Share Trading Tips

Growing at a three-year CAGR of 38 per cent in revenues and 58.60 per cent in profits

Direct beneficiary of Indian Railway’s 11th Plan spend of Rs 2,30,000 Crore.

EMUs and metro coaches foray to increase Texmaco’s addressable market

To justify, a place in our future wealth creators, a scrip should have good growth visibility with potential of giving good upside to investors. Hence, when we came across a company such as Texmaco which has been a consistent performer both in revenues and profits, caters to high growth industry such as railway infrastructure and at FY10 estimated EPS of Rs 7.23 is available at aPE ofjust 21x,
makes sense to grab it for long term.

What makes Texmaco, a manufacturer of railway wagons and railway ancillary products, attractive is the brisk three- year CAGR of 38 per cent in the topline and 58.60 per cent in profits. Its FY09 revenues and profits were P.s 892.45 crore and P.s 75.84 crore respectively and despite the tough last year the company was able to sustain growth in its first 9MFY1O performance, wherein its revenues increased by 17 per cent to P.s 663.69 crore (P.s 568.71 crore), while profits increased by 12 per cent to Rs 65.44 crore (P.s 58.42 crore).

This growth rate will strengthen further as Texmaco is a direct beneficiary of the government’s budget for railway infrastructure. Indian Railways has allocated a whopping Rs 2,30,000 crore in the 11th Five Year Plan on increasing rolling stock capacity and overall expansion of the rail infrastructure. This augurs well for Texmaco which is into the manufacturing of railway wagons. In fact Indian Railways is planning to procure as many as 18,000 coaches in FY10, which is a jump o per cent over ast year.

What will also drive Texmaco’s growth in the coming years is the company’s foray into the manufacturing of EMUs and metro coaches. A media report claimed that the demand for metro rail coaches in India is estimated to rise to 1,000 units over the next two years. With Texmaco’s metro coach project expected to take off soon, the company would be able – address this demand as well.

Further, the government is also focusing on a railway dedicated freight corridor and work for the eastern and weste corridors is currently under implementation. This will increas. the demand for wagons, yet another good sign for Texmacc That apart, Texmaco is going in for restructuring, where business would be divided into the engineering business sment and the other would include real estate, mini power investments. The board has already given its approval for t plan submitted by Ernst &Young. For FY10, Texmaco cou post revenues of around P.s 943.19 crore, while profits could be Rs 90-92 crore. At these estimates the valuations lc pretty fair for holding it for a long term period.