Texmaco Rail and Engineering‘s shares fell 2% on Tuesday morning despite a bullish call from a global brokerage.

Brokerage Views: Nuvama gave the stock a "buy" call with a target price of ₹331, implying an upside of 21%. The brokerage said the company could clock an annual growth rate of 45% in its bottom line over FY24-27.

Increasing railway capex, strong wagon ordering and net cash balance can help the company hit the projected profit numbers, according to the research firm. A potential demerger of its rail engineering procurement and construction (EPC) business along with increased presence in the rail component business are also factors for further rerating, it noted. 

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The company's wagon business went through a downturn from 2014 to 2022, but its order acceleration is 75% higher in FY23-24 compared to the period between FY14-22, according to the research firm. Texmaco's wagon dispatch increased from 1,600 units in FY22 to around 7,000 units in FY24. 

Due to the high cash requirements of the rail EPC segment, the company's debt-to-equity ratio increased from 0.4 times in FY15 to 0.6 times in FY23.

The company raised funds worth ₹1,000 crore through a qualified institutional placement in FY24. As a result of this, the balance sheet now has more cash than debt which will help the company to expand capacity in wagon, steel foundry and component business, the brokerage said. 

The potential demerger of its rail EPC business, which will leave the company with capital-light wagons, overhead equipment (OHE) and components business, improving operating margins and working capital, as well as the ramp-up of its component business, are other triggers for the stock, said the brokerage firm. 

Price Action: Shares of Texmaco Rail and Engineering fell 2.70% to ₹277.60 on Tuesday morning. 

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