Fundamental Analysis of RVNL: The stock of Rail Vikas Nigam Ltd. (RVNL) has delivered eye-popping returns in the last twelve months. The shares have gone up by approximately 300% making its investors ecstatic. So what makes this rail PSU such an attractive stock?
Can new investors expect the same multi-bagger returns in the future? What should present investors do? We’ll attempt to answer these questions and other questions by performing a fundamental analysis of RVNL in this article.
Table of Contents
Fundamental Analysis of RVNL
We’ll being our study of the railway company by reading about its history and what it does. Next, we’ll learn how the railway sector functions in India. After that, a few sections are devoted towards the financials of the stock followed by a section on the order book and future plans. A summary concludes the article in the end.
Company Overview
Rail Vikas Nigam Ltd. (RVNL) is a public sector undertaking (PSU) under the Ministry of Railways, Government of India. The government holds a majority 78.20% promoter stake in the company established 20 years back in 2003.
The PSU was promoted as a part of the audacious National Rail Vikas Yojana (NRVY) project announced by former Prime Minister Atal Bihari Vajpayee to accelerate railway infrastructure in the country.
RVNL is responsible for the implementation (construction) of the infrastructure projects for Indian railways. It undertakes a wide variety of projects including the installation of railway tracks, electrification lines, building railway bridges, and establishing workshops or production units.
In addition to handling the projects for Indian railways, the Navratna-status PSU has undertaken multiple metro and high-speed railway projects for Chennai Metro Rail, Kolkata Metro Rail Corporation, Metro Metro, Surat Metro, Gujarat Metro, Vande Bharat Trains, and Kyrgyzindustry – OJSC.
Talking about its achievements, the company has completed over 140 projects worth more than Rs 1 trillion expenditure since its inception. It has executed 15,534+ km of railway infrastructure and 38 projects across 26 locations.
We got a good understanding of the business and scale of operations of the company. Let us now move ahead to read about the railway industry landscape in India.
Industry Overview
India’s rail network is the fourth largest globally with a length of 68,442 route kilometers. More than 22,000 trains run in the nation every day, ferrying 2.3 crore passengers and 3.5 million tons of goods.
The Ministry of Railways exercises complete control over the operations of the network whether it be railway stations, train operations or line network. Multiple state-owned corporations (listed and unlisted) work together to keep the system running while enjoying monopolistic benefits.
The honourable finance minister Nirmala Sitharaman announced a huge allocation of Rs 2.4 lakh crore towards the Indian Railways for the financial year 2023-24. The present fiscal’s allocation is 51% higher than the previous year’s outlay of Rs 1.59 lakh crore.
This fact alone highlights the government’s big push and focus on taking the railway sector in India to new highs.
Along these lines, the Ministry of Railways has drafted a National Rail Plan 2030 highlighting multiple audacious targets including railways accounting for 45% of the freight movement in the nation.
To achieve these targets, the Center has been allocating multiple critical projects such as high-speed Vande Bhara trains, the upgradation of railway stations, the doubling of railway lines, 100% electrification, decongestion of routes by multi-tracking, and more.
RVNL – Financials
Revenue & Net Profit Growth
The rail PSU clocked a net profit of Rs 1,421 crore on the operating revenue of Rs 20,282 crore in the recent fiscal. Talking about the growth, its top line and bottom line expanded by 15% and 15.6% every year (CAGR) in the past five years from Rs 10,069 crore and Rs 688 crore in FY9.
The consistent growth in the P&L figures comes on the heels of back-to-back order wins and timely delivery of the projects.
The table below highlights the revenue and net profit growth of RVNL over the last five financial years.
| Fiscal Year | Operating Revenue | Net Profit |
|---|---|---|
| 2023 | 20,282 | 1,421 |
| 2022 | 19,382 | 1,183 |
| 2021 | 15,404 | 992 |
| 2020 | 14,531 | 753 |
| 2019 | 10,069 | 688 |
| 5-YR CAGR | 15.0% | 15.6% |
(figures in Rs Cr except for CAGR)
Profit Margins
Moving on to studying the profit margins, the figures have largely remained stable during the study period. Management fee (incl. supervision charges) forms the revenue for the company.
