RVNL : Riding the Rails of Success

Imagine a world where every day, an entire population equivalent to that of Australia gets on board a massive network of trains that covers over 68,000 kilometres of track and stops at around 7,500 stations. That world exists, and it's called the Indian railway industry. With over 13 lakh employees working day and night, this industry has undergone massive reforms to become more efficient, safe, and revenue-generating. So hop on board, and let's explore the fascinating world of Indian railways.

India's rail route has been expanding consistently over the past years, reaching a staggering length of about 68,000 km recently. Check out the graph below to see the steady growth of the railway network in India.

The prospects of the Indian railway industry look promising, with several ongoing and planned projects, such as high-speed trains, dedicated freight corridors, and station redevelopment, set to boost growth and enhance connectivity across the country. Additionally, the government's focus on renewable energy and sustainability is expected to drive the adoption of eco-friendly technologies in the railway sector.

Get ready to see how much moolah the Indian Railways is making! We've got a graph that shows their revenue generation over the years…

₹2,40,000 crore, which rivals the GDP of some small countries! That's right, it's more than the GDP of Bhutan, Maldives, and several other countries!

The Indian Railways is widely regarded as a vital infrastructure for transporting both passengers and cargo, playing a critical role in connecting people and goods across the country. One of the key players in this industry is the Rail Vikas Nigam Limited (RVNL), which has been responsible for the construction and development of railway infrastructure across India.

Well, well, well, looks like we have an interesting situation here. As a company, we have not been particularly fond of Public Sector Undertakings (PSUs) in India, largely due to their bureaucratic procedures, lack of autonomy, and limited growth opportunities.

However, there seems to be something special about Rail Vikas Nigam Ltd. (RVNL) that has caught our attention. RVNL has delivered an enormous 285.28% return over the last 1 year, making it one of the best-performing stocks in the market. Now that's something to write home about!

So, what's the deal with RVNL? Is it just a flash in the pan, or is there something more substantial behind its impressive performance? As a company, we have done our due diligence and looked into RVNL's business operations, financial performance, and growth prospects. And we have to say, we are impressed!

Choo choo, hop on the RVNL train and let's ride through the ups and downs of railway infrastructure!

About the company

Rail Vikas Nigam Limited (RVNL) is a crucial company in the Indian railway industry. It was established with the primary objective of executing and managing infrastructure development projects for the Indian Railways. As the executing arm of the Ministry of Railways, RVNL takes on a wide range of responsibilities in railway projects, including planning, designing, and implementing rail infrastructure projects throughout India.

RVNL is involved in several aspects of the railway industry, including developing new railway lines, expanding existing ones, electrification of tracks, building bridges, and construction of railway stations. They are also responsible for maintaining and modernising railway infrastructure to ensure smooth and safe operations.

RVNL has 34 project implementation units present in 26 locations across the country, allowing them to work closely with local communities and officials. This close collaboration ensures that projects are tailored to the specific needs of each region. Not only does RVNL rock at railway projects, but it also dips its toes in other infrastructure sectors like a boss. And the best part? It doesn't just dip - it dives headfirst into the competition, leaving the others in the dust. So, if you ever hear of a cool infrastructure project happening in India, you can bet that RVNL might be behind it!

RVNL is basically the "get things done" arm of the Ministry of Railways. They are in charge of everything from coming up with ideas for projects to making them a reality, all while working closely with the Indian Railways. They are working on Metro, Highways and other infrastructure sectors too!

RVNL primarily operates on a turnkey basis, undertaking the entire project development cycle from conceptualisation to commissioning. This includes various stages, such as:

By managing the full project lifecycle, RVNL ensures the smooth execution of railway infrastructure projects.

RVNL primarily serves the Indian Railways as its major client while also catering to various central and state government ministries, departments, and public sector undertakings. In addition to this, RVNL has diversified its services and has begun participating in the Metro, highways, and other infrastructure sectors through competitive bidding. This expansion has allowed RVNL to showcase its expertise in project execution and management beyond the realm of railways.

