Axis Securities expects 16% upside in RITES

Axis Securities expect a 16 percent in the stock of state-owned engineering consultancy company RITES Ltd in the next six to nine months on the back of continued infrastructure spending from the government. RITES shares have advanced nearly 29 percent so far this year. This month, the stock price was up nearly 1 percent.

RITES registered its highest ever quarterly in Q2FY20 and half-yearly revenues and profits, with almost all the segments showing continuous growth with healthy and sustainable margins, said the brokerage. The management is confident of achieving about 10-11 percent growth in FY20, it added.

EBIDTA margin in Q2FY20 at 26.3 percent rose by 130 bps on a quarterly basis due to strong execution, while increasing turnkey contribution resulted in fallin margins on a yearly basis, noted the brokerage.

Axis Securities recommended "Buy" on the stock, with a target price of Rs 328 per share, which represents a 16 percent upside from its CMP of Rs 283 per share on December 20.

RITES' standalone orderbook stands at Rs5,833 crore and the management expects to end FY20 with over Rs 8,000 crore orderbook. "Order book is expected to grow by +17 percent in FY20 over FY19 which provides strong revenue visibility for the next 2-3 years. Orderbook is well diversified with high margin consultancy and low margin turnkey business contributing 41 percent each," said the brokerage.

According to the brokerage, railways projects have started to roll out and RITES would be the key beneficiary of this across all the transportation sector.

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