On the right track: Titagarh Rail Systems’ record-breaking quarter

India has an extensive railway network that covers thousands of kilometres, making it the fourth largest in the world, following the US, China, and Russia. This extensive network spans across the entire nation, acting as a crucial lifeline for the country. India is expected to have a significant 40% share of global rail activity by 2050.

Amidst this dynamic landscape, Titagarh Rail Systems, an Indian multinational, has carved a niche for itself with its quality and innovation in manufacturing railway wagons and related products. Titagarh Rail Systems is a worldwide powerhouse that has reliably increased shareholder value.

TItagarh Rail Systems has recently released its quarterly results, which are expected to have a significant impact on the market. The stock price of the corporation surged by an impressive 9% following this statement. This increase demonstrates Titagarh Rail Systems’ commitment to innovation and strong performance, along with its strategic choices.

This article is designed to offer an in-depth examination of this latest price surge, delving into its origins and potential impact on Titagarh Rail Systems and its stakeholders.

Also read: 1853 to 2023: A case study on Indian railways, its birth and growth 

About Titagarh Rail Systems Ltd

Titagarh stands as a prominent provider of comprehensive mobility solutions, boasting a robust presence in India and Italy. The company operates state-of-the-art factories in both nations, dedicated to fulfilling the varied needs of passenger and freight rolling stock.

Titagarh is renowned for its expertise in crafting advanced transportation solutions. The company’s broad product portfolio includes semi-high-speed trains, urban metros, and passenger coaches. Additionally, Titagarh is a key player in the realm of electric propulsion equipment, offering solutions such as traction motors and vehicle control systems. 

The company also stands out for its extensive range of wagons, from container flats and grain hoppers to cement and clinker wagons, including specialised variants. This diverse offering positions Titagarh as a comprehensive provider catering to the varied needs of the passenger rolling stock market.

Titagarh is dedicated to ensuring the utmost customer satisfaction through the delivery of exceptional products and services. The company’s objective is to position itself as a global mobility solutions provider in the infrastructure sector, addressing the unique requirements of its customers and contributing to their long-term business success. 

Titagarh’s values are reflected in the comprehensive satisfaction of all stakeholders, with a focused commitment to benefiting society at large.

Titagarh Rail Systems Ltd quarterly performance

Here are a few crucial financial indicators of Titagarh Rail Systems Ltd Q4 FY24 results, compared with the same quarter from the preceding year:

Source: Screener

Must read: Zomato Q4 results 2024: Insights into share price and market performance 

Titagarh Rail Systems Ltd annual performance

Here are the essential financial metrics of the company when contrasted with the previous year:

Source: Screener

Market reaction – Titagarh Rail Systems shares 

The performance of railway-related companies is impressive, fueled by the Indian government’s increased capital expenditure, resulting in substantial order inflows. The popularity of railway stocks among investors has led to a dramatic increase in demand for these shares and a sharp rise in their prices in the past few years.

On May 16, 2024, the Titagarh Rail Systems share price witnessed a substantial rise of approximately 9.4% within the trading day, hitting a five-month high at ₹1217 per share. This surge can be clearly seen in this chart representing the trading pattern of the stock over the past 5 days:

Source: Google Finance

The stock price of the company has risen significantly by 22.78% year-to-date. Despite this commendable performance, global brokerage firm Morgan Stanley sees room for even more growth. A recent analysis by the brokerage firm initiated an ‘Overweight’ rating on the stock and set a Titagarh Rail Systems share price target of ₹1,285 per share.

Morgan Stanley anticipates a strong 28% compound annual growth rate (CAGR) in earnings from FY24 to FY27. This forecast hinges on the successful fulfilment of pending orders in both the freight and passenger segments.

Also read: Neuland Laboratories Q4 results: Shares fall amidst financial fluctuations 

Strengths and weaknesses

Strengths

1. Dominant position in wagon manufacturing: TRSL holds a commanding position in the wagon manufacturing sector in India. With an annual capacity of 8,400 wagons and plans to increase it to 12,000 by fiscal 2025, TRSL is one of the largest manufacturers in the country. 
2. Technical expertise through international collaborations: TRSL’s business risk profile is enhanced by its access to technical capabilities through collaborations with foreign entities.
3. Diversified domestic revenue stream: TRSL has a diversified revenue profile with a steadily increasing contribution from the passenger segment. The company’s current order book composition reflects this diversification, with the Wagon-Passenger ratio improving significantly in the first half of fiscal 2024.
4. Successful entry into metro projects: TRSL has effectively branched out into metro projects, securing its inaugural order for the Pune Metro project in collaboration with TFA in August 2019. The successful completion of this project has empowered TRSL to independently pursue additional metro orders.
5. Sufficient accruals for future capex: The accumulated funds from fiscal 2024 to 2026 are projected to adequately cover the additional capital expenditure of approximately Rs 600 crore. 

Weaknesses

1. High working capital operations: TRSL’s operations require a significant amount of working capital, primarily due to a substantial inventory requirement. Significant unbilled revenue in the metro segment and an increase in the execution of big contracts from Indian Railways drove the need for working capital to a higher level during fiscal 2023.
2. Risk exposure to raw material prices and competition: TRSL primarily relies on steel and associated products, which exposes the company to the risk of price volatility during the order fulfilment phase. Orders from Indian Railways, a major contributor to the company’s business, typically have an extended execution timeline and include a price fluctuation clause. However, orders from the private sector, which are of a fixed-price nature, have a quicker completion time.

Bottomline

Titagarh Rail Systems Ltd. stands out as a formidable force in the Indian railway sector, showcasing robust financial growth and a dominant market position. The company’s impressive quarterly and annual performances reflect its commitment to quality and innovation. 

With strategic expansions and a diversified product portfolio, Titagarh is well-positioned to capitalise on India’s growing rail infrastructure demands.