RVNL stock falls despite bagging LoA for Rs 191-cr project from South Eastern Railway

Expanding infrastructure projects, strategic collaborations, and consistent execution track record position RVNL for significant growth, according to analysts.

RVNL shares fell around half a percent on July 25 despite the company receiving a Letter of Acceptance (LoA) for a project worth Rs 191.53 crore from South Eastern Railway.

The LoA is for “Design, Supply, Erection, Testing & Commissioning of 132 KV Traction Substation, Sectioning post (SPs), and Sub sectioning post (SSPs) in 2x25KV System on Rajkhaswan- Nayagarh-Bolani section of Chakradharpur division of South Eastern Railway to meet 3000MT loading target on EPC mode", the company said in a regulatory filing.

It is worth noting that RVNL was among the multibagger railway stocks that experienced a sharp decline following Union Budget 2024 as there was limited focus on the sector.

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Investors had expected substantial funding for railways, but Finance Minister Nirmala Sitharaman's budget speech hardly addressed the railway sector, leading to significant decline in stock prices of RVNL, Ircon International, IRFC, RailTel, and others.

According to analysts at Elara Capital, even though capital expenditure (Capex) was retained, the initial euphoria in sectors such as Aerospace & Defense, Railways, Infrastructure, and Shipbuilding is expected to temper as focus shifts from enthusiasm to execution.

RVNL stock ended marginally higher at Rs 592.50 on the National Stock Exchange (NSE) in the previous session. The stock has soared over 220 percent so far this year and over 357 percent in the last one year as RVNL’s fundamentals continued improving.

Its profitability has grown significantly as its profit after tax rose from Rs 790 crore in FY19 to over Rs 1,640 crore in FY24 due to bagging huge infrastructure orders from the government. Additionally, the company has continued to attract more infrastructure deals in India and other countries.

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RVNL has an order book of around Rs 65,000 crore, plus every year the company has a target for an order inflow Rs 25,000 crore. Expanding infrastructure projects, strategic collaborations, and consistent execution track record position it for significant growth, according to analysts.

However, it faces risks including project execution delays, reliance on government contracts, regulatory changes, economic slowdowns, funding challenges, increased competition, and cost overruns, all of which could negatively impact its profitability.

Bloomberg data shows that the stock has a 'hold' rating from three analysts and zero buy or sell calls.

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