Top 5 Railway Stocks Benefited from Budget 2024

Introduction

The railway sector has become a major talk of interest in our country, particularly following the recent budget announcement by the finance minister. In this blog, we will explore the reasons behind the current trending railway stocks. Our aim is to understand the rising popularity of these stocks among investors, focussing light on the factors driving their demand. Join us as we uncover the top 5 blogs making positive waves in the dynamic realm of railways.

 

Financial Outlook for Railways

As we all know India is undergoing a significant transformation marked by substantial development in various sectors, including railways. The defence sector, the Production-Linked Incentive (PLI) scheme, and a surge in domestic demand due to rising income levels and a youthful population are key drivers. 

Recently The Finance Minister, Nirmala Sitharaman, allocated a substantial budget of Rs 2.4 trillion for the railways in the financial year 2023-24 (FY23-24). Reports suggest that the interim budget for FY 24-25 may allocate Rs 2.8-3 trillion to maintain the momentum of capital expenditure. Individual stocks like Rail Vikas Nigam (RVNL) and Indian Railway Finance Corporation (IRFC) have shown significant activity in recent times.

 

 

Importance of Railway Stocks

In recent stock market movements, various railway stocks have displayed noteworthy activity. Stocks like Titagarh Rail Systems, and Ircon International have seen significant increases, showcasing the dominance of the railway sector in the market.

Indian Railways is getting ready for a big change. They want to make the vision of 'Viksit Bharat' come true after Independence. This vision includes having modern, faster, and on-demand passenger services, a big part in moving cargo, creating logistics parks, and having really good rail infrastructure. They plan to spend a lot, about Rs 2.60 trillion, in the year 2023-24 to make these changes happen everywhere. Also, to keep our promise of having zero carbon by 2070, we need more trains for passengers and cargo, as mentioned in the IRFC FY23 annual report.

Industry Challenges

1. Limited Number of Railway Stocks: Scarcity poses a challenge for investors aiming to diversify portfolios. The limited options require careful consideration.

2. Market Volatility: Inherent market volatility necessitates a strategic approach to navigate fluctuations and make well-informed investment decisions.

3. Regulatory Hurdles: Regulatory challenges in the railway industry can impact stock performance. Staying informed about regulatory changes is crucial for anticipating potential impacts.

4. Economic Downturns: Economic downturns can affect both passenger and freight services, highlighting the cyclical nature of the industry for long-term investors.

 

 

Advantages of Investing in the Railway Industry

1. Low Operating Costs: Cost efficiency contributes to stable financial performance, even during challenging economic conditions.

2. Monopoly in the Market: Established railway companies benefit from a market monopoly, allowing them to maintain a strong market position and exert pricing power.

3. Durability In Economic Downturns: Railway stocks have demonstrated resilience during economic downturns, positioning them as a reliable investment compared to other transportation modes.

4. High Entry Barrier for Competitors: The significant investment required to enter the railway industry creates a high entry barrier, ensuring stability and pricing control for existing companies.

 

Risks of Investing in the Railway Industry

1. Market Fluctuations: Railway stocks are susceptible to market fluctuations influenced by economic indicators, geopolitical events, and global market trends.

2. Regulatory Changes: Changes in regulations can impact operations and profitability. Staying informed about evolving regulatory frameworks is essential for anticipating effects on stock performance.

3. Technological Disruptions: Rapid technological advancements may disrupt the industry. Investors need to assess how companies adapt to remain competitive.

4. Infrastructure Challenges: Maintenance issues or capacity constraints can affect operational efficiency. Investors should consider a company's infrastructure robustness and its ability to address potential challenges.

 

 

Top 5 Railway Stocks By Market Cap

1. Indian Railway Catering Tourism Corporation Ltd. (IRCTC)

Established in 1999, IRCTC (Indian Railway Catering and Tourism Corporation) is a Mini Ratna (Category 1, Central Public Sector Enterprise) and holds the exclusive authorization from the Indian government to offer online railway tickets, catering services, and packaged drinking water on railway stations and trains in India.

Key Points:

• With over 8.03 crore users, IRCTC provides a comprehensive range of products and services related to travel and tourism.

• Operates 391 pantry cars and offers train-side vending services.

• Provides executive lounges, retiring rooms, and Rail Yatri Niwas/BNR Hotels.

• Exclusive authority for online ticket booking for Indian Railways.

• Booked 4,174.49 lakh tickets in FY22, introducing new features like retiring room facility and chatbot Disha.

• Operated 39 chartered trains, sold 63,350 tour packages, and signed an agreement for the promotion of a luxurious cruise.

 

2. Rail Vikas Nigam Ltd(RVNL)                              

Rail Vikas Nigam Ltd, incorporated in 2003 by the Government of India, is a key player in the execution of various rail infrastructure projects as assigned by the Ministry of Railways (MoR). The company's diverse portfolio encompasses crucial initiatives such as doubling of tracks, gauge conversion, new line construction, railway electrification, major bridge projects, workshops, production units, and the sharing of freight revenue with Railways as per concession agreements .

Key Points:

• Engaged in electrifying un-electrified rail networks and electrification on new rail networks.

• Undertakes projects to establish metro lines and suburban networks in metropolitan cities.

• Encompasses construction of traffic facilities, railway safety works, electrification projects, training initiatives, surveys, and the construction of bridges, including rail over bridges.

• Rail Vikas Nigam Ltd revenue split in FY21 indicated that 86% of its revenue came from projects outside the metropolitan areas, reflecting the company's substantial contribution to non-metro rail development .
   

3. Titagarh Rail Systems Ltd(TRSL)

Titagarh Rail Systems Ltd, formerly known as Titagarh Wagons Limited, was established in 1997. The company is a major player in the manufacturing and sale of various transportation equipment, including Freight Wagons, Passenger Coaches, Metro Trains, Train Electricals, Steel Castings, Specialized Equipment & Bridges, and Ships. Titagarh Rail Systems operates in both domestic and export markets, showcasing a diverse portfolio of products.

Key Points:

• Involves the manufacturing of Wagons, Loco Shells, bogies, couplers, and their components.

• Encompasses the design and manufacturing of Metro, Passenger Coaches, EMUs, Train Sets, Mono Rail, Propulsion equipment, Traction Motors, and their components.

• Includes the designing and construction of Warships, Passenger Vessels, Tug, and other specialised self-propelled vessels and their components. 

• The company provides specialised equipment for the Indian Defence Sector and Modular Bridging solutions.

• As of May 22, the company accounted for 32% of the orders awarded by the Indian Railways, amounting to 24,177 wagons.
  
  

 

 

4. Ircon International Ltd(IRCON)

Established in 1976 as a dedicated railway construction company, Ircon International Limited (IRCON) has evolved over the years, diversifying its operations since 1985. With a commitment to excellence, IRCON stands as an integrated engineering and construction PSU, specialising in large and technologically complex infrastructure projects across various sectors, including railways and highways . It stands out as a sectoral leader in transportation infrastructure among public sector construction companies in India.

Key Points:

• IRCON holds the distinction of being the only Indian Public Sector Undertaking (PSU) and one of only five Indian companies listed among the top 250 international contractors .

• IRCON's comprehensive services encompass Project Management Consultancy, Engineering, Procurement & Construction, Public-Private Partnership, and Real Estate .

• The company is actively involved in executing projects using various models, including Build, Operate and Transfer (BOT) and Hybrid Annuity Mode (HAM).

• A significant portion of IRCON's revenue, accounting for 94%, is derived from the railway sector .

 

5. Indian Railway Finance Corporation Ltd (IRFC)

Established in 1986, the Indian Railway Finance Corporation (IRFC) functions as a vital funding entity for the Indian Railways. Its primary role involves sourcing funds from both domestic and international capital markets to facilitate the acquisition and creation of assets. These acquired assets are subsequently leased to the Indian Railways through finance lease arrangements.

Key Points:

• Indian Railway Finance Corporation (IRFC) serves as a crucial funding arm for the Indian Railways.

• Operates as a Mini Ratna I and Schedule A Public Sector Enterprise under the administrative control of the Ministry of Railways, Government of India.

• Holds the status of a Systemically Important Non–Deposit taking NBFC and Infrastructure Finance Company.

• Offers a range of services, including financing the acquisition of rolling stock assets, leasing railway infrastructure assets, and extending loans to other entities under the Ministry of Railways.

 

Bonus - Best P/E Ratio Stocks:

1.Ircon International Ltd(IRCON)

Stock PE: 27.5

2.Rail Vikas Nigam Ltd(RVNL)

Stock PE: 28.6

3.Indian Railway Finance Corporation Ltd (IRFC)

Stock PE: 38

4.Titagarh Rail Systems Ltd(TRSL)

Stock PE: 68.5

5.Indian Railway Catering and Tourism Corporation Ltd (IRCTC)

Stock PE: 77.2

 

 

Did You Know?

The Indian Railways is home to the world's highest rail bridge, the Chenab Bridge, standing at an impressive 359 meters above the Chenab River. This engineering marvel showcases India's prowess in pushing the limits of railway infrastructure.

 

Conclusion

In conclusion, the railway industry in India is experiencing significant growth, driven by infrastructure development, increased domestic demand, and various government initiatives.

Investing in these railway stocks comes with its challenges, including a limited number of options, market volatility, regulatory hurdles, and susceptibility to economic downturns. However, the advantages, such as low operating costs, market monopoly, durability in economic downturns, and high entry barriers for competitors, make these stocks attractive to investors seeking stability and long-term growth.

Disclaimer: Please note that this blog is not any recommendation for buying or selling any stock. We always encourage the reader to do their research before investing in any stock.