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India’s railway overhaul is no longer just a promise—it's a full-throttle mission backed by record government spending. As this transformation gains speed, railway public sector units (PSUs) are stealing the spotlight on Dalal Street.

One name that’s chugging ahead of the pack is Rail Vikas Nigam Ltd (RVNL). Whether it's electrification, metro expansions or station makeovers, the company is quietly powering some of the biggest infrastructure projects that will shape the future of Indian Railways.

But is RVNL simply riding the PSU frenzy or does it have the horsepower to deliver consistent, long-term gains? In this article we dive into RVNL’s business model, order book and financials to see what could be on the horizon.

Incorporated in 2003 under the ministry of railways, RVNL's mandate was to accelerate the implementation of critical railway infrastructure projects.

Acting as the ministry's primary construction arm, the RVNL of today is responsible for building new railway lines, conducting electrification, constructing major bridges and workshops and even metros and other urban transport systems.

The company has mastered leveraging extra-budgetary resources, especially through the formation of special purpose vehicles (SPVs), highlighting its ability to mobilise capital beyond traditional government allocations.

Its consistent performance earned it Miniratna Category-I status, recognition that conferred greater operational autonomy. But the real game-changer came in April 2023, when RVNL was awarded Navratna status.

This recognition has further boosted its financial independence and strategically positioned the company to compete for larger, more complex infrastructure projects.

Here’s a snapshot of RVNL’s track record from its FY24 annual report.

And here's a quick overview of what makes the company a silent force in India’s infrastructure story:

RVNL primarily earns through engineering, procurement and construction (EPC) contracts, but what’s interesting is its evolving model.

While EPC accounted for more than 80% of revenue, the rest came from project management consultancy (PMC) and other high-margin services. Fees typically range from 8.5-10%, depending on the type of project, and the company is transitioning from nomination-based to competitive bidding models. RVNL is intricately tied to India’s macro-infra goals, particularly the PM Gati Shakti National Master Plan.

RVNL operates in a competitive environment. Its key competitors include:

From building multi-modal logistics parks to streamlining freight corridors, RVNL’s contributions go far beyond laying tracks; it’s building India’s next-gen logistics and trade infrastructure.

The company has demonstrated a strong and consistent growth over the past five years. Turnover increased steadily at a compound annual growth rate (CAGR) of 10.6%. Net profit expanded to ₹14,63 crore in FY24, nearly doubling in five years.

It is supported by stable operating margins and a controlled cost structure. The operating profit margin has remained steady at 6%, indicating consistency in operational efficiency despite scaling up. The growing earnings per share (EPS) reflects management's effective capital deployment.

The balanced dividend payout suggests the company rewards shareholders while also retaining some profits for future growth.

RVNL now aims to power the trains for which it once built tracks. With Indian Railways targeting net-zero emissions by 2030 and needing 10,000 MW of power, RVNL is stepping into clean energy. It’s developing solar parks, battery storage systems, and even small hydro projects in states such as Uttarakhand and Himachal Pradesh.

Drawing on its tunnelling and civil construction expertise, RVNL sees solar-plus-battery and small hydro as natural extensions of its skill set. It's also exploring compact nuclear energy solutions in partnership with Russia’s Rosatom, potentially using railway land for setup.

While battery costs and evolving policies pose challenges, RVNL counts Indian Railways as a reliable anchor customer, which helps reduce market risks. The company’s ₹1 trillion order book is steadily expanding beyond rail, with clean energy expected to play a bigger role in the coming years.

If these are executed well, RVNL could soon be known not just for kilometers of track but megawatts of green power.

While RVNL presents a compