Railway capex. What would FY24 spend look like?

The PM GatiShakti – National Master plan for Multi-modal connectivity has a size of Rs 100 lakh crore. The plan aims to achieve decongestion by 51% of railway infrastructure by 2024-25 through the completion of certain critical projects.

The rail cargo is expected to reach 1600 million tonnes, up from 1210 million tonnes in 2020. Western and Eastern dedicated freight corridors are also expected to be completed in the same timeline.
The National Rail Plan targets a 45% modal share for railways by 2030, with estimated investments of 50 lakh crore in the same period.

Railway being the core pillar of the various infrastructure initiatives is attracting large investments and also delivering projects at a rapid pace.

Last year’s budget allocation for railways was Rs 1.4 lakh crore, and for the 2023 Budget, we expect the allocation to go to nearly Rs 2 lakh crore, with a focus to launch new Vande Bharat trains, speeding up of railway station modernization plan, rapid progress on High-Speed bullet trains and metro projects and fast-track the planned projects on doubling, gauge conversion and electrification of
lines.

While multiple infrastructure-related sectors such as capital goods, steel, cement, power, and industrials are going to benefit from such a colossal infrastructure push, there is a niche set of companies
getting immensely benefited from this as the majority of these projects are being designed, developed and executed by this limited set of companies. Some of these companies include the nodal design and consultancy arm of railways, engineering and projects arms, railway financing arm, and OEMs. While these companies have demonstrated strong growth in the past, most of them are still available at a steep discount to the intrinsic value.

These stocks continue to remain favorably exposed to the railway infra growth vector and most of these stocks are priced at P/E ratios of single digits to mid-teens.

We strongly believe that one should take exposure to this theme through a diversified portfolio of 8-10 stocks and avoid buying one or two stocks. Given this is a thematic opportunity, any allocation should be done only after a thorough assessment of one’s risk appetite and financial goals and a cautious evaluation of the investment opportunity, and typically the allocation may not be more than 5-10% of one’s equity allocation.

(Ashwini Shami is smallcase and portfolio manager at OmniScience Capital)

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of the Economic Times)