Top 5 Fundamentally Strong Railway Stocks Down up to 50% from 52-Week Highs

The railway industry plays a vital role in shaping the Indian economy. The Indian railway network is one of the largest in the world and is constantly undergoing modernization and expansion.

With the government's focus on infrastructure development and improving the rail network, investing in the best railway stocks in India presents a rewarding opportunity for investors.

Over the past 2 to 3 years, most railway stocks have delivered multibagger returns. Many investors have made significant profits.

The demand for railway stocks continues to remain strong, regardless of fluctuations in the broader stock market. Retail investors are always on the lookout for the best railway stocks to buy in India.

However, despite a strong start to the year and making new record highs, railway stocks are currently experiencing sustained selling pressure.

Since peaking in July 2024, many of these stocks have declined by 30% to 40%.

Let's take a closer look at a few fundamentally strong railway stocks that have recently seen corrections from their 52-week highs.

#1 Titagarh Rail Systems Limited (TRSL)

Titagarh Rail Systems Limited (TRSL) is an Indian company primarily engaged in the manufacture and supply of railway wagons, coaches, and other rolling stock.

It is part of the Titagarh Group, a diversified industrial conglomerate.

The company's stock price has taken a hit, falling around 40.9% from its 52-week high of Rs 1,896.5.

The primary reason for this decline is its weak performance in the June quarter of 2024. Revenue from operations fell about 0.9%, while net profit increased 8.4%.

Several factors contributed to this poor performance, including cost inflation, supply chain issues, and higher operating expenses across its manufacturing plants. Additionally, the export market for railway products remained subdued.

Despite these challenges, the company has demonstrated solid growth fundamentals. Over the past five years, TRSL has achieved a compounded annual sales growth of 19.8% and a compounded profit growth of 40.9%.

As of FY24, the company reported strong return ratios, with a Return on Capital Employed (ROCE) of 20.5% and an Return on Equity (ROE) of 13%. Importantly, the company has zero debt as of FY24.

Looking ahead, TRSL anticipates continued demand for wagons driven by government targets to increase rail traffic to 3 billion (bn) tons by FY30.

The company's FY25 capex is projected to be between Rs 7 bn and Rs 10 bn, primarily focused on production line setups for Vande Bharat and other propulsion technologies. The company also plans to focus on technological upgrades and capacity expansions.

#2 Ircon International

Ircon International is a public sector undertaking (PSU) under the Ministry of Railways, Government of India. It is a leading infrastructure development company specialising in the design, construction, and maintenance of transport infrastructure projects.

The company plays a significant role in executing railway projects, as well as roadways, bridges, and urban transport projects both in India and abroad.

Currently, the stock is underperforming, having fallen by around 46.3% from its 52-week highs.

The disappointing performance in the June quarter negatively impacted profitability. Revenue from operations fell 38.8%, resulting in a decline in net profit.

The weak performance can also be attributed to factors such as the loss of key projects, slow execution of large contracts, delayed payments from clients, rising raw material and borrowing costs, overvaluation of the stock relative to its growth prospects, and profit-taking.

Looking at the company's long-term outlook, Ircon has strong financials. Its 5-year compounded annual sales growth is 20.8% and compounded profit growth is 15.6%. The company's return ratios for the year ending March 2024 were robust, with a ROCE of 18.3%, an ROE of 15.8%, and a debt-to-equity ratio of 0.4x.

Ircon's growth strategy includes targeting revenue of Rs 200 bn in the next four to five years, expanding into renewable energy, securing new orders, and increasing its international presence.

#3 Indian Railway Finance Corporation (IRFC)

IRFC (Indian Railway Finance Corporation) is a public sector undertaking (PSU) under the Ministry of Railways, Government of India.

The primary role of IRFC is to finance the acquisition of rolling stock (trains and locomotives), tracks, and other assets required by Indian Railways. It also raises funds through the issuance of bonds in the domestic and international capital markets.

However, IRFC's stock has fallen sharply, dropping by 36.6% from its 52-week highs.

The decline is primarily due to its subpar performance in the June quarter of 2024. Net interest income (NII) fell by 7.9%, and net profit decreased by 23.3% compared to the previous quarter.

Several factors contributed to the weak performance, including external economic factors, internal operational challenges, and delays in railway modernisation plans. Lower disbursements to Indian Railways, higher borrowing costs, and market volatility played a significant role in the poor results.

Despite the short-term challenges, the company's fundamentals remain strong. IRFC has achieved a 5-year compounded sales growth of 19.1% and a compounded profit growth of 23.3%. The company reported an ROE of 13% for the year ending March 2024 and is debt-free.

Looking forward, IRFC is exploring funding opportunities beyond Indian Railways and is actively looking to collaborate with other infrastructure lenders. It also aims to strengthen its internal mechanisms to diversify its business.

#4 RailTel Corporation of India

RailTel Corporation of India Limited (RailTel), a PSU under the Ministry of Railways, was established in 2000 to provide telecommunication infrastructure and services to Indian Railways.

Over time, it has expanded its operations to offer broadband, telecom, and ICT services to government organisations, businesses, and individuals.

After its listing in February 2021, RailTel saw positive returns and a strong rally in 2023. However, in 2024, the stock has fell 39.4% from its 52-week highs.

This correction was due to poor performance in the June quarter, where revenue from operations fell by 32.9%, and net profit decreased by 0.6%.

The decline can be attributed to delayed project rollouts, seasonal factors, increased costs, and external market conditions.

The company's reliance on large-scale projects and government spending means that delays in contract execution or payments can significantly impact short-term financial performance. Increased competition in the telecom and broadband sectors has also weighed on earnings.

Despite these challenges, RailTel has strong growth prospects. Over the past five years, the company has experienced a compounded annual sales growth of 20.7% and a compounded profit growth of 17.2%. For the year ending March 2024, RailTel reported a ROCE of 18.7%, an ROE of 13.5%, and is debt-free.

RailTel is targeting new orders worth Rs 40 bn in the upcoming year and expects revenue growth of 30%. It is also planning to add edge data centers at 100 locations with a total capacity of around 20 megawatts.

#5 Container Corporation of India

Container Corporation of India Ltd. (CONCOR), a PSU under the Ministry of Railways, is a leading company in India's logistics and transportation sector. It primarily provides containerised cargo transportation services, both domestically and internationally.

The stock has fallen by 34.1% from its 52-week highs, primarily due to weak earnings. In the June quarter, revenue from operations fell by 9.5%, and net profit decreased by 12.4%.

The slowdown in rail freight volumes, which constitute the company's primary revenue source, has significantly impacted its results. Other factors include delayed shipments, lower demand from certain industries, transportation inefficiencies, and higher fuel and logistics costs. The lower utilisation of container terminals has also contributed to the decline in profitability.

Despite the short-term slowdown, CONCOR remains fundamentally strong.

Over the past five years, the company has achieved a compounded annual sales growth of 4.5% and a compounded profit growth of 0.6%. It also reported a ROCE of 14.7% and an ROE of 10.7% for the year ending March 2024, and the company has been debt-free for the past five years.

Looking ahead, CONCOR is optimistic about its future growth, with plans to run double-stack trains to Nhava Sheva via the Baroda terminal and capture market share through strategic initiatives.

Conclusion

The railway industry has always been a popular choice for investment, given its scale, government support, consistent growth, technological advancements, and diverse services.

Despite the recent correction in railway stocks, the sector's strong fundamentals suggest that it will continue to improve over time.

However, the industry is heavily influenced by government policies, so investors should conduct thorough research before making investment decisions.

That's it for today, 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...