Transport consultancy RITES, which has outperformed Nifty by a significant margin, may fall by more than 30 percent, according to Elara Capital. The stock has run up by more than 126 percent over the last year.
The analysts released the note after RITES announced its December quarter results.
The company, which released its Q3FY24 results on February 2, reported a flattish growth in net sales at 0.82 percent. Net sales was at Rs 682.89 crore in December 2023, higher than Rs 677.34 crore a year ago while net profit fell 14.24 percent on year to Rs 120.14 crore.
Also read: Railway stocks fall after lower than expected allocation
The brokerage's analysts' target price for the stock, which was trading at close to Rs 741 on February 5 at 3 pm, is Rs 515 and they have reiterated their sell call.
"We reiterate Sell on margin compression in consultancy and an outperformance of 44% vs the Nifty in the past three months," the analysts wrote.
The company's EBITDA margin fell to 24.7 percent from 28.5 percent a year ago, or by 380 bps. One percentage point is 100 bps. The margin fall was steepest in the consultancy business segment.
"In Q3FY24, at the EBIT margin level, leasing gained 750bp YoY to 40.2% and exports of rolling stock by 300bp to 30.0%. Consultancy margin fell 480bp YoY to 44.5% amid falling exports consultancy and turnkey margin, down 270bp to 2.3%," noted the analysts.
On February 1, railway stocks fell after the allocation for the sector in the Union Budget failed to meet expectations.
Financial Minister Nirmala Sitharaman announces a capex allocation of Rs 2.55 lakh crore for the Indian Railways in the new financial year, surpassing the previous all-time high of Rs 2.4 lakh crore allocated in the last budget.
However, the railway capex was just five percent higher than the allocation made a year ago, while analysts were expecting a 10 percent rise in allocation.
Exports pick up
Though Elara's analysts have reiterated their sell call on RITES, their target price has gone up from their previous estimate because of signs of export recovery.
The analysts noted that exports fell 38 percent to Rs 580mn in the December quarter, but added that the company expects to win two more orders worth Rs 10.5bn in the near term (Bangladesh order worth INR 8.5bn and the rest from Zimbabwe). "Management expects steady revenue realization from Q2FY25 as execution picks up on existing and upcoming orders," they wrote.
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