RVNL shares rally 45% in 5 days, 106% in a month. Next target at Rs 92, says Sumeet Bagadia

Shares of Rail Vikas Nigam (RVNL) rose 5 per cent in Tuesday’s trade to take its 5-day winning run to 45 per cent. RVNL is among many companies that assist India’s railway infrastructure and have seen their stock prices rise recently. In fact, the scrip is up 106 per cent in the last one month.

The consistent demand for railway services made railway stocks a viable investment target, with the government aiming to expand the national modal share of railways in freight to 45 per cent, analysts said.

Sumeet Bagadia,  Executive Director at Choice Broking said RVNL, a special purpose vehicle (SPV), that conducts railway construction projects with a particular focus on the golden quadrilateral, had seen the enormous rally, primarily triggered by the announcement of the company quarterly results, he said.

Bagadia noted that RVNL stock had consolidated in the area of Rs 27 to Rs 36 for approximately a year-and-a-half, before witnessing a massive breakout from the price level of Rs 36 on the monthly chart, he said.

This enormous rise was fuelled by a massive volume breakout, with volumes increasing 5 times over the preceding month, Bagadia said.

“The RSI is still in the uptrend and sustaining above 80, which is typical when a script has a swift upmove and the momentum is too fast,” he said.

Bagadia believes this upward momentum is likely to continue in RVNL, as the entire railway pack appears to be quite strong.  “We recommend holding current positions for targets of Rs 92 and keeping a stop loss in the Rs 67-70 price area,” he said.

On Tuesday, the scrip rose 5 per cent to hit a high of Rs 84.15 on BSE.

RVNL’s total operating income grew at 27 per cent compounded annually for the past five financial years and stood at Rs 19,381.71 crore in FY22. RVNL operates through the mode of sub-contracting and has a track record to subcontract the projects to marquee contractors.  RVNL’s orderbook stood at over Rs 50,000 crore as of July 31 with a revenue visibility of more than 2.5 times of the FY22 income from operations.

Earlier, the company used to be nominated by the MoR for various railway projects, which shifted to a competitive bidding basis. RVNL procured about Rs 4,000 crore of projects on competitive bidding basis since November 2021, CARE Ratings said in a recent note. It felt that RVNL will continue to secure a comfortable portion of such tenders under the bidding system by its long-standing experience in executing railway projects.

Of the total order book outstanding as of July 31, around 95 per cent of the orders were received on a nomination basis from the MoR. CARE expected the proportion of projects on nomination, to come down over the next two-three years during which project from competitive bidding shall form major chunk of the projects.

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