RVNL's Financials

The financials of a company are like a report card for the company. Just like how your report card shows how well you are doing in school, a company's financials show how well the company is doing in making and using money. A company's financials can tell us many important things, like how much money the company is making, how much it is spending, how much debt it has, how much it is investing, and many other essential details. Let's take a closer look at RVNL's financials - it's like putting on our detective hats and solving the mystery of how well the company is doing.

Over the past five years, RVNL's Total Income has been on a steady rise, going from ₹7,597 crore to a whopping ₹19,381 crore! That's like going from having a piggy bank with a few coins to having a treasure chest overflowing with gold coins. The Ministry of Railways has played a significant role in this increase of 25.83% by ensuring adequate funds for project expenditure throughout the year, which has accounted for 93.69% of the turnover.

And RVNL's hard work is paying off, as their profits have increased to a substantial 1,079 crore in the Financial year 2022. That's like earning a big fat allowance for doing your chores.

But wait, there's more! RVNL's PBT has also gone up from ₹1155.67 crore in 2020-21 to ₹1406.10 crore in 2021-22. This means that the company is making even more money, thanks to its impressive project execution.

And the good news doesn't stop there! RVNL's PAT went up from ₹940.57 crore to ₹1087.21 crore, a 15.59% increase over the previous year. It's like scoring higher on your math test than you did last time - that's something to celebrate!

Many of us save up our allowance money and have a huge pile of cash so that we can buy something really special, that is what the balance under Reserves and Surplus denotes. The company had reserves of ₹3,546.39 crore in 2021-22, compared to ₹2,880.56 crore in 2020-21. 

So, based on all these clues, it looks like RVNL is doing a fantastic job managing its money and making smart investments. Way to go, RVNL!

RVNL investment

Particulars	2018	2019	2020	2021	2022
EPS (₹)	2.73	3.38	3.61	4.42	5.67
ROE (%)	14.51	15.64	14.72	16.56	18.48

This table shows two important financial indicators for a company over the past five years - EPS and ROE.

EPS stands for Earnings per Share and is a measure of how much profit a company is making for each share of its stock. It is calculated by dividing a company's total earnings by the number of outstanding shares of its stock. The higher the EPS, the more profitable the company is.

The other financial indicator shown in the table is ROE, which stands for Return on Equity. ROE is a measure of how efficiently a company is using its shareholders' equity to generate profit. It is calculated by dividing a company's net income by shareholder equity. The higher the ROE, the better the company is at using its equity to generate profits.

We can see that the company's EPS has been increasing steadily over the past five years, from 2.73 in 2018 to 5.67 in 2022, which is a positive sign for investors. ROE has also been increasing over the past five years, from 14.51% in 2018 to 18.48% in 2022, which means that the company is becoming more efficient at using its equity to generate profits.

Imagine that you're starting your own business and need some money to begin. You have two options - you can borrow money from someone else (debt) or you can use your own money (equity). The Debt to Equity ratio is a measure of how much you've borrowed compared to how much you've invested yourself.

Now let's look at the chart below - it shows the Debt to Equity ratio over the past five years. In 2018, the company's Debt to Equity ratio was 0.58, over the next few years, the company continued to borrow more money, as shown by the increasing Debt to Equity ratios in 2019, 2020, and 2021. By 2022, the company's Debt to Equity ratio had reached 1.03, meaning it had borrowed more money than it had invested in the business.

This could be a concern for investors, as a high Debt to Equity ratio can indicate that a company is taking on too much debt and may struggle to pay it back. However, it's important to note that a high Debt to Equity ratio is not always a bad thing - it can also mean that a company is using debt to finance growth and expansion, which could lead to higher profits in the future.

So, while a high Debt to Equity ratio may sound alarming at first, it's important to consider the context and other factors at play before jumping to conclusions about a company's financial health.

