In the past, they got a lot of business on nomination – govt calls you and gives you the order, your margins are predetermined and protected. Now, the government has changed the policy. Everyone has to bid and private players are also being allowed. There’s uncertainty on margins in the future. What is clear is that it will go down, the management has also called this out. This makes IRCON like any other contractor except for its experience in specialized railways work. Extend this logic to the present order book position, you see that the financials you’re seeing now will only last for another 2/3 years after which there could be a downward trend. Only thing that can save them is they increase their pace of execution (they are already acting in this direction). Increase in EPS is the only thing that can help offset the impact of lower margins to a certain degree.
I still continue to hold, but am tempted to exit. When it went to 60s recently, I was very tempted to sell.
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