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Last Updated : Jul 12, 2019 10:47 AM IST | Source:

Weekly tactical pick: IRCON International

The targets set may be very high. But even if half of these investments are undertaken, there is a huge opportunity for companies like IRCON

Representational Image
Representational Image

We are suggesting IRCON International as the tactical pick for the week. The state-owned firm, which is the leading player in the railways engineering space, has corrected recently as a result of weakness in the midcap space.

Post correction, the stock has come to a very attractive valuation. The scrip has fallen from a 52-week high of Rs 471 to currently Rs 391, a correction of almost 21 percent.

It is trading at about 7 times its earnings and 0.8 times price to book value, based on FY21 estimates. In addition, it is offering a dividend yield of close to 5 percent. This is even more attractive in light of the high core ROE of 23 percent and strong cash in the books. The company generated Rs 270 crore of other income in FY19, which is 7 percent of its market capitalisation of Rs 3,685 crore. In other words, it is trading at 13 times its annual other income.


Interestingly, the stock has fallen despite improving prospects and opportunities in the sector. Recently, the Budget the suggested an investment of close to Rs 50 lakh crore over the next 11 years or about Rs 4.5 lakh crore annually. This is significantly higher compared with the current run rate of Rs 1.6 lakh crore.

While these are very high targets, even if half of these investments are undertaken, there is a huge opportunity for companies like IRCON, particularly the government’s preference for the state-owned companies and their competitive advantages. IRCON is present across the value chain, including railway tracks, electrification, signaling, telecommunication and metro railways.

Meanwhile, the company is sitting on a robust order book of close to Rs 28,224 crore, which is about 6 times its annual revenue and provides strong revenue and earnings visibility. It has also made significant progress in international markets, having an order book of close to Rs 1500 crore with a sales turnover of about Rs 500 crore in FY19. During the last financial year, the company reported 19 percent growth in consolidated sales. And now with the strong orders in hand and improving execution, we expect the momentum in growth to continue and the company should deliver 20 percent revenue growth over the next two years.
First Published on Jul 12, 2019 10:47 am
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