Multibagger stocks are ones which have potential to return several times of their initial investment i.e., 100% higher returns or more and that too in a shorter period of time. If a stock can give twice the returns, then it is considered as a two-bagger, if it provides you thrice the returns then it is a three-bagger or four-bagger, and the list goes on. If such stocks have fundamentals position and have high growth potential, these are considered to be undervalued. Such stocks are waiting to be discovered by the investors. While multibaggers can be from various industries, investors tend to believe industries which have strong track record and which are expected to showcase great performance in long term. One such industry is railways as this industry has its roots attached to Indian government. Therefore, what’s better than a multibagger railways stock which has strong outlook and proven history of healthy performance. This multibagger railways stock continues to turn heads as it has proven its mettle over the past 2-3 years.
Indian railway system continues to be regarded as foundation and lifeblood of Indian economy. Indian railways span hundreds of thousands of kilometres and this network practically covers entire nation. As a result, it has been considered as a 4th largest in the world after United States, China, and Russia. Railways Board, that has monopoly over provision of rail services in India, oversees whole infrastructure. Because of its low cost and effective operations, Indian railways is a most popular means of transportation for a range of Indians when they plan to travel long distances. In FY23, railway freight volume came in at 1,109.38 MT, exhibiting a rise of 8% year-over-year. Indian railways has seen strong revenue growth over past couple years. Indian Railways’ revenue touched US$5.21 billion in 3Q23, with total passenger revenue coming at US$8.51 billion during FY23. The industry saw FDI inflows to the tune of US$ 1.23 billion from April 2000- March 2023. Under Union Budget 2023-24, capital outlay came in at IUNR2.40 lakh crore (US$29 billion) which was allocated to Ministry of Railways. This was the highest ever outlay and about 9x the outlay which was made in 2013-14.
Indian Railway network continues to grow at a healthy rate. Over next 5 years, Indian railway market should be the 3rd largest, making up for ~10% of global market. According to Indian Railways, there are several projects which should help in bringing investment of more than US$7.5 billion in next 5 years. Indian Railway launched National Rail Plan, Vision 2024, for acceleration of implementation of critical projects, including multi-track congested routes, achieving 100% electrification, upgrading speed to 160 kmph on Delhi-Howrah and Delhi-Mumbai routes, etc.
Because of strong growth potential of this industry, this multibagger railways stock has been on everybody’s watchlist.
Rail Vikas Nigam Limited
The company carries out operations as an extended arm of the Ministry of Railways and it works for & on behalf of MoR. It acts as an umbrella SPV for undertaking project development, resource mobilization etc. directly or through the creation of project specific SPVs or by any other financing structure found suitable. The company’s mandate consists of mobilization of extra budgetary resources through a mix of equity, and debt from banks, financial institutions, multilateral agencies such as Asian Development Bank, etc.
In FY23, the company increased expenditure on project execution from INR19,381.71 crore to INR20,281.57 crore, thus crossing coveted milestone of INR20,000 crore, excluding element of INR3,343.47 crore as GST. This exhibits a rise of ~4.64%. PBT of the company grew from INR1,406.10 crore in FY22 to INR1,644.38 crore in FY23, with PAT of the company coming at INR1,267.41 crore.
The company continues to focus on ensuring cost control and delivery of projects on time. This is required to be done without compromising on quality for execution and delivery of rail infrastructure projects. It can play a critical role in Ministry of Railways’ efforts of raising extra-budgetary resources for the purposes of project implementation, mainly through SPV route. The company continues to focus on creative models for project financing. RVNL has requested Ministry of Railways to allow the company to leverage equity base to raise funds from market according to its mandate.
While domestic railway projects are being tendered through Ministry of Railways’ new competitive bidding system, revenue visibility of RVNL is strong for ~3 years. In addition to bidding in domestic and international projects, the company has initiated bidding in open market with the help of JVs to scale up of the operations. Plans are there to leverage on project management skills and healthy technical qualifications for securing projects. RVNL has low counterparty risk as it has strong government entities as counterparties. The company’s favourable financial risk profile is healthy given its revenue visibility and growth outlook. Reliance on unaided borrowings is relatively low and it has adequate liquidity position.
With the company’s growth as major provider of rail infrastructure, there appears to be an opportunity of securing rail infrastructure projects overseas. It can play a critical role in raising extra-budgetary resources for the purposes of project execution. This is a specific mandate of the company and it has experience of implementation of projects in PPP mode. Given work of execution of Kolkata Metro projects, the company has been able to develop expertise for implementation of metro projects in several other cities throughout country.
Bottomline
Spotting a multibagger railways stock can be once-in-a-lifetime opportunity as the industry has healthy fundamentals and strong support of Indian government. Collectively, all these factors have supported and should continue to support RVNL over the long-term. In just ~1 year, this multibagger railways stock has gone up by ~320.18%. Do you know what it means? It means if you would have invested INR1,00,000 in this multibagger railways stock on 5 September 2022, you would have seen your capital grow by INR3,20,180 by 1 September 2023. This means you could have walked away with the total amount of INR4,20,180 on 1 September 2023.
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