RVNL shares stare at 51% downside? Sell PSU railway stock, says Antique

Following a weak set of June quarter results by Rail Vikas Nigam Ltd (RVNL), Antique Stock Broking said it has resumed coverage on the PSU railway stock with a 'Sell' call and a target price that suggests over 51 per cent downside potential over the prevailing price. RVNL reported a 35 per cent YoY drop in profit on 27 per cent fall in sales in the quarter gone by.

On Tuesday, the RVNL stock was trading at Rs 579.25 on BSE, up 0.70 per cent. Antique’s stock price target on the counter at Rs 283 apiece suggests a 51 per cent potential downside over this price.

RVNL said a one-off impacted its Q1 results and that the execution should improve from the September quarter. The PSU is expecting to close FY25 with flattish revenue against FY24. RVNL's order book at Rs 83,200 crore was four times its trailing 12-month revenue.

"This continues to provide visibility. We have modelled in a revenue increase of 10 per cent and 15 per cent for FY26/27 and expect it to report an EPS of Rs 8.70 and Rs 9.80, respectively. This implies it trades at a valuation of 65 times/ 58 times at its FY26/27 EPS. We resume coverage with SELL rating and a SoTP-based target price of Rs 283," Antique Stock Broking said.
The domestic brokerage valued RVNL's EPC business at 40 times H1FY27 EPS. It valued investment and cash at book value. "Risk to our rating is execution uptick and order wins. We have modelled inflow of Rs 25,000 crore per annum over FY25-27E," Antique Stock Broking said.

Antique said RVNL had an exceptionally strong execution record until FY22. But the annual execution (revenue) over FY23-25 is largely expected to be flattish. The order book has largely been the same in the last two years, it noted.

"Over FY25-27E, we have modelled order wins to match execution and this implies a stagnant order book. RVNL has signed MoUs but the actual outcome in terms of opportunity size is still unknown. Stock valuation (EPC business) at 62 times H1FY27 EPS is pricing in an upside to CMP. We resume coverage with SELL rating," it said.