While we like the company’s diversified segmental presence, we moderate our order inflow and execution assumptions due to the ongoing economic slowdown and slower traction in railway EPC projects.
Texmaco Rail & Engineering’s (Texmaco) Q1FY20 revenue grew mere 9% y-o-y as wheel sets availability issues impacted wagon execution and budgetary allocation delays dented the rail EPC division’s top line. Ebitda margin jumped 120 bps y-o-y to 9%, leading to PAT surging 75% y-o-y to Rs 96 million. Order book was flat q-o-q at ~Rs 60 bn.
While we like the company’s diversified segmental presence, we moderate our order inflow and execution assumptions due to the ongoing economic slowdown and slower traction in railway EPC projects. Hence, we revise down FY20/21E EPS 34%/33. Maintain ‘Buy’ with revised SOTP-based target price of Rs 69 (Rs 102 earlier) as we roll forward the valuation to December 2020E.
Texmaco’s wagon vertical ended Q1FY20 with an order book of Rs 11.7 bn (Rs 12.1 bn at FY19-end). Traction in private sector wagon ordering sustained with the company winning Rs 1.1 bn worth of orders (Rs 5.6 bn in FY19). Management indicated that it is evincing good demand for container wagons and for those carrying coal and automobiles.
The impact of the ongoing economic slowdown on wagon ordering remains a key monitorable going ahead. The steel foundry segment’s order book remained healthy, courtesy revival in wagon demand and uptick in export orders; the division’s order book rose to Rs 3.2 bn (Rs 2.7 bn at FY19 end and Rs 1.7 bn at FY18-end). Order books of the railway EPC division and Bright Power declined q-o-q to Rs 24.9 bn (Rs 25.3 bn at FY19-end) and Rs 6.8 bn (Rs 7.2 bn at FY19-end), respectively.
Texmaco’s various business lines – wagons, coaches, locomotives and rail EPC – are witnessing large opportunities as a result of burgeoning investments in IR. Concerns about the ongoing economic slowdown have led us to moderate our assumptions for order inflow and execution and trim FY20/21E EPS 34%/33%.