RVNL You see, most of the railway stocks turned out to be multibaggers due to the government’s emphasis on the railway industry. India has the fourth largest railway network in the world, behind only the US, Russia, and China. Indian Railways operates 13,523 passenger trains running at an average speed of 50.6 kmph and 9,146 freight trains running at an average speed of 24 kmph daily on its network.

Even in the interim budget 2024, there was a positive impact on account of infrastructure sector announcements such as the railway corridor program and the refurbishment of forty thousand normal rail bogies to the Vande Bharat standards. 

So, given the importance to the Railway industry by the government of India, what does the future of the most prominent Railway PSU company, Rail Vikas Nigam Limited looks like? Let’s delve deeper into the article to find out!

Future of RVNL

It looks like the future of the Indian railway industry is up for greater development and innovation. The Ministry of Railways received ₹2.55 lakh crore allocation for the financial year 2024-25 from the government in the interim Union Budget.

Over the next three years, 100 PM-GatiShakti Cargo Terminals will be built for multimodal logistics facilities. Moreover, the railway ministry plans to spend (Capex) US$ 31.58 billion (about Rs 2.6 lakh crore) on capital projects in 2023–2024, a 6% increase over the previous year. 100 PM-GatiShakti cargo terminals for multimodal logistics facilities will be developed over the next three years.

There is another important development you should be aware of, which is the idea of Public-Private partnerships (PPP). Indian Railways is exploring this model to attract private investment for the development of railway stations. Under this model, the investors would be funded at 40 percent of the project cost and would be allowed to use space above the platforms and tracks commercially.

So, given that Rail Vikas Nigam Limited has given a return of around 250 percent for the past year, will it present an investment opportunity for the future given the thrust in the investment in the railway by the government? Well, let’s dive deep into the business to understand.

Company Overview

Rail Vikas Nigam Limited (RVNL) was incorporated in January 2003 as a pivotal arm for executing railway projects. The company has so far established an expansive footprint, extending to 24 locations and 30 operational project implementation units (PIUs).

Although the company is mostly involved in the railways, it’s portfolio extends beyond the railways, including infrastructure for metros, railways, tunnels, and monumental bridges, not confined to the domestic borders but stretching overseas.

Not only that, the company has taken the initiative to undertake key projects such as seamless multi-modal connectivity, electrification, and expanding the rail network to previously unconnected regions, as well as transitioning from local railway infrastructure to global railway infrastructure.

The company has adopted an asset-light model and also follows a turnkey approach. It undertakes projects from all stages, from project development to execution, effectively translating concepts into commissioning.

Business Segments

Doubling / New Line / Gauge Conversion

During FY2023, Rail Vikas Nigam Limited crossed the commissioning benchmark of 1000 km for new lines, doubling, and gauge conversion. 863.02 km of the project were finished in the year, comprising 67.06 km of the New Line, 497.88 km of the Doubling, 271.12 km of the Railway Electrification, and 26.96 km of the Metropolitan Transport Project (MTP). Furthermore, as part of the Doubling project, 334.59 km of railway electrification were completed.

Railway Electrification

In accordance with the Ministry’s emphasis on commissioning railway electrification projects, the company initiated 299.3 route km (681.6 track km) of railway electrification works on significant routes during the year.

Signalling & Telecom

The company has core expertise in the Signaling & Telecommunication (S&T) domain providing signalling solutions for efficient and safe operation of trains on Indian Railways.

When it comes to the most challenging projects involving Doubling, Third Line, New Line, and Gauge Conversion, RVNL plays a significant role in providing EI installations on Indian Railways.

Hill Railway Projects

In FY2023, the company has made significant progress in the hail rail projects including Bhanupali-Bilaspur-Beri section in Himachal Pradesh,  Budni- Barkhera- 3rd line project in Madhya Pradesh, and Rishikesh-Karnaprayag section in Uttarakhand. Rail Vikas Nigam Limitedhas commissioned two tunnel boring machines in the Himalayan geology in Indain Railways for the first time.

Workshops

RVNL has expertise in planning and delivering State-of-the-Art railway Workshops and improving the capacity of production units. It has completed 13 workshop projects till 2021-22. During this financial year, it completed 4 workshop projects and 1 metro depot.

Metro Projects

Regarding the Metro segment, the Kolkata Metro project faced continuous challenges regarding clearances, acquisition of land, and hindrances by the local authorities. The Pamban- vertical lifting bridge, the country’s only movable bridge at Rameshwaram, is expected to be completed in 2023-24.

Special Purpose Vehicles

Rail Vikas Nigam Limited has spearheaded the formation of five joint venture Special Purpose Vehicles (SPVs) in collaboration with diverse stakeholders, such as ports, mines, and State governments, to execute rail connectivity projects. 

RVNL’s equity investment of Rs 1143.70 crore has been instrumental in initiating projects valued at Rs 11816 crore, with additional equity contributions from project partners and fundraising through financial institutions.

RVNL- Financials

In the fiscal year 2023, RVNL experienced a 4.63 percent surge in revenue, reaching ₹20,282 crore compared to ₹19,382 crore in FY2022. Examining a four-year span from FY2020 to FY2023, the company demonstrated a robust Compound Annual Growth Rate (CAGR) of 12 percent in revenue. 

Concurrently, the net profit witnessed a significant upswing, escalating by 28 percent from ₹1,110 crore in FY2022 to ₹1,421 crore in FY2023. The cumulative growth over the four-year period, from FY2020 to FY2023, revealed a commendable 23 percent CAGR in net profit. 

RVNL’s financial performance underscores its sustained upward trajectory, reflective of its strategic positioning and operational efficacy in the respective fiscal years.

The superior Return on Equity (ROE) and Return on Capital Employed (ROCE) are apparent due to their asset-light approach. In this framework, the principal entity, in this case, MoR, supplies all the necessary machinery, plants, and stores for project execution. This approach effectively manages working capital and keeps inventory levels in check. Additionally, it enables the company to concentrate on areas where it possesses expertise, ultimately generating optimal returns for investors.

Conclusion

In the quarter concluding Q3FY24, market orders stood at ₹65,000 crores. Notably, H1 FY24 witnessed a remarkable 8% increase in turnover and a substantial 21% growth in profit after tax, marking the first instance in RVNL’s history of surpassing the ₹10,000 crores milestone within this timeframe.

However, it is crucial for investors to note that while Rail Vikas Nigam Limited caters to various clients, its primary revenue source is the Indian Railways. This heavy reliance poses a risk, particularly during periods of reduced business from the railways, potentially due to factors such as diminished budgetary allocations or fewer government incentives. To mitigate this risk, the company must enhance its presence in non-railway sectors.

Considering these factors, the question arises: Can the company sustain its historical growth trajectory? Share your thoughts in the comments section below.

Written by Nalin Suriya 

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