Rail Vikas Nigam: Sell RVNL shares, 37% potential downside ahead, says Antique

Antique Stock Broking has maintained a "Sell" rating on Rail Vikas Nigam Ltd (RVNL), citing valuation concerns despite the company's strong order book. The brokerage firm has revised its target price for RVNL to Rs 204, down from Rs 216, indicating a potential downside of 37% from the current stock price of Rs 323.15 apiece. This comes on the back of a 25% stock price decline over the current year.

RVNL's recent financial performance has not met expectations. For the first quarter of FY26, the company reported a 40% year-on-year drop in profit after tax (PAT), largely attributed to execution issues exacerbated by monsoon disruptions. Although management expects revenue for FY26 to surpass FY25 levels, execution challenges remain a concern.

The railway PSU's first-quarter revenue stood at Rs 3,900 crore, marking a 4% decrease year-on-year and falling 9% short of estimates. The EBITDA margin also contracted significantly, from 4.5% to 1.4% year-on-year, mainly due to expenses associated with the Bharat Net project. These financial results led to a 71% decline in EBITDA to Rs 52.9 crore. Other income declined by 13% year-on-year to Rs 230 crore, and higher depreciation further weighed on profitability.

Despite these challenges, RVNL boasts a robust order book valued at approximately Rs 1.01 trillion, nearly five times its trailing twelve months (TTM) revenue. The order book is diversified with 35% nomination-based and 65% competitively bid projects, including Rs 1,000 crore of fresh inflows in the first quarter of FY26. However, the company faces stiff competition and execution risks.

RVNL is actively pursuing international expansion and diversification in its business portfolio. The company is exploring opportunities in metro operations and maintenance, overseas infrastructure execution, and automatic signalling and telecom. It aims to derive 40%-45% of its future project pipeline from international markets, with active bids in Albania and the Middle East. The company also has ambitions to scale its international projects by 2-3x in the coming years.

In terms of market performance, RVNL's financial metrics reveal a high valuation with a price-to-earnings (P/E) ratio of approximately 49x based on 1HFY28E earnings per share (EPS). This has been a factor in Antique's decision to maintain a "SELL" rating, even as the company targets annual inflows of Rs 25,000-26,000 crore over FY26-27E.

Antique Stock Broking has also adjusted its earnings estimates for RVNL, reducing FY26E and FY27E EPS estimates by 8% each. This adjustment reflects the brokerage's cautious outlook on the stock, given current market conditions and the company's execution hurdles. RVNL's substantial order book and growth potential are tempered by execution issues and high valuations, posing significant concerns for investors considering this stock. However, the focus on strategic diversification and international expansion could provide long-term growth opportunities, albeit with immediate challenges persisting.