HSBC raises target price of Titagarh Wagons on strong prospects for passenger rail system orders, sees 10% upside
HSBC raises Titagarh Wagons target to Rs 2,000 due to metro contracts and Indian Railways modernization. Despite 5% Q1 FY25 profit growth, a 28% CAGR shows robust potential. Industry seasonality impacts 16% year-on-year IR's wagon additions. A 45x P/E, JVs, and 74% stock surge strengthen Titagarh's promising outlook.
Citing a busy calendar of orders for the Passenger Rail Systems segment over the next 12-18 months, global brokerage firm Global Research has maintained a buy recommendation on , raising the target price to Rs 2,000 from Rs 1,200. This represents an upside potential of nearly 10% from the previous closing price of Rs 1,829 per share."After a break of almost a year, the awarding of metro rolling stock contracts is set to resume in a month or so with the Chennai metro project. Our research suggests that contracts worth Rs 10,000 crore (for 1,000 metro coaches) may be awarded over the next 12-18 months for the new metro lines alone," the brokerage firm stated in a note.
"With significant order prospects and much work at hand for the major players, we think the competition is not likely to be too intense for the upcoming metro projects. We also see a major opportunity coming from Indian Railways' passenger coach modernization and capacity increase plans," the note added.
In the first two months of FY25, Indian Railways (IR’s) monthly wagon additions rose 16% year-on-year to 3,026 but fell 23% compared to Q4 of FY24. This 23% sequential decline is attributed to industry seasonality and execution challenges arising from labour absenteeism due to an extreme heatwave in India.
"Leading wagon manufacturers’ strong order backlog leads us to expect a sharp improvement in wagon shipments starting in Q2 of FY25. For Titagarh, we expect wagon shipments to jump from 8,400 wagons in FY24 to 11,400 within two years," HSBC noted.
While Titagarh’s Q1 FY25 results are likely to be soft, with approximately 5% year-on-year profit growth, this does not alter the expectation of strong profit growth over the next two years (28% CAGR), driven mostly by the existing order backlog. HSBC has raised its EPS estimates by 3-5% for FY25-26.
As the largest wagon manufacturer and an emerging leader in passenger coaches, Titagarh stands to benefit from the government’s scheme to increase freight rail transport as well as passenger rail modernization. The strong growth outlook, combined with high visibility and a robust pipeline of prospective orders, underpins HSBC's positive stance on the company.
HSBC now values Titagarh using a one-year forward P/E of 45x (previously 35x), driven by higher ROIC assumptions and slightly higher growth forecasts. This new valuation multiple, coupled with earnings upgrades, valuation rollover, and a higher expected contribution from JVs, leads to a sharp increase in the target price.
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At 12:21 pm, the stock was 1% lower at Rs 1810 on BSE. On a year-to-date basis, the stock has surged 74%.
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Source: Stocks-Markets-Economic Times
