Reviews

In this edition, we have reviewed REC Ltd. and Texmaco Rail and Engineering Ltd. We suggest our reader-investors to HOLD REC LTD. and Texmaco Rail and Engineering Ltd. 

We had recommended REC Ltd. in Volume 39, Issue No. 17 dated July 15, 2024—July 28, 2024, under the ‘Choice Scrip’ segment. The recommended price for the stock was ₹629.70. We had recommended the stock on the basis of the company’s focus on investment in renewable energy, healthy provision coverage ratio and growth in the loan book. REC, established in 1969, is a Navratna company under the Ministry of Power, funded by market and foreign borrowings. 

REC offers financial services to entities across the value chain, helping them set up power infrastructure, boost operational efficiency, and implement innovative technology solutions. In Q2FY25, on a consolidated basis, the company’s revenue increased by 17.06 per cent YoY to ₹13,530.66 crore compared to ₹11,558.93 crore from the previous year’s same quarter. 

On a sequential basis, its revenue increased by 3.85 per cent. The net profit stood at ₹4,037.72 crore compared to ₹3,789.9 crore, a YoY increase of 6.54 per cent, while sequentially it increased by 16.69 per cent from ₹3,460.19 crore. At TTM, the shares of the company are trading at a PE of 7.71 times, which is lower than its industry PE of 28.3 times. 

If we look at its PBV, it is currently at 1.55 times, which is lower than the industry PBV of 2.41 times. The company has a three-year average return on equity (ROE) of 21.3 per cent and a return on capital employed (ROCE) of 9.43 per cent. REC Limited offers a compelling investment opportunity, focusing on India’s power, infrastructure and logistics sectors. Its strong financials include a 25 per cent YoY rise in net interest income to ₹9,723 crore and a 15 per cent YoY loan book growth to ₹5,46,117 crore. Impressive H1FY25 project sanctions of ₹1,88,991 crore, with 32 per cent for renewables, demonstrate REC’s commitment to sustainable growth. 

This is reflected in ₹11,297 crore worth of renewable disbursements. REC’s appointment as the National Programme Implementing Agency for the PM Surya Ghar Muft Bijli Yojana further strengthens its position. The management aims to double assets under management to ₹10 lakh crore by 2030, growing at 15-20 per cent. Despite funding cost and competition challenges, REC’s strategic positioning, robust financials, and improving asset quality make it a promising long-term investment. Hence, we recommend HOLD. 

We had recommended Texmaco Rail and Engineering Ltd. in Volume 39, Issue No. 17 dated July 15, 2024—July 28, 2024, under the ‘Analysis’ segment. The recommended price for the stock was ₹274.65. We had recommended the stock on the basis of the company’s focus on order book, capacity expansion and stable margins. Texmaco Rail and Engineering is a Kolkata-based engineering and infrastructure company that manufactures railway freight cars, hydro-mechanical equipment, steel castings, and pressure vessels. 

It has collaborated with multinationals from Japan, the US, the UK, Germany, Australia, Austria and Holland. It is a leading freight car maker in India, producing nearly 500 wagons a month. It operates in two business segments: heavy engineering and steel foundry. 

In Q2FY25, on a consolidated basis, its revenue increased by 67.18 per cent YoY to ₹1,345.88 crore compared to ₹805.05 crore from the previous year’s same quarter. On a sequential basis, its revenue increased by 50.93 per cent. The PBIDT excluding other income increased by 73.39 per cent to ₹132.2 crore YoY as compared to ₹76.24 crore from the previous year’s same quarter, while sequentially it increased by 87.67 per cent. The net profit stood at ₹67.43 crore compared to ₹20.2 crore, a YoY increase of 233.81 per cent, while sequentially it increased by 130.48 per cent from ₹29.26 crore. 

At TTM, the shares of the company are trading at a PE of 36.2 times, which is lower than its industry PE of 37 times. If we look at its PBV, it is currently at 2.80 times, which is lower than the industry PBV of 4.65 times. The company has a three-year average return on equity (ROE) of 3.47 per cent and a return on capital employed (ROCE) of 7.72 per cent. The company presents a positive investment outlook following its acquisition of Jindal Rail and Infra Limited (now Texmaco West Rail), strengthening its freight car leadership. 

A robust `8,200 crore order book, with 72 per cent from freight cars, fuels growth. Strategic priorities include capacity enhancement, international expansion and the integration of Texmaco West Rail. Anticipated wagon orders from Indian Railways and the private sector, coupled with improved production rates, drive optimism. The company’s focus on new product development, including specialised wagons, and margin expansion to 12-13 per cent further strengthens its investment appeal. The management’s confidence and emphasis on sustainable growth signal positive long-term prospects. Hence, we recommend HOLD.