Elara Securities remains bearish on RITES, sees over 21% downside; here’s why
After an over 43 percent jump in the stock in 2023 YTD, brokerage house Elara Securities reiterated its ‘sell’ call on RITES with a target price of ₹370, indicating a downside of over 21 percent.
The stock has gained 23.5 percent in the last 1 year. It hit its record high of ₹584 on September 11, 2023, but has shed over 19 percent from its peak. However, it has advanced over 54 percent from its 52-week low of ₹305.60, hit on December 26, 2022.
2023 has been a volatile year for the stock with it giving positive returns in 6 and negative in 5 of the 11 months so far. It rose the most in July, up 25 percent and lost the most in February, down 1.5 percent.
In the September quarter, the firm reported a 23.49 percent drop in its consolidated net profit to ₹101 crore as against ₹132 crore in the year-ago period. The company’s revenue from operations also fell 11.68 percent to ₹582 crore in Q2 FY24 from ₹659 crore in the corresponding period last year.
Let’s now understand, why the brokerage remains bearish on the stock.
Gets LOA on diesel locos but loses wagons order to competitor: RITES has received a Letter of Award (LOA) to supply 10 diesel locomotives worth $37.7 mn or ₹313 cr to CFM, Mozambique (Ports & Railways). The company is likely to procure diesel locomotives from the Integral Coach Factory (ICF). However, an order for 300 high-sided wagons was awarded to a competitor where RITE was earlier declared L1. The estimated order size for wagons was ₹200 crore.
Valuation: The brokerage had factored in inflows of ₹500 crore from Mozambique on RITE’s L1 positioning. Based on the recent announcement, it assumes a lower inflow; as a result, Elara kept revenue and earnings estimates unchanged in FY24E but reduced them by 2 percent each in FY25E and FY26E. It expects an earnings CAGR of 12 percent during FY23-26E with an ROE and ROCE of 22 percent each during FY24-26E as the WC cycle remains low despite the rise in turnkey construction along with a strong dividend yield of 3.4 percent for FY24E.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision.
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Updated: 23 Nov 2023, 04:26 PM IST
