Market cap of 5 railway PSUs including RVNL, IRFC surges over ₹2 lakh crore in 2024 so far – here's why

After a strong finish in 2023, railway stocks have continued to attract investor interest in 2024, with many considering this a once-in-a-decade opportunity. These stocks initiated a fresh bull run after the BJP-led NDA formed the government at the center, boosting investor sentiment with expectations of policy continuity and ongoing economic reforms.

Amid this optimistic backdrop, shares of Rail Vikas Nigam, Ircon International, RailTel Corporation of India, and Indian Railway Finance Corporation have surged by up to 38% since June 4. This recent rally has significantly increased the market capitalisation of these companies.

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The market cap of IRFC has soared by ₹1,15,388 crore to ₹2,45,988 crore, while RVNL added ₹64,549 crore, bringing its market cap to ₹1,02,384 crore. Ircon saw an increase of ₹12,758 crore, reaching a market cap of ₹28,944 crore.

IRCTC added ₹10,736 crore, bringing its market cap to ₹82,096 crore, and RailTel Corporation of India increased by ₹5,772 crore, reaching a market cap of ₹16,680 crore. Collectively, the market capitalisation of these five railway PSUs has surged by ₹2,09,203 crore in 2024 so far.

The Indian government has made substantial efforts to revamp the railway sector, as evidenced by significant capital allocation. Over the past decade, it has undertaken extensive modernisation initiatives to enhance the Indian railway system.

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Additionally, there has been a notable expansion of metro train networks across various cities, alongside the introduction of 'Vande Bharat' trains in 2019.

According to the Indian Railways 2023 report, Indian Railways plans to market semi-high-speed ‘Vande Bharat’ trains to European, South American, and East Asian markets by 2025–26, promoting 'Made in India' trains on an international platform.

On fast track

Railway capex is gathering momentum. From rolling stocks to the construction of lines, and railway station development, the sector is teeming with opportunities. The National Rail Plan till 2051 aims to spend ₹9.2 trillion during FY26E–31E, as against ₹5.8 trillion during FY21–26E.

Significant business opportunities emerge both on the passenger as well as freight sides of the business, with large capex lined up on Vande Bharat train procurement, Metro capex, and the freight side of the business, where the government intends to increase its freight market share in logistics from the current 27% to 45% by 2030, said Antique Stock Broking in its latest report.

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With the Dedicated Freight Corridor Corporation (DFCC) taking shape, the focus is on increasing railway freight's share in logistics from the current 27% to 45% by 2030. Annual freight carriage is expected to grow from 1,400 MT to 3,000 MT by 2027, increasing the wagon fleet from 336,900 to 500,000.

The industry anticipates consistent ordering of 21,000 wagons per year from Indian Railways, with 10%–20% of new wagons coming from the private sector, averaging 3,000–5,000 wagons annually.

Over 81% of wagons are financed by the IRFC, and significant investments are projected over the next decades, highlighting the need for higher private participation in wagon ownership. Approximately 35% of the current wagon fleet is over 15 years old, presenting opportunities for wagon manufacturers as replacements become necessary, the brokerage added.

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Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.