Sell RVNL shares; Vande Bharat seeing scope change; stock valuations expensive: Antique

RVNL stock: Antique Stock Broking in its latest note said Rail Vikas Nigam Ltd (RVNL) has continued to sign memorandum of associations (MoUs), but is awaiting order finalisations. The railway PSU's order book is dominated by nomination orders, the brokerage said adding that a lot of opportunities are still in the planning stage and the stock valuation (EPC business) at 62 times H1FY27 EPS is making it apprehensive about scope of stock price appreciation from the prevailing market price.

RVNL shares climbed 216 per cent in 2024 so far and 355 per cent in the past one year. A total of 20,49,746 small investors owned 14.39 per cent out of the total 27.16 per cent public shareholding in the PSU firm as on June 30.        

Antique Stock Broking hosted the RVNL's management for a non-deal roadshow. RVNL signed multiple MoUs and joint ventures and is eyeing for orders to beef up its order book, it said adding that the Kyrgyzstan project (Rs 20,000 crore + order size) is  awaiting the financial closure. 

As per Antique, there could be a slight delay in the Vande Bharat project execution, as the order is undergoing scope change, which implies a revision in design and cost. 

RVNL has investments of Rs 2,500 crore, but as per norms it can reduce its stake below 26 per cent and this is delaying conclusion of the monetisation, it said. 

The RVNL management has reiterated its FY25 guidance with flattish revenue on YoY basis, implying growth of 8 per cent over the next three quarters. Its order book at Rs 85,000 crore is 4 times trailing 12-month revenues, which excludes the Vande Bharat order. 

"The stock trades at an expensive valuation of 66 times/ 59 times at its FY26E/27 EPS. We have a SELL rating and a SoTP-based target price of Rs 283. Risks to our rating are execution uptick and order wins. We have modelled in an inflow of Rs 25,000 crore per annum over FY25-27E," Antique said.

RVNL's order book comprised nomination work (60 per cent) and also the one secured from bidding (40 per cent). The latter kind of work comes from sectors such as metro (15 per cent), highway (8 per cent), Indian Railways (5 per cent), and others (irrigation, power). 

The company is also actively seeking international opportunities and aims to have an order book of Rs 1 lakh crore against Rs 85,000 crore currently. To achieve its goals, RVNL is also building up its employee strength and currently has 1,100
employees, including 600 working on contracts. 

RVNL had an exceptionally strong execution until FY22. But annual execution over FY23-25 is largely flattish. 

For future orders in India, sectors that look promising for RVNL are traditional work from the Indian Railways, electrification (upgradation of network), metro work (in multiple cities), signaling & telecom (Kawach opportunity). Outside India, RVNL is aiming for railway, solar, port EPC work in Africa, Central Asia. 

"India is eyeing strategic relation with African and Central Asian countries and RVNL plans to play a role in EPC work. This will be financed either by the government or multilateral agencies. A lot of these opportunities are in the planning stage and stock valuation (EPC business) at 62 times 1HFY27E EPS is making us apprehensive about stock price appreciation from the CMP," Antique said.