Rail Power: RVNL's Strengths

1. Large-scale mechanisation for high-quality output: Large-scale automation means using machines to do work on a big scale instead of doing it manually. This helps to get the work done faster and more accurately.
2. Refined tendering processes for faster decision-making: It means improving the way the company asks other companies to bid for a project. By improving the process, RVNL can make decisions faster and speed up the project execution.
3. Sound financial management for cost savings: This means managing money and resources effectively to save costs. RVNL has implemented good financial management practices to use funds efficiently and reduce unnecessary expenses, resulting in cost savings.
4. Mobilisation of funds for new projects through SPVs: When RVNL needs money to start a new project, they create a Special Purpose Vehicle (SPV). RVNL can then attract other companies to invest in the SPV, which gives RVNL the money they need to start the project without using all of their own money. This way, RVNL can spread the risk and still get the project done.

5. Delegated authority for faster implementation: Delegated authority means that the Ministry of Railways has given RVNL the power to approve project estimates and award contracts, enabling them to make decisions more quickly and implement projects faster without waiting for approval from higher authorities.
6. Expertise in project development and Asian Development Bank (ADB) procedures: This means that RVNL has the necessary skills and experience to follow the guidelines and procedures set by the ADB. This is important because the ADB provides financial assistance and support to infrastructure projects in developing countries, including India. By following its procedures, RVNL can increase its chances of receiving funding from the ADB and ensure that its projects are implemented in accordance with international standards. RVNL's expertise in project development also means it can effectively and efficiently undertake all stages of project development, from conception to completion.
7. Business Development Cell for competitive bidding: RVNL has a team that helps them participate in competitive bidding to win more infrastructure projects.

Track Challenges: RVNL's Weaknesses 

1. RVNL relies on the Ministry of Railways for financial support: Matlab, satta palati aur khel kharab!
2. Lack of authority to approve designs and obtain safety sanctions: Project toh bann ke sadd raha he lekin hara jhenda nahi mil raha!
3. Delays in securing approvals and changes in plans during execution: Kaam toh ho jaayega bas shuru hone ki deri he!

Platform for Growth: Opportunities for RVNL

These are the possible growth avenues that RVNL could explore in the not so far future:

• Expertise in metro projects and significant workshops.
• With RVNL’s growth as a significant provider of a variety of rail infrastructure, there is an opportunity of securing rail infrastructure projects overseas.
• RVNL can help raise funds for projects and has experience in implementing projects through Public-Private Partnership (PPP) mode, which involves collaborating with private companies to share resources and risks in project execution.
• Implementing projects in hilly terrain and strategic locations.
• RVNL has a subsidiary company, High-Speed Rail Corporation of India Ltd., responsible for developing and implementing high-speed rail projects. It has opportunities to implement high-speed corridors in the country.

Signal Risks: Threats to RVNL

If things go wrong, RVNL's business could be exposed to the following risks:

• Shortage of technical manpower.
• Land acquisition issues.
• Delays in clearances for project execution.
• Safety concerns on existing running lines.
• Poor law and order conditions in some areas.

RVNL has much potential for growth and success in the infrastructure sector, with its strengths in several aspects. However, by addressing its weaknesses and threats, RVNL can unlock its full potential and become a leading player in the infrastructure sector.

Let's unravel the company's ownership structure, shall we?

 

The most significant stake in the company, at a whopping 78.20%, belongs to the President of India. A smaller percentage of the company's shares are held by foreign institutional investors (FII), domestic institutional investors (DII), and the public, who all have a stake in the company's growth and future success. It's an exciting mix of people who are all working together.

All aboard the RVNL Express! Here are some exciting tidbits to keep in mind about this railway infrastructure company.

