RVNL Shares: Sell Railway PSU Stock, 42% Downside Ahead, Says Antique; Here’s Why
Rail Vikas Nigam Ltd (RVNL) has faced a mixed financial outlook, leading to Antique Stock Broking maintaining its ‘Sell’ rating on the stock. Despite a strong order book, the stock faces significant challenges, including muted execution and rich valuations. Here’s why Antique is cautious on RVNL shares and has revised its target price downwards.
Muted Execution Despite Strong Order Book
RVNL’s order book appears strong, with nearly Rs 97,000 crore in orders. However, execution is expected to stay muted due to projects still being in the initial phases of construction, with many seeking approvals.
- RVNL has guided for flat revenue growth in FY25 and FY26, signaling limited growth prospects in the near term.
- The company’s MoUs have been signed, but the actual opportunity size remains uncertain.
- Antique has lowered its earnings per share (EPS) estimates by 3-7% over FY25-27E, anticipating slow execution and stagnant progress.
Weak Q3 Performance and High Valuations
RVNL reported a 13% YoY decline in profit after tax for Q3, coupled with a 3% revenue degrowth YoY.
- The Q3 margin remained flat at 5.2%, similar to the previous year’s 5.3%, mainly due to lower other income and a higher tax rate.
- With rich valuations, the stock is trading at 47 times FY27 EPS, which Antique deems expensive. The brokerage has revised the stock’s price target to Rs 215, suggesting a 42% downside from its current price of Rs 372.90.
International Orders and Delays in Vande Bharat Order
RVNL has secured Rs 4,500 crore worth of international orders, but only 10% of these are competitively won. The management plans to increase this to 40-50%.
- The Vande Bharat order, which could be a significant addition to the order book, has been delayed due to design finalization. The first prototype is now expected in 1H CY26, delayed from the original estimate of 2H CY25.
- Despite a strong order intake, RVNL’s execution remains sluggish, with little to show in terms of new wins or major changes in the order book over the last two years.
Stagnant Order Book and Execution Issues
Despite RVNL’s historically strong execution, the company has faced challenges in maintaining momentum.
- Execution (revenue) has been largely muted from FY23-25E, and the order book is largely unchanged over the past two years.
- Over the next few years (FY25-27E), Antique projects order wins to match execution, but this would still imply a stagnant order book.
- The absence of significant new orders or project completions contributes to a lack of growth in the stock’s performance.
RVNL’s stock faces a challenging outlook with a combination of muted execution, delays in key projects, and expensive valuations. Despite a strong order book, the company’s inability to translate this into consistent performance raises concerns for investors. With 42% downside potential, Antique remains cautious, urging a ‘Sell’ rating on RVNL shares until clearer growth prospects emerge.
