RVNL - Stock Story
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Business Overview
RVNL was incorporated with an objective to undertake rail project development, mobilization of financial resources and implementation of rail projects pertaining to strengthening of golden quadrilateral and port connectivity and raising of extra-budgetary resources for project execution. RVNL is in the business of laying new lines, doubling, gauge conversion and railway electrification.
RVNL’s major client is the Indian Railways and other clients include various central and state government ministries, departments, and public undertakings. RVNL has also started participating in Metro, Highways and other Infrastructure sectors through competitive bidding. RVNL functions as an executing arm of Indian Railways and works for and on behalf of the Ministry for projects assigned to it for execution.
It must be noted that RVNL does not construct, repair or involve any actual tangible work for the Ministry Of Railway in India. It is simply responsible for the arrangement of finance, developing the projects, outsourcing and tender issues etc. It is more of a facilitator whose work can actually be a part of the Ministry itself.
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Business Offerings:
New lines: Augmenting the rail network by laying new lines.
Doubling: Provision of additional lines by way of doubling the extra routes to enable the Indian Railways to ease out the traffic constraints.
Gauge Conversion: This includes the conversion of meter gauge lines to broad gauge railway lines.
Railway Electrification: The company is engaged in the electrification of the current un-electrified rail network and the electrification of the new rail network.
Metropolitan Transport Projects: Company takes up projects to set up metro lines and suburban networks in the metropolitan cities
Workshops: This includes manufacturing facilities and workshops for repairing and manufacturing rolling stock.
Industry Analysis
India has the fourth largest railway network in the total world with a total length of 68,442 km. It runs nearly 22000 trains daily out of which 13,500 are passenger trains that carry more than 2.3 Crore passengers and about 8500 freight trains that carry more than 3.5 million tonnes of freight per day.
Indian Railways has prepared a National Rail Plan (NRP) for India - 2030 which envisages the creation of a “Future Ready” Railway system. The NRP is aimed to formulate strategies based on both operational capacities and commercial policy initiatives to increase the modal share of the railways in freight to 45%.
The objective behind the plan is to create capacity before demand and to address the much-required need for sustainability by ensuring 100% electrification of train routes. Other objectives include multi-tracking facilities at congested routes, upgradation of speed to 160 kmph on certain routes and 130 kmph on every other golden quadrilateral route.
Many new improvements, such as self-designed Vande Bharat Express, Tejas Express, Vista dome Coaches, new Signalling Systems, Long Haul Freight Trains, High Capacity and High-Speed wagons, Kisan Rail, Solar powered passenger coaches etc have been undertaken to bring about a sea change in customer comforts and expectations.
The Indian Railways sector is the single largest employer in the country and the eighth largest employer in the world. It is aiming to contribute at least 1.5% of GDP directly while serving inorganic growth. Freight earnings increased by 16% as compared to the same period last year (INR 91127 Crores).
Growth Drivers of the industry
Exponential rise in Passenger and Freight traffic: The passenger traffic is projected to reach around 12 Bn per year by 2031 and Freight traffic is expected to cross 8200 million Tonnes by 2031.
Freight Shift towards Railways: National Rail Plan aims to increase the modal share of Railways in Freight by 45% by 2030 from the existing 27%.
Dedicated Freight Corridor: Six high-capacity, high-speed dedicated freight corridors.
Freight Business Development portal: One-stop cargo solution for seamless goods transportation.
Diamond Quadrilateral network of high-speed rail: Connecting major metros and growth centres of the country.
Atmanirbhar Bharat Abhiyaan – Self Reliant India: Special economic and comprehensive package of INR 20 lakh Cr towards promoting manufacturing in India.
Management
The President of India owns more than 78% stake in the company. FIIs own about 2.45% of the business while DIIs and the Public own 6.45% and 12.92% respectively.
RVNL is dependent on the Ministry of Railways for funding projects which is critical for the future growth of the company and for the timely implementation of the projects. RVNL has not been notified as a Zonal Railway and accordingly does not have the authority to approve drawings, designs etc.
The company is owned and controlled by the government and is crowned as the fastest-growing non-manufacturing company of the year.
Being a Government Company, the appointment of all the directors (Whole-Time/Government Nominee/ Independent Directors) is done by the President of India through the Ministry of Railways. The Directors so appointed are drawn from diverse backgrounds and possess special skills with regard to the industries / fields from where they come.
Business Opportunities
RVNL serves as an executing arm of the Ministry of Railway and only through RVNL all decisions pertaining to railway development are made.
As RVNL can award large-value contracts, it has been able to attract the best infrastructure companies in India.
HSRC Infra Services Limited, a subsidiary of RVNL, is available to provide consultancy services and also for the implementation of high-speed corridors in the time to come.
It has refined its tendering processes and introduced innovative concepts like multi-package tenders resulting in faster decision-making and savings in overall costs.
Metro Railway orders have been won by the company in recent months which could bring a hugely positive impact upon completion.
The success of RVNL now promises opportunities for overseas orders
RVNL is implementing Rishikesh – Karnaprayag project in the Himalayan region and can also take up more such projects in hilly terrain and also projects located at strategic locations.
RVNL in future can also come up with its own construction and tangible input solutions which can open up new modes of income
RVNL also engages in BOT or Build-Operate-Transfer projects
The Company proposes to expand its operations through its Subsidiary Company which will undertake the siding construction, siding maintenance, procurement of machines for operation and maintenance, PMC/GC services, solar panel work, Transmission line work, Export of wagon/coaches, Cranes etc, construction of Metro and HSR and also include biding in the open market and thus it would be bidding arm of the parent Company i.e. RVNL
Risks
RVNL is dependent on the ministry of Railways for funding its projects
RVNL has not been notified as a Zonal Railway and accordingly does not have the authority to approve drawings, designs etc.
RVNL is not at present involved in construction or tangible infrastructure development work. The firm is more architectural and supervisory in nature of its business.
FINANCIALS
DISCLAIMER:
This is for EDUCATIONAL purposes only.
At Intelsense we regularly study interesting businesses. We keep profiling them. The idea is to keep learning and expanding our knowledge base.
It does NOT construe a BUY or SELL recommendation on the stock.
As per the recent exchange filings, RVNL has been awarded the projects for construction of underground metro stations for Chennai Metro. As mentioned in the above stock story, it seems RVNL ventured into the construction segment. Is this to be considered as opportunity or risk, because construction (especially long duration contracts) comes with inherent risk associated with managing the costs within budget and the private competition is tough in this field.