Texmaco Rail And Engineering

With an ambitious expansion plan in the pipeline as announced by Indian Railways, Texmaco Rail and Engineering Limited is in a strong position to capitalise on new orders and contribute to the government’s aspirations for rapid growth 

Railway stocks have been on a strong upward trajectory in recent months, with several companies delivering impressive returns.

These stocks are gaining momentum due to robust order book visibility, the government’s focus on improving rail infrastructure, and the anticipation of fresh investments in railway infrastructure development.

Government Initiatives
The Indian government has unveiled a comprehensive strategy to transform the country’s railway sector through massive investments, capacity expansion and technological upgrades. The key initiatives include:

1. Plans to invest over ₹10-12 lakh crore (USD 1.2 trillion) in the railway network over the next five years for projects like high-speed rail, dedicated freight corridors and station redevelopment.
2. Accelerated electrification with 94 per cent of the broad-gauge network now electrified and a target for 100 per cent electrification.
3. Significant focus on passenger safety through measures like the Kavach automatic train protection system and replacement of old tracks.
4. Passenger-friendly initiatives such as a super app, insurance schemes and affordable fares on new Vande Bharat trains.
5. Modernisation of over 1,300 railway stations through public-private partnerships to provide world-class amenities.

The Indian government’s massive investments, policy support and focus on railway electrification and capacity expansion are driving strong growth and stock performance for railway companies. One of the companies we are focusing on in this article is Texmaco Rail and Engineering Ltd.

About the Company
Texmaco Rail and Engineering Ltd. (Texmaco) is a prominent player in the manufacturing of rolling stock, which includes wagons, coaches, electric multiple units (EMUs), locomotive shells and parts. Additionally, the company is involved in the production of hydro-mechanical equipment, steel castings and infrastructure projects such as rail EPC, bridges and other steel structures. For over eight decades, Texmaco has established itself as a reliable manufacturer of freight cars, serving a range of core industries like cement, steel, defence, fertiliser, oil, alumina, thermal power projects and chemical plants. Notably, Texmaco is the only Indian company certified by the Association of American Railroads (AAR).

Manufacturing Facilities
Texmaco Rail and Engineering Ltd. operates six manufacturing facilities. Five of these facilities are located in Kolkata, West Bengal, specifically in Agarpara, Belgharia, Sodepur and Panihati. The sixth facility is situated in Raipur, Chhattisgarh. The company boasts extensive land holdings for its operations, with 114 acres in Belgharia and Agarpara, 42 acres in Panihati and Sodepur and 30 acres in Raipur.

Financial Performance
For the fiscal year 2024 (FY24), Texmaco’s consolidated revenue from operations increased significantly by 56.15 per cent, reaching ₹3,502.87 crore as compared to ₹2,224.96 crore in the previous fiscal year i.e. FY23. The company’s net profit saw an impressive rise, soaring to ₹113.21 crore in FY24 from ₹26.03 crore in FY23. Reflecting its strong financial performance, the board has recommended a dividend of ₹0.50 per share for FY24.

Q4FY24 Quarterly Performance
In the fourth quarter of FY24 (Q4FY24), Texmaco reported a revenue increase of 37.03 per cent, with revenue from operations amounting to ₹1,144.56 crore, up from ₹835.27 crore in the same quarter the previous year (Q4FY23). The net profit for Q4FY24 surged 247 per cent to ₹45.32 crore, compared to ₹18.33 crore in Q4FY23. Profit before tax for Q4FY24 also saw a significant rise, escalating to ₹66.71 crore from ₹22.96 crore in Q4FY23.

Revenue Mix
In FY24, Texmaco’s revenue was predominantly driven by its freight car division, which contributed a substantial 77 per cent to the total revenue. The company’s diversification strategy is evident in its revenue mix, with the infrastructure-rail and green energy segment accounting for 15 per cent, and the infrastructure-electrical segment contributing 6 per cent. The other income constituted the remaining 2 per cent of the total revenue.

Order Book
As of the latest update, Texmaco’s order book size totals ₹7,900 crore. The largest segment within this order book is freight cars, which make up 63 per cent of the total orders. The infrastructure-electrical segment accounts for 14 per cent while the infrastructure-rail and green energy segment represents 10 per cent. The ‘others’ and steel foundry segments each contribute 6 per cent to the order book, and the components segment makes up less than 1 per cent of the total.

In December 2023, Texmaco secured a significant order worth ₹1,374.41 crore from the Ministry of Railways for the manufacture and supply of 3,400 wagons. This order is slated for execution in three tranches with a completion target set for December 2025. The substantial order received by the company not only enhances the company’s revenue visibility but also solidifies its position as a key supplier to the Indian Railways.

Acquisition
On June 4, 2024, Texmaco Rail and Engineering acquired a majority stake of 51 per cent in Saira Asia Interiors (P) Limited.This acquisition is expected to generate revenue in the range of ₹500-600 crore for the company, further strengthening its market position and financial performance. The acquisition aligns with Texmaco’s strategy to diversify its product offerings and expand its footprint in the interior segment of the rail industry.

Management Guidance
The management has provided optimistic guidance for the future. The foundry business is anticipated to grow by 20-25 per cent. The company plans to undertake capital expenditures amounting to ₹80 crore for FY25. Furthermore, Texmaco aims to increase its wagon production significantly, from 7,020 wagons in FY24 to 11,500 wagons in FY25, marking a projected increase of 63.81 per cent. The management has also aimed to become debt-free in the next three years.

Growth Triggers
Several factors are expected to drive Texmaco’s growth in the coming years. The modal share of the Indian Railway in freight is projected to rise from 26 per cent to 45 per cent by 2030. Additionally, the target for freight volumes is set to increase from 1.5 billion tonnes in FY23 to 3.6 billion tonnes by FY31E. Another crucial factor is debt reduction, which is anticipated to enhance the company’s profit margins. The management aims for Texmaco to become debt-free within the next three years.

Shareholding Pattern
Promoters hold 48.14 per cent of the company, while foreign institutional investors (FIIs) own 11.04 per cent. Domestic institutional investors (DIIs) hold 8.27 per cent, and the remaining 32.53 per cent is held by public investors.

Texmaco Rail and Engineering operates six manufacturing facilities. Five of these facilities are located in Kolkata, West Bengal, specifically in Agarpara, Belgharia, Sodepur and Panihati. The sixth facility is situated in Raipur, Chhattisgarh. The company boasts extensive land holdings for its operations, with 114 acres in Belgharia and Agarpara, 42 acres in Panihati and Sodepur and 30 acres in Raipur.

Valuation
Texmaco’s stock is currently trading at a price-to-earnings (PE) multiple of 95 times, with a price-to-earnings growth (PEG) ratio of 10 times. The price-to-sales (PS) ratio stands at 2.5 times, and the price-to-book (PB) ratio is 4.07 times. Additionally, the enterprise value to earnings before interest, taxes, depreciation and amortization (EV | EBITDA) ratio is 30.2 times. The company’s return on equity (ROE) is 5.88 per cent, and its return on capital employed (ROCE) is 11.4 per cent. Considering all these valuation metrics, it appears that the stock is trading at higher valuations.

Conclusion
Despite Texmaco trading at a higher PE valuation, the company’s strong growth prospects make it an attractive investment. The anticipated growth of the Indian Railway sector, coupled with the government’s focus on reducing logistics costs, is expected to benefit Texmaco significantly. Additionally, Texmaco’s strong order book further enhances its growth potential, making it a compelling investment opportunity in the railway sector. Given the strong momentum among railway companies, we recommend capitalising on this trend and buying the stock.