Texmaco

We recommend a buy in the stock of Texmaco from a short-term perspective. After finding support in the band between Rs 115 and Rs 120 in late May, the stock reversed higher. The long-term trend is up from its March 2009 low of Rs 35. In early August, the stock breached its 200-day moving average as well as significant intermediate-term resistance at Rs 140 and continued to trend up. The stock is hovering well above its 50- and 200-day moving average. On Thursday, the stock climbed 3.4 per cent, penetrating its near-term resistance level of Rs 155. We notice that there is an increase in volume over the past two trading sessions. The 14-day relative strength index has re-entered in to the bullish zone from the neutral region whereas the weekly RSI is featuring in the bullish zone. Both daily and weekly moving average convergence divergence oscillators are hovering in the positive territory implying upward momentum. Our short-term forecast on the stock is positive. We anticipate it to continue its up-move until it hits our price target of Rs 164 or Rs 169. Short-term traders can buy the stock while maintaining stop-loss at Rs 154.

via BL

Texmaco

Investors can consider accumulating the stock of Texmaco, a leading supplier of wagons to the Railways. Stability on the demand front with the Railways announcing an addition of 18,000 wagons, besides the heightened focus on developing the dedicated freight corridors underscore our optimism.

Texmaco appears well-placed to benefit from these given its established relationship with the Railways and the private logistics players. At the current market price of Rs 101, the stock trades at about 12 times it likely FY-10 per share earnings.

This appears reasonable given the vast business potential in the wagon manufacturing space.
Demand drivers

The reiteration of the Railways’ focus on improving infrastructure in the country, with increased budgetary allocation, higher wagon orders and sustained efforts towards setting up of dedicated freight corridors (DFCs), bodes well for Texmaco.

The company’s wagon manufacturing business benefit immensely from that as it is the largest wagon supplier for both the Railways and the private sector.

Besides, the setting up of DFCs will also in the long run translate into higher wagon orders from the private container rail logistics players. That Texmaco had secured orders for the supply of 3,455 wagons from the Railways last year (of the total 11,000 wagons) lends confidence on its execution skills.

But even as increasing wagon orders from the Railways are expected to make up a chunk of Texmaco’s order-book, the demand from the private players is unlikely to improve in the near-term. Save for Container Corporation, which is continuing with its capex plans for the year, most other private container rail logistics players are likely to go slow on their wagon procurement plans.

The global economic slowdown may continue to shadow the sector given its exposure to EXIM traffic. Though there have been slight signs of revival in cargo volumes — even the latest cargo volumes for the month of June have registered growth — it may take at least a couple of months of sustained cargo growth before wagon orders from the private logistics players begin to trickle in.

The company also has a presence in the steel castings and hydro-mechanical equipment space. The castings division, besides meeting captive requirements, also supplies bogies and couplers to the Railways and other wagon builders. Though not a revenue spinner, the division scores well on profit margins and contributes highly to overall cost savings for the company. Texmaco plans to increase the division’s exposure to high-margin export market and has in this respect even established its export base for hi-tech precision castings to serve a few multi-national clients.

The company has received a certificate from the Association of American Railroads for manufacture of Side Frame, Bolster and Centre Plate for the US market. It also has a presence in hydro-mechanical equipment space.

Though the division is yet to make any meaningful contribution to the company, it holds potential to add significantly to revenues. The Government’s increasing focus on improving power infrastructure and the proposed capacity addition in various hydropower projects point to high growth prospects for the division.

While the competition in this space is immense, Texmaco’s proximity to the untapped hydropower potential in North-East India may give it an edge.
Scorecard

For the financial year-ended March 2009, the company reported 15 per cent growth in revenues, while profits grew by 10 per cent. Operating margins dropped by half a percentage point to 15.5 per cent for the year. Deferment of wagon acquisition plans by private players leading and erratic commodity prices could be attributed to the drop in margins. On a segmental basis, the company’s rolling stock division continued to drive growth. Overall, it recorded an impressive performance by turning out 4,701 wagons during the year.

Though in terms of volume, the production was about the same as that of the previous year, the new hi-tech design Indian Railway wagons in stainless steel construction and special wagons for the private industry helped it make substantially higher value-addition over the previous year. It now enjoys an order book of Rs 1,300 crore.

The company is also in the process of raising Rs 200 crore through either preferential allotment of foreign currency convertible borrowing, ADR or GDR.

