	-37%	6%	80%	38%
Operating Profit Margin (%)	20%	18%	18%	22%	22%
Net Profit Margin (%)	6%	1%	2%	9%	8%
Return on Capital Employed(%)	14.80%	1.10%	2.40%	20.40%	21.00%
Return on Equity (%)	15.80%	5.20%	5.70%	14.70%	18.70%

Data Source: Ace Equity

While it has some debt (debt-to-equity ratio of 1x in FY23), Ramkrishna Forgings has plans to become net debt-free in the near future.

The recent acquisition of ACIL, a manufacturer of high-precision automotive components, further strengthens their position in the market.

To know more about the company, check out its financial factsheet and quarterly results.

#3 Concord Control Systems

Concord Control Systems manufactures and supplies coach-related and electrification products for Indian Railways and other railway contractors.

The 2022-listed entity is an approved vendor by the Research Design and Standards Organisation ("RDSO"), enabling it to manufacture and supply critical products for the Indian Railways.

The company manufactures a key component used in the railways known as the inter vehicular coupler, which is used to make electrical connections between two coaches.

Apart from this, it also manufactures products required in railway coaches like emergency lighting systems, brushless dc carriage fans, exhaust fans, cable jackets, bellows etc.

While the Indian Railways commands a large chunk of the company's revenue share, Concord Control Systems has also been diversifying its client base.

It supplies railway components to marquee players in the industry, such as KEC International, Larsen & Toubro, Kalpataru Power Transmission, Rail Vikas Nigam, Fedders Lloyd Corporation, and Tata Projects.

Between 2020-2023, the business has performed admirably. The sales and net profit have reported a 3-year CAGR of 46% and 73%, respectively.

The returns have been strong, with the RoE and RoCE averaging at 34% and 36% over a 3-year period.

Concord Control Systems Financial Snapshot (2019-2023)

	2019-2020	2020-2021	2021-2022	2021-2023
Revenue Growth (%)		10.64%	80.22%	56.35%
Operating Profit Margin (%)	10.66%	12.95%	12.44%	16.11%
Net Profit Margin (%)	6.59%	8.17%	8.34%	11.04%
Return on Capital Employed(%)	27.33%	29.55%	37.97%	42.92%
Return on Equity(%)	29.86%	33.89%	42.56%	37.97%

Data Source: Ace Equity

As the company listed in 2022, the uptick in shareholder's equity adjusted its debt to equity downwards from 0.65 in 2019 to 0.13 in 2023. And now, the company boasts a healthy balance sheet, paving the way for future growth.

The company is constantly investing in new technology, growing organically or inorganically. It aims to collaborate with new players and work on more products for the Indian Railways.

Recently, it acquired 26% stake in Progata India to develop the prototype of control and relay panels. It also forged an alliance with IISc startup for railways - L2MRail - to fortify the safety of Indian Railways.

To know more about the company, check out its financial factsheet and quarterly results.

It Doesn't End Here...

While we've explored the established giants and the crucial railway ancillary sector , there's more to the list.

Companies such as Apar Industries, Elgi Equipment, HBL Power, and TD Power, might not be household names, but they're quietly contributing to the sector's growth.

Their expertise in areas like manufacturing critical railway infrastructure components (Apar Industries), providing compressed air solutions for railway operations (Elgi Equipment), and developing innovative power transmission systems for railway electrification (TD Power), positions them to benefit significantly from the ongoing modernisation push.

In conclusion

The Indian railway sector continues to remain a favourite among industrialists and investors.

The high ticket investments have placed the sector, and the companies operating in it, on the fast track to growth in the coming years. However, there is a small hiccup.

Unlike the private sector, the government can be a laggard when it comes to payments, causing delays in settling bills. This translates into high debtor days - extended periods where suppliers wait to receive payment for their products.

Sometimes, this can lead to a major cash flow strain, affecting the liquidity in the business. Moreover, it can significantly impact a company's growth and profitability, despite the potential windfall from the railway boom.

Hence, investors must be careful. They need to assess a company's ability to navigate this working capital challenge effectively.

Have a look at how the railway stocks above and compare them on the liquidity front.

	Debtor Days (x) - 5-Yr avg	Cash Conversion cycle -5-Yr avg	Current Ratio (x) -5-Yr avg	Free CashFlow - FY23 (Rs m)
Monopolies
IRCTC	88	-1,355	1.7	9,010
IRFC	3,629	3,629	17.41	(2,89,536)
Railtel Corp	165	166	1.36	1,096
Container Corp	8	9	2.57	10,527
EPC Players
Rites	97	-419	1.63	4,369
RVNL	20	20	2.52	-40,421
IRCON International	39	-667	1.37	-2,091
K&R Rail Engineering	113	58	2.24	-66
Wagons and Locomotive Manf.
Titagarh Wagons	73	37	1.39	-328
Texmaco Rail	121	-50	1.6	-2,738
Siemens	98	-62	1.86	16,436
BHEL	95	-100	1.07	-5,566
Railway ancillaries
Oriental Rail Infrastructure	84	159	1.46	-842
Concord Control Systems	78	55	1.97	-22
Ramkrishna Forgings	113	120	1.14	2,523

Data Source: Ace Equity

However, this isn't necessarily a dealbreaker.

Companies with a proven track record of managing working capital efficiently, with strategies to minimise debtor days and optimise cash flow, are better positioned to seize the opportunities presented by the Indian Railways' transformation.

Apart from this issue, investors must bear in the mind that the runup in these stocks in the past few years suggests that valuations might be stretched.

Therefore, keep these companies on your watchlist, research their fundamentals, and be prepared to seize the right opportunity at the right time.

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...