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The Indian Railways has increased its safety and signaling budget by 50%, focusing on enhancing safety measures across its network. A key part of this initiative is the development and implementation of the Kavach system, a train collision avoidance system. Here, we examine the roles and financials of five companies that are crucial to this ecosystem: HBL Power Systems Ltd., Kernex Microsystems, RailTel Corporation of India Ltd., Siemens Ltd., and KEC International Ltd.
HBL Power Systems Ltd. operates in various segments including batteries, electronics, eMobility, and defence. The company is an approved vendor for supplying components for the Kavach system, involving contracts for new train sets and upgrading existing railway tracks. This presents significant growth opportunities as the Kavach system is relatively new, and its deployment across India’s vast railway network could lead to increased demand. Additionally, government focus on safety post-accidents could expedite adoption.
Financially, HBL reported revenues of Rs 1,236 crore in March 2022, Rs 1,369 crore in March 2023, and Rs 2,233 crore in March 2024. The profit after tax (PAT) for the same periods were Rs 94 crore, Rs 98 crore, and Rs 280 crore, respectively.
Key metrics include a market cap of Rs 16,536 crore, a current price of Rs 597, a stock P/E of 55.0, an ROCE of 34.4%, an ROE of 27.7%, a debt to equity ratio of 0.06, a three-year sales growth of 34.8%, and a three-year profit variation of 160%.
Kernex Microsystems specialises in safety systems for railways. It provides crucial technology components, including hardware and software solutions essential for the Kavach system’s operation. Growth opportunities for Kernex include the Indian government’s “Atmanirbhar Bharat” initiative, which prioritises indigenous technologies like Kavach. The vast market with thousands of kilometers of tracks slated for Kavach installation also presents significant potential.
Financially, Kernex reported revenues of Rs 7 crore in March 2022, Rs 4 crore in March 2023, and Rs 20 crore in March 2024. The loss for these periods were Rs 17 crore, Rs 20 crore, and Rs 27 crore, respectively.
Key metrics include a market cap of Rs 850 crore, a current price of Rs 507, and a debt to equity ratio of 0.26. The company has a ROCE of -21.5% and an ROE of -28.0%, with a three-year sales growth of 2.28%.
RailTel Corporation of India Ltd. operates in telecom services and project work services. RailTel has signed a Memorandum of Understanding (MoU) with Quadrant Future Tek Limited to explore and execute Kavach implementation projects in India and internationally. The estimated total order opportunity for Kavach and LTE combined is Rs 30,000 crore, with RailTel aiming to capture Rs 5,000-6,000 crore. RailTel enjoys the exclusive advantage of providing optical fiber cables and telecom services across the Indian Railway network.
Financially, RailTel reported revenues of Rs 1,522 crore in March 2022, Rs 1,947 crore in March 2023, and Rs 2,568 crore in March 2024. The PAT for these periods were Rs 208 crore, Rs 187 crore, and Rs 246 crore, respectively.
Key metrics include a market cap of Rs 15,919 crore, a current price of Rs 496, a stock P/E of 60.0, an ROCE of 20.3%, an ROE of 15.3%, a debt to equity ratio of 0.02, a three-year sales growth of 24.3%, and a three-year profit variation of 23.6%.
Siemens Ltd. operates in digital industries, smart infrastructure, and mobility. Siemens India is a major supplier of railway technology and is a contender for supplying equipment or technology for the Kavach system. Siemens has a long history of providing advanced railway technology, making them a natural partner for Indian Railways’ modernization efforts, including Kavach implementation. Siemens won its largest-ever railway order worth Rs 260 billion, which includes 1,200 locomotives.
Financially, Siemens reported revenues of Rs 14,832 crore in September 2022, Rs 17,965 crore in September 2023, and Rs 19,604 crore on a trailing twelve months (TTM) basis. The PAT for these periods were Rs 1,531 crore, Rs 1,911 crore, and Rs 2,318 crore, respectively.
Key metrics include a market cap of Rs 2,42,062 crore, a current price of Rs 6,797, a stock P/E of 104, an ROCE of 20.7%, an ROE of 15.4%, a debt to equity ratio of 0.01, a three-year sales growth of 22.1%, and a three-year profit variation of 35.7%.
KEC International Ltd. operates in power transmission and distribution, railways, civil, and urban infrastructure. KEC is responsible for integrating the Kavach system’s hardware and software components into the existing railway infrastructure. The Indian government’s push for enhanced railway safety creates a significant demand for Kavach, with the rollout covering 10,000 kilometers of railway tracks, translating to numerous project opportunities for KEC.
Financially, KEC reported revenues of Rs 13,742 crore in March 2022, Rs 17,282 crore in March 2023, and Rs 19,914 crore in March 2024. The PAT for these periods were Rs 332 crore, Rs 176 crore, and Rs 347 crore, respectively.
These five companies play crucial roles in the development and deployment of the Kavach system, contributing to the overall enhancement of railway safety in India. Their involvement not only represents significant growth opportunities but also aligns with the government’s focus on safety and modernisation of the railway infrastructure.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.
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