• FY 2021-22 witnessed the completion of an impressive 1525.45 km of railway infrastructure projects.
• Did you know that since 2003, the Ministry of Railways has transferred a whopping 195 projects to RVNL for execution? That's a lot of work for one company! But don't worry, RVNL is up to the challenge. As of March 2022, they have completed 120 projects, have 72 projects in progress, and are eagerly awaiting the green light on the remaining 3 projects. Talk about a busy schedule!
• Bagged two significant metro rail construction corridors in Indore through a joint venture.
• Secured three consultancy works for Detailed Project Reports (DPR) in NorthEast region's important highway projects by the National Highways Authority of India (NHAI).
• RVNL dedicated a sum of ₹13.15 crore towards their Corporate Social Responsibility endeavours.

Glimpse of Government's Ambitious Plans and Their Potential Impact on RVNL's Business

Okay, imagine you are playing with your toy trains, and you have a lot of toy trains but need more space to play with all of them at once. So, you decide to build a more extensive track so you can play with more trains. Now, think of the Indian Railways as having a lot of trains too, but they don't have enough tracks to run all the trains at once. That's why the government has made a plan called the National Rail Plan, which will help build more tracks and make the railway system "Future Ready".

RVNL, being a prominent player in the railway construction sector, is naturally interested in the plan. The NRP has an objective to increase the modal share of railways in freight to 45% by formulating strategies based on operational capacities and commercial policy initiatives.

This plan would mean a surge in demand for railway infrastructure and construction services. The Vision 2024 launched as part of the plan has accelerated the implementation of critical projects by 2024, such as 100% electrification, multi-tracking of congested routes, upgradation of speed to 160 kmph on certain routes, upgradation of speed to 130 kmph on all other Golden quadrilateral - Golden Diagonal routes, and elimination of all Level Crossings on such routes.

RVNL should be ready to grab the opportunities presented by the NRP and Vision 2024. They need to gear up to cater to the increased demand for their services to ensure the timely completion of the projects and smooth execution. 

As new sections were being progressively commissioned for traffic in the Eastern and Western Dedicated Freight Corridors, new Dedicated Freight Corridors were identified, and the expansion of rail networks in Jammu and Kashmir and the North Eastern region of the country was being emphasised. 

They need to keep up with the changing times and technologies to provide cutting-edge solutions and services that are proactive and innovative in their approach to meet the challenges and grab the opportunities presented by the government's plan.

In conclusion, the government's plan to create a "Future Ready" railway system would mean a significant surge in demand for RVNL's services.

Let's take a closer look at some of the concerns that the business is facing…

One of the main challenges is ensuring a continued flow of funding from the Ministry, which will be key in driving the company's growth and success. Additionally, a significant amount of outstanding project expenditure is owed by the State and Union Governments, which needs to be addressed to keep things moving forward.

Another area of concern is the potential for delays in project execution due to factors such as land acquisition, government approvals, and law and order issues. This highlights the need for continued support from the Ministry of Railways and other government departments and a focus on addressing the capacity constraints of agencies involved in delivering large-scale rail infrastructure projects.

Overall, these challenges are manageable but will require careful planning, collaboration, and effective communication between all stakeholders in order to ensure that the business can continue to thrive and deliver value for its customers and stakeholders.

The Bottom Line

While RVNL has achieved significant milestones in the rail infrastructure sector, there are also challenges that need to be addressed. The company's strong financial performance and project execution capabilities are commendable, but the heavy reliance on government funding and outstanding dues from the government pose potential risks.

Moreover, delays in project execution due to land acquisition, clearance of permissions, and law and order issues remain a cause for concern. To ensure continued success, RVNL must address these challenges and work towards building greater capacity while maintaining its focus on innovation and efficiency.
And who knows, with their commitment to innovation and development, maybe we'll see flying trains in the future.

*Disclaimer: The stock or any companies discussed above aren't a recommendation from Insider by Finology and shall not be construed as a replacement for professional advice. Consult a professional or conduct the necessary research before making investment decisions.