It charges a margin in the range of 9.25% to 10% for different types of projects for their implementation.
Such a business model allows the company to post consistent profit margins irrespective of cost overruns or delivery delays. The figures below represent the operating profit margin and net profit margin of RVNL for the previous five fiscal years.
| Fiscal Year | Operating Margin | Net Profit Margin |
|---|---|---|
| 2023 | 5.77 | 6.22 |
| 2022 | 5.58 | 5.98 |
| 2021 | 5.16 | 5.34 |
| 2020 | 5.16 | 5.34 |
| 2019 | 5.18 | 5.87 |
(figures in %)
Debt Analysis
We shall keep the leverage study for our fundamental analysis of RVNL brief as it is a debt-free stock. Some sources may reflect the high debt-to-equity ratios, but the debt on the balance sheet of the company is serviced by the Ministry of Railways.
The ministry bears all the interest and principal repayments rendering RVNL with no debt obligation whatsoever. Thus, with management fees from project construction and no leverage, it is an asset-light company.
Let us move ahead in our fundamental analysis of RVNL to know how does the stock score on the profitability front.
Return on Equity / Net Worth (RoE / RoNW)
Return ratios: return on capital employed (RoCE) and return on equity (RoE) are studied to measure the profitability of any company. Since RVNL is an asset-light company with no obligations to service its own debt, we’ll only study its RoE.
RVNL reported an all-time high return on equity of 20.7% in FY23 on account of higher profits earned. Furthermore, it maintained an ideal RoE during our study period.
The table below showcases the high Return on Equity / Net Worth (RoE / RoNW) numbers of RVNL for the last few fiscals.
| Fiscal Year | RoE |
|---|---|
| 2023 | 20.7 |
| 2022 | 19.9 |
| 2021 | 19.2 |
| 2020 | 19.2 |
| 2019 | 17.1 |
(figures in %)
RVNL – Order Book and Future Plans
So far we have looked a the previous fiscals data for our fundamental analysis of RVNL. But, what’s ahead? We’ll read about the recent developments and try to understand what lies ahead for the company and its investors.
- The total order book of the PSU was more than Rs 56,000 crore as of 31 March 2023, approximately 2.75 times its FY23 operating revenue. The pending order book provides strong revenue visibility for the company for the present 2023-24 financial year.
- The company was recently awarded Navratna status in May paving the way for higher autonomy with respect to projects, capital expenditure, international ventures and attracting superior talent.
- Out of the total order book, Rs 11,000 crore is for metro and other works. In addition to this, the company recently won multiple awards from metro corporations in various cities including Chennai and Kolkata. The fast-growing segment has helped RVNL to decrease its dependence on the railways ministry for revenue while strengthening its foothold as multiple metro cities are executing projects to control traffic congestion.
- RVNL has formed a joint venture with TMH, a Russian company to manufacture 120 high-speed Vande Bharat trains.
- In addition to all this, the rail PSU has won projects and formed JVs in Maldavies and Kyrgyzstan laying the foundation for more international projects in the years ahead.
Key Metrics
We are almost at the end of our fundamental analysis of RVNL. Let us take a look at the key metrics of the stock.
| Particulars | Amount | Particulars | Amount |
|---|---|---|---|
| CMP | ₹121 | Market Cap (Cr.) | ₹25,218 |
| EPS | ₹6.8 | Stock P/E | 17.75 |
| RoE | 20.7% | Face Value | ₹10 |
| Book Value | 35.1 | Price to Book Value | 3.55 |
| Promoter Holding | 78% | Dividend Yield | 1.5% |
| Net Profit Margin | 6.2% | Operating Margin | 5.8% |
Conclusion
As we conclude our fundamental analysis of RVNL, we can say that the recent project wins provide for higher revenue guidance in the coming quarters. This revenue growth gets translated into a strong profitability outlook because of fee income and the asset-light business of RVNL.
Does this also mean that the present share price discounts the earnings from all the projects RVNL has won so far? Should investors closely track RVNL for major order wins in the near future? How about we continue this conversation in the comments below where you enlighten us with your views on the stock?
Written by Vikalp Mishra
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