Why RVNL Share Price is Falling

The multibagger superstars of last year are still holding their heads high in the Indian stock market.

These stocks extended gains further in 2024 and gave over 50% returns in just one month!

RVNL, a standout multibagger with a 150% surge in 2023, has not only extended its winning streak into 2024 but also witnessed an extraordinary 75% rally in January alone.

However, adhering to the unpredictable nature of the stock market, even the most resilient stocks are susceptible to corrections.

Such has been the case with RVNL. After rallying over 75% in January, the stock is down over 15% in the past month.

Here's what is causing a fall in this multibagger stock.

#1 Profit Booking

Shares of RVNL rallied nearly 75% in January 2024, touching their 52-week high of Rs 345.5 on 23 January 2024.

This can be attributed to the company emerging as the lowest bidder for a Rs 2.5 billion (bn) power transmission project in Jabalpur.

The contract was awarded by M.P. Madhya Kshetra Vidyut Vitaran and is to be completed in the next two years.

Apart from this, on 16 January 2024, the railway firm formed a joint venture with Jakson Green to explore opportunities in solar power projects in India and abroad.

Additionally, RVNL incorporated a subsidiary company, RVNL Infra South Africa.

Also, in January 2024, the KRDCL-RVNL JV secured the approval for a significant upgrade of the Varkala Sivagiri railway station, with a project cost of Rs 1.2 bn. In this partnership, KRDCL has a 51% share, while RVNL holds 49%.

Another contributing factor to the surge was the anticipation of positive announcements in the budget, with expectations of the Indian government allocating funds for railway infrastructure.

These positive sentiments collectively propelled RVNL's share price by 75% in January, creating an opportune moment for investors to capitalize on their gains.

Despite the correction, shares of RVNL are trading at a one-year forward price-to-earnings multiple of 37.2 times, which is well above its five-year average price-to-earnings multiple of 17.4 times.

At its record-high levels of Rs 345.5, the stock traded at a price-to-earnings multiple of 47 times. RVNL shares have corrected 27% from their peak.

Even after the correction from its peak, RVNL shares are up nearly 14x from their IPO price of Rs 19 over five years.

#2 Weak Q3 Results

In the December 2023 quarter, the company reported a 6.4% YoY decrease in revenue from operations to Rs 46.9 bn.

In line with this, the net profit for the quarter also saw a 6.2% decline in consolidated net profit to Rs 3.6 bn in Q3 FY24, as compared with Rs 3.8 bn in Q3 FY23.

A 16.6% on-year rise in income from other operations at Rs 3.3 bn helped RVNL cushion the fall in its bottom line for the quarter ended December 2023.

RVNL has seen its topline fall consecutively for three straight quarters. The company's revenues have fallen from Rs 57.2 bn during Q4FY23. This further dragged the stock lower.

What Next?

Looking ahead, RVNL's top management officials have outlined ambitious plans to maintain an order book of approximately Rs 750 bn. This projection includes a balanced composition, with 50% derived from traditional railway projects and the remaining 50% from market-driven initiatives.

The railway firm has also won projects in the electrification and transmission lines among others.

RVNL is also looking to bag new projects in off-shore markets, including Central Asia, UAE, and Western Asia, the management said in an investors call.

Recently, the Ministry of Railways unveiled the conferment of Navratna status upon RVNL.

This elevation in status will result in a heightened transfer of authority, increased operational latitude, and greater fiscal independence for RVNL.

These transformative changes are poised to significantly catalyse the advancement of the company, especially as it endeavours to extend its influence beyond the domestic railway domain, venturing into international ventures.

The momentum of growth is underscored by a historic announcement from Prime Minister Narendra Modi on 26 February 2024.

In a tweet from his official handle, PM Modi declared a landmark day for the railways, unveiling 2,000 infrastructure projects worth over Rs 410 bn to be dedicated to the nation.

This initiative, part of the Amrit Bharat Station Scheme, involves the redevelopment of 553 railway stations to enhance the overall travel experience.

Prime Minister Modi will lay the foundation stone for this ambitious project, further emphasizing the commitment to modernise and transform the railway infrastructure across India.

How RVNL Shares have Performed Recently

In last five days, shares of the company have been trading 7% lower.

While in the past month, shares are down 17%. In past one-year shares have gained 322%.

The company touched its 52-week high of Rs 345.5 on 23 January 2024 and its 52-week low of Rs 56.1 on 1 March 2023.

About Rail Vikas Nigam

Rail Vikas Nigam Limited is an Indian public sector undertaking which works as the construction arm of the Ministry of Railways for project implementation and transportation infrastructure development.

It was incorporated in 2003 to meet the country's surging infrastructural requirements and to implement projects on a fast-track basis. It's a category-I Miniratna public sector undertaking (PSU) under the administrative control of the Indian Ministry of Railways.

For more details, see the Rail Vikas Nigam fact sheet and quarterly results.

Since you are interested in railway stocks, you might also be interested in top 5 railway stock to watch out in 2023.

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