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Friday, April 1, 2011

Stock To Buy in 2011 - Texmaco Rail & Engineering Limited (TREL)

Texmaco Rail & Engineering Limited (TREL) is on strong growth path. It has very good potential of growing immensely in sector it operates in which makes it a Mid Cap Stock To Buy in 2011.

TREL is into core engineering business including Heavy Engineering that comprises of Rolling Stock for Railways, Hydro-Mechanical Equipment, Steel Structural, Agriculture Machinery and Steel Foundry. All these business segments are on high growth trajectory due to booming infrastructure needs in India.

Rolling Stock division of TREL manufactures wagons for Indian Railways and private players like CONCOR, NTPC. Railway intends to buy 18,000 wagons during FY 2011-12 , a jump of 24% compared to 14,500 in FY 2010-11.

Vision 2020 of Indian Railways proposes average investment of Rs 140,000 crore per annum over next 10 years for expansion of rail infrastructure. TREL is a market leader in this business and with its low-cost operations, massive infrastructure, and engineering skills will benefit at large from Railway's investments.
TREL is forming Joint Ventures with global leaders to cater needs if railways. These include UGL, an Australian company for designing, manufacturing & supplying locomotive bogies, wagons and related components.

A JV will be formed with Bombardier if Bombardier gets tender from Indian Railway for setting up locomotive factory and electric loco components manufacturing facility. Siemens is the only other major MNC contender for this project. These projects could add ~ Rs 5,000 crore worth sales every year in foreseeable future.

Hydro Mechanical division manufactures equipment for mega Hydro Power, Irrigation & Flood Control projects. TREL is the only company supplying Hydro Mechanical gates for Hydel plants with capacity above 500 MW. India plans to spend over Rs 180,000 crore on power plants of this, 7% i.e. Rs 12,600 crore would be addressable business for TREL.

Steel Foundry of TREL is the only foundry in India qualified to export railway castings to North America. At present 70-75% of foundry output is used internally for wagon division but with modernization drive, this sales proportion is going to change. More products exported would fetch much higher price and its margin is expected to expand.

Agro Machinery division proposing to add new Agricultural Machines, Tractors and Reapers. It will benefit from growing Indian agricultural sector.

Company has taken up assembly and marketing of Infrared Recycling Pothole Repairing Machine for roads with Nu-Phalt U.K. First machine has been delivered to Delhi Municipal Corporation and company expects to receive substantial orders in FY 2012.
Texmaco Rail & Engineering is cash rich company with almost Rs.10.69 per share in cash.

At current stock price of Rs. 70, the stock trades at 10.2 times FY 2011 expected EPS of Rs 6.80 and 7.7 times FY 2012 expected EPS of Rs 9.10. TREL is a definite Stock To Buy in 2011 for long term investment portfolio (2-3 yrs).

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