IRCON, HAL, RITES, Titagarh Rail shares: Antique bets big on railways, defence stocks. Here's why

Antique Stock Broking said even as valuations have risen for industrial, defence and railways stocks due to a significant jump in order books, these sectors still offer multi-year investment potentials. In its latest note, the broking firm said infrastructure sector is seeing a boom, citing a meaningful pick-up in power sector capex -- both generation and T&D. Besides, it felt there is an unprecedented growth in investments in the railways and defence sectors.

"We believe that government’s effort is to boost capital expenditure while keeping revenue expenditure under control to keep deficit under check," it said. Among railways stocks, it likes Titagarh Rail Systems Ltd, RITES Ltd and IRCON International Ltd. In the defence pocket, it prefers Hindustan Aeronautics (HAL) and Bharat Dynamics Ltd). Among industrials, it has preference for Larsen & Toubro (L&T), Siemens, BHEL, Hitachi Energy and Kirloskar Oil Engines. These stocks have up to 34 per cent upside potential, as per Antique's target prices.

Antique Stock broking said railway equipment and EPC companies are expected to grow revenue and earnings at 15 per cent and 19 per cent, respectively, over FY23–26E.

Valuations have risen, yet are reasonable on PEG basis, it said adding that railways remain a high-growth sector but many interesting stocks still continue to trade at reasonable valuations.

Defence table

In the case of defence sector, most defence manufacturing stocks still trade at 18–22 times FY26E earnings, despite having long-term visibility, structural changes in the sector, and high technology and scale entry barriers, Antique Stock Broking said. The defence equipment sector, it said, has seen a remarkable transformation and is expected to post revenue and earnings CAGR of 16 per cent and 13 per cent, respectively.

The brokerage said top-end technology industrials companies such as Siemens, CG Power, Honeywell Automation, ABB and Linde India etc are trading at 40-55 times FY26

earnings. "These have traded at premium valuations in past, and stand to benefit the most with rise of technology – led capex recovery," it said.

Following a prolonged lull of stagnation during FY12–21, the industrial sector reported a 25 per cent and 17 per cent growth in order intake during FY22 and FY23, respectively. Antique expects orders to grow at a CAGR of 18 per cent over FY23–26E. Similarly, revenue is expected to grow at 15 per cent CAGR, while earnings may grow at 26 per cent CAGR over the same period, it said.

Industrial table

"There is strong surge in localisation effort across products and sectors, especially renewables, defence and electronics – led by PLI and other schemes. We believe that this is leading to domestic industry in each sector posting meaningfully higher growth than capex growth," it said.

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