The company reported a robust growth outlook across all segments, resulting in strong earnings visibility from FY23 to FY26. The revenue contribution from the Railway and Mobility (R&M) division, which yields higher operating margins, is increasing. This is expected to improve the company’s operating profits moving forward.
In FY23, its R&M division contributed 11 per cent to total revenue and we expect this segment to further increase its pie to 16 per cent by FY26.
We model Revenue/Operating Profit/PAT CAGR of 15/23/34 per cent over FY23/26E. We have increased our revenue and operating margin estimates backed by strong revenue visibility from its strong order book. Moreover, its value-added products and operating leverage in its R&M Division will result in an improvement in profitability y-o-y.
We currently have a Buy rating on the stock with a revised TP at ₹3,700/share. Our recommendation is supported by robust order booking its Railway Sub-systems & Mobility Division, increasing value-added products, improving operating leverage resulting in improving ROE and ROCE (to 15 per cent and 16 per cent respectively) and operating margins (by 130 bps to 7.3 per cent) by FY26.