Texmaco

We recommend a sell in Texmaco from a short-term trading horizon. The stock was on an intermediate-term uptrend from its 52-week low of Rs 35 recorded in March till its June high of Rs 125. Subsequently, the stock reversed direction from the resistance level Rs 125 and has been on a medium-term downtrend. This downtrend appears to be pretty strong as we observe a downward breakaway gap formed on July 6, preceded by an exhaustion gap formed on June 5. The volume during the occurrence of gap supports them. Moreover, after testing the twin support (an intermediate-term up-trendline and key support) at Rs 90 for few sessions, the stock conclusively broke through by diving 8 per cent on July 13. The daily relative strength index is featuring in the bearish zone and weekly RSI is falling in the neutral region. The moving average convergence and divergence indicator is on the verge of entering the negative territory. Our short-term outlook is bearish on the stock. We anticipate it to dive until it hits our price target of Rs 75. Traders with a short-term perspective can sell the stock while maintaining a stop-loss at Rs 87.

via BL

Texmaco

Texmaco

ABN Amro - Texmaco - Trading Call - Buy - CMP 836 - TGT 1090

ABN Amro - Texmaco - Trading Call - Buy - CMP 836 - TGT 1090

Edelweiss - Texmaco - steel ball rolling; result update Q4FY07; maintain Buy

Edelweiss - Texmaco - steel ball rolling; result update Q4FY07; maintain Buy

Texmaco: Buy

Investors with a two/three-year investment horizon can consider exposure to the stock of Texmaco, a leading supplier of wagons to the Indian Railways.

At the current market price, the stock trades at about 22 times its expected FY-08 per share earnings. Given the increase in capacity by the Railways, Texmaco's wagon division is likely to witness a significant growth in demand.

This apart, privatisation of container freight movement and entry of private logistics players into the railway freight business may also contribute to higher demand for wagons, leading to further growth potential. The proposed doubling of capacity of the steel foundry division and a robust demand environment for Texmaco's hydro-mechanical equipment and structurals division also lend optimism to earnings prospects.

Investment argument

Driven by increasing demand from the Indian Railways and the private sector, Texmaco's rail wagons division may be set to witness robust growth.

The government's proposal to expand the railway network, increase capacity of existing wagons and introduce higher capacity wagons are likely to scale up its revenues over the next two/three years.

The proposed setting up of dedicated freight corridors on Delhi-Mumbai and Delhi-Howrah sections could also contribute to topline growth. The introduction of wagon investment scheme, entry of wagon leasing companies and allowing private participation in inland container transport could also create a healthy demand scenario for Texmaco.

On the back of an on-going power shortage scenario, the government's planned capacity-addition in various hydropower projects is encouraging.

It is likely to open up newer markets and revenue outlets for the hydro-mechanical equipment division of Texmaco, which makes gates, penstocks, electromechanical and hydraulic hoists for dams, barrages and power stations. Also, given the untapped hydropower potential in the North-East India and Texmaco's proximity to it, it is likely to have an edge over other companies in procuring such orders.

The process equipment division, which caters mainly to sugar, industrial gas and space industry, on the contrary, could be a drag, given the slowdown in orders from the sugar industry.

The steel foundry division, apart from meeting the captive requirement of the wagon division, is a major supplier of bogies and couplers to other wagon builders. It is also the largest supplier of bogies and couplers to the Indian Railways with a market share of about 32 per cent and 42 per cent respectively.

A healthy demand scenario, doubling of capacity and the thrust on export lend confidence in the revenue visibility of this division. Consequently, the foundry division is likely to emerge as a growth driver in the future.

For the quarter-ended December 2006, Texmaco recorded a 61 per cent rise in revenues compared to the corresponding previous quarter. The operating profits margin, however, remained stable at about 13 per cent despite a rising cost scenario.

Concerns

Since a significant portion of the overall revenues is contributed by the Indian Railways, any slowdown or delay in orders could affect the earnings negatively.

Texmaco also faces the risk of under-utilisation of capacity, given the dependence of its wagon division arising from erratic planning and off-take of Indian Railways. Hence, when there are no orders from the Railways, margins could come under pressure.

This apart, an unprecedented rise in raw material cost, increase in competition and any unfavourable change in government policies also pose a downside risk to our recommendation.

Anand Rathi - Texmaco

Download here