Shares of Texmaco Rail slumped over 4 percent on July 9 on account of profit booking. This decline wasn't unique to Texmaco; several railway stocks experienced losses of up to 5 percent as investors locked in gains following a sharp rally ahead of the upcoming Budget.
The slump in Texmaco Rail came even as Nuvama initiated coverage on the stock with a 'buy' rating with a target price of over Rs 331 per share.
According to the domestic brokerage, Texmaco Rail is experiencing a remarkable rejuvenation after a tough couple of years. The boost is aided by surging railway capex; robust wagon ordering; and net cash balance sheet.
"Improving execution, and margin and working capital trajectory should help Texmaco clock a PAT CAGR of around 45 percent over FY24–27E," said Nuvama.
Based out of Kolkata and part of the Adventz Group, Texmaco is India’s most seasoned wagon manufacturer in the private space. After experiencing a downturn over 2014–22, the wagon business has roared back to form with order accretion over FY23–24 being around 75 percent higher than that over FY14–22.
The company is ramping up its manufacturing capacity and anticipates to reach production of 1,000 wagons/month soon.
Texmaco's presence in the wagon, rail EPC, and OHE segments benefits from Indian Railways' expansion and metro projects. Partnerships with global players enhance its rail component offerings, ensuring comprehensive railway services, said Nuvama in its report.
According to the analysts, the rail EPC segment's high working capital needs increased Texmaco's net D/E from (0.4)x in FY15 to 0.6x in FY23.
A recent Rs 1,000 crore QIP in FY24 has resulted in a net cash balance sheet for Texmaco. The company is now expanding capacity in wagon, steel foundry, and components to leverage India's railway capex supercycle and growing export opportunities (China plus One).
Nuvama believes Texmaco has multiple re-rating triggers: potential rail EPC demerger, improving operating margins and working capital, and ramping up the component business.
"We reckon these triggers shall play out gradually over the next few years, resulting in substantial earnings growth for the company," the brokerage said as it initiated coverage on the stock.
At 1:16 pm, shares of Texmaco Rail were trading nearly 5 percent lower at Rs 271.39 on the National Stock Exchange (NSE). So far this year, the stock has soared 56 percent, beating Nifty's returns of 11 percent during this period.
In the last year, the stock has zoomed over 230 percent, more than tripling investors' money. In comparison, Nifty delivered returns of 26 percent during this period.
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