RESEARCH REPORT ON RAILWAY STOCKS
The inception of railways took place when the Governor-General of India, Lord Hardinge, allowed private companies to set up railway routes in 1844. Under this act, the East India company started setting up railway routes. This railway route was designed to transport construction material to Roorkee, a small city in Haridwar. Later the first steam passenger train was inaugurated which would travel from Bombay to Thane covering a distance of 32 km and this gave birth to Indian Railways.
Nowadays, we all travel long distances by trains as they are not only comfortable but also more affordable than other modes of transports.
Today, the Indian Railway is the fourth largest railway system and freight carrier in the world. It covers a distance of 67,956 km and has 7,335 stations across India. In the fiscal year 2021, the freight loadings increased by 18% as compared to the last year and total revenues generated by freight transport was a whopping $16 billion. So, it’s safe to assume that no matter what happens in the market, railway is going to exist forever and most certainly remain a growing industry.
Why are railway stocks in demand?
To find the answer to this question, we need to go back to the learnings of Mr Warren Buffett. In one of his interviews, he had confessed his lifelong love for railroads. In 2009, Warren Buffett’s Berkshire Hathaway bought shares of one of the largest rail transport companies in the world—Burlington Northern Santa Fe.
In the interview, he had mentioned that railway stocks are always in trend and that is because of these two reasons.
1. Very low operating cost
Railways are seen as a forever cash-rich business as they don’t need to generate huge revenues to be profitable. This is because the inventory they use just needs a bit of maintenance and they have a low operating cost.
Moreover, during a recession, the freight charges of waterways or airways might still be costlier than a train. Because of these reasons, the railway sector can easily survive amidst an economic downturn.
If we take an example, during the Covid 19 pandemic the freight loading increased by 18% which proves that during economic downturns railway freights are still a preferable mode of transport.
2. Entry barrier
In India, railways have a monopoly. It is nearly impossible for a new competitor to enter into the markets. That’s because laying tracks and building such a wide network would need a huge investment. Moreover, as railways have no other competitor, they also have the pricing power in their hands. So even if they charge a higher price for their services, you have limited options to switch.
Now, let’s quickly take a look at five well-known railway stocks listed on the Indian Stock Exchanges.
Indian Railway Catering Tourism Corporation Ltd. (IRCTC)
IRCTC is a Mini Ratna for the Government of India. It is a major and extended arm of railways. It was incorporated on 27th September 1999 to upgrade, professionalize and manage railway services provided to travellers.
As on 10th March 2022, the market capitalisation of IRCTC is Rs. 61,120 crores and is one of the renowned companies in the railway sector.
Here are the four core initiatives taken up by IRCTC.
• Catering and Hospitality
• Internet Ticketing
• Travel and Tourism
• Packaged Drinking Water (Rail Neer)
The company is debt-free and has offered a good return on equity of 26.75% over the last three years (as on 10th March 2022). Moreover, the stock is also maintaining a healthy dividend pay-out of 59.70%.
• Buy IRCTC at 635 Target 700,740 Stop loss 570
Bharat Earth Movers Limited
BEML is a Public Sector Undertaking (PSU) company that manufactures a variety of heavy equipment, such as machines used for earthmoving, transportation and mining, etc. It is the second-largest manufacturer of earthmoving equipment in Asia and it controls 70% of India’s market in that sector. Apart from this, the company also manufactures rail coaches for sub-urban trains.
• Buy BEML at 1380 Target 1520, 1600 Stop loss 1245
Titagarh Wagons Limited
Titagarh Wagons Limited (TWL) came into existence in 1997 and it is the second-largest freight wagon manufacturer in India. The company manufactures freight wagons, passenger coaches, metro train coaches, train electricals and a lot more and generates 35% revenue from this segment.
The company has the capacity to manufacture 8,400 wagons, 200 metro coaches and 36 electric multiple unit coaches, and process around 30,000 tonnes of casting steel, per annum.
• Buy TWL at 190 Target 220,250 Stop loss 160
Container Corporation of India Limited. (CONCOR)
CONCOR is a navratna company incorporated in March 1988. It is also an autonomous Public Sector Undertaking (PSU) company under the Ministry of Railways. The company’s objective is to serve as a catalyst for promoting the use of containers in the freight process and give a boost to India’s international trade.
• Buy CONCOR at 732 Target 800,850 Stop loss 660
Indian Railway Finance Corporation Ltd
Indian Railway Finance Corporation (IRFC) was set up on 12th December, 1986 as the dedicated financing arm of the Indian Railways. The objective of this company is to mobilise funds for railways from domestic as well as overseas markets. The company has funded various railway projects. Moreover, they have also been lending funds to various entities in the railway sector such as Rail Vikas Nigam Limited (RVNL), Railtel, Konkan Railway Corporation Limited (KRCL), Pipavav Railway Corporation Limited (PRCL) etc.
• Buy IRFC at 31.50 Target 38.50,43.50 Stop loss 25.50
Bharat Electronics Limited
BEL is an Indian state-owned aerospace and defence company. It has about nine factories in India. It spends 7.5% of turnover on research and Development which makes it one of the highest amongst defence Public Sector Undertaking (PSU) companies. It is also a debt free company.
• Buy BEL at 98 Target 110,120 Stop loss 89
Rail Vikas Nigam Ltd
Rail Vikas Nigam is engaged in the business of implementing various types of Rail infrastructure projects such as adding new rail lines, railway electrification, major bridges and other workshops. These projects are offered by the Ministry of Railways (MOR).
• Buy RVNL at 67 Target 80,89 Stop loss 55
Ircon International Limited was incorporated in 1976 as a railway construction company. As time passed, it diversified progressively since 1985 as an integrated engineering and construction public sector undertaking company specializing in large and technologically complex infrastructure projects in various sectors such as railways, highways, etc.
• Buy Ircon international at 56 Target 65,72 Stop loss 47.50