Stock in Action - Railtel Corporation of India Ltd

Movement of the Day

Analysis

1. Technically speaking, RailTel's relative strength index (RSI) is 71.9, indicating that the stock is trading in an overbought area.
2. With a one-year beta of 0.2, the stock shows relatively little volatility during that time.

Probable Rationale Behind the Stock Surge

RailTel Corporation of India Ltd, a Mini Ratna Central Public Sector Enterprise under the Ministry of Railways, has witnessed a substantial surge in its stock price over the past year, with a remarkable upward trend in 2023. The stock has outperformed its sector and reached new highs, reflecting an increase of over 168%. This report delves into the probable rationale behind the surge in RailTel Corporation's stock and factors contributing to its impressive performance.

Key Factors Driving Stock Surge

Order Wins and Back-to-Back Work Orders

RailTel Corporation's stock surge can be attributed to the company's consistent success in securing significant work orders. Notably, the company received multiple orders in the final week of December, including a substantial order worth ₹120.45 crore from South Central Railway for comprehensive signaling and telecommunication works. The series of back-to-back work orders have not only boosted the company's revenue but also instilled investor confidence.

Diversification of Services

RailTel Corporation's diverse portfolio of services, including Telecom Network Services, Telecom Infrastructure Services, Managed Data Center and Hosting Services, and Projects (System Integration Services), contributes to its growth. The recent orders for the supply of instructional materials, integrated tunnel communication systems, and signaling and telecommunication works showcase the company's versatility and ability to cater to various sectors.

Election Year and Political Landscape

Analysts anticipate that the election year in 2024, coupled with the BJP's success in state elections, will result in increased focus and budget allocations for sectors like railways and defense. Historically, the BJP has prioritized these industries, and a potential third consecutive win could lead to substantial investments, positively impacting RailTel Corporation's growth prospects.

Financial Performance

Analysis

1. Fluctuations suggest a dynamic business environment.
2. Challenges in FY 2020-21 impacted both operating and net profit.
3. Positive trends in Q2 FY 2023-24 indicate ongoing recovery.
4. Continuous monitoring of cost structures and market dynamics is crucial for sustained financial performance.
RailTel Corporation reported a robust financial performance, with a 23.4% increase in net profit and a 40% surge in revenue in the September quarter of the fiscal year. The company's consistent growth in earnings before interest, taxes, depreciation, and amortization (EBITDA) further adds to its positive financial outlook.

Peer Comparison

Methodology: In the above chart the colour Red, Yellow Green are the indication of Bad, near about and the good position around the Median of 10 Companies. 

Analysis

1.The industry average P/E is 50.49, Tata Chemicals and OnMobile Global and the Bharti Airtel has P/E is over industry’s P/E, which is the indication of Overvalued by market.

Price/Earnings (P/E) Ratio

1. Bharti Airtel: P/E of 55.16 indicates the market is willing to pay 55.16 times the earnings. This might suggest high growth expectations.
2. Vodafone Idea: P/E is not available (N/A), making it challenging to evaluate its valuation.

Dividend Yield

Bharti Airtel: Low at 0.39%, indicating the company does not distribute a significant portion of earnings as dividends.

Return on Capital Employed (ROCE)
1. Bharti Airtel: ROCE of 12.3% implies a moderate return on the capital employed.
2. Vodafone Idea: ROCE is not available.

Operating Profit Margin (OPM)
1. Bharti Airtel: OPM of 51.88% indicates efficient cost management and profitability.
2. Vodafone Idea: OPM of 39.58% is decent but lower than Bharti Airtel.

CMP (Current Market Price) to BV (Book Value) Ratio
1. Bharti Airtel: 7.36 suggests the stock is trading at a premium to its book value.
2. Vodafone Idea: BV not available.

Return on Assets (ROA)
Bharti Airtel: ROA of 3.17% indicates how efficiently the company utilizes its assets to generate profits.

Debt to Equity Ratio
Bharti Airtel: Debt/Equity of 2.81 implies a moderate level of debt in the capital structure.

Return on Equity (ROE)
1. Bharti Airtel: ROE of 12.05% is decent but could be improved.
2. Vodafone Idea: ROE not available.

Earnings Yield
Bharti Airtel: 5.05% represents the earnings per share as a percentage of the market price.

Price/Sales (P/S) Ratio
Bharti Airtel: 4.05 is the market price per share relative to the revenue per share.

Price/Free Cash Flow (P/FCF) Ratio
Bharti Airtel: 19.18 shows the market's valuation relative to the company's free cash flow.

Enterprise Value/EBITDA Ratio
Bharti Airtel: 10.09 indicates the firm's total value relative to its EBITDA, a measure of operating performance.

Current Ratio
Bharti Airtel: 0.44 suggests potential liquidity challenges, as current assets are less than current liabilities.

Overall Observations
1. Bharti Airtel shows strong operational efficiency and profitability.
2. Vodafone Idea lacks some key financial metrics, making it challenging to assess its financial health.
3. Tata Communications and Railtel Corporation exhibit strong financial metrics.
4. M T N L faces significant challenges, particularly with negative ROA and high debt.

Technological Advancements and Infrastructure Modernization

RailTel's focus on adopting advanced technologies like high dense wavelength division multiplexing (DWDM) and multi-protocol label switching (MPLS) network contributes to the modernization of the country's telecom infrastructure. The ongoing projects related to nationwide broadband and multimedia network further position RailTel as a key player in the sector.

Optimistic Guidance and Order Book

RailTel Corporation's positive outlook, as expressed by its Chairman and Managing Director, Sanjai Kumar, adds to investor confidence. The company's substantial order book, estimated at ₹5,000 crore, and the anticipation of new orders in the range of ₹2,000-2,500 crore over the next 12 to 18 months provide a solid foundation for future growth.

Conclusion

RailTel Corporation's surge in stock price can be attributed to a combination of favorable factors, including consistent order wins, a diverse service portfolio, positive financial performance, political landscape considerations, and a commitment to technological advancements. The company's strategic positioning in critical sectors and its ability to secure substantial work orders contribute to its attractiveness for investors. As RailTel continues to play a vital role in the development of India's telecom infrastructure, the outlook for the company remains optimistic, subject to the broader economic and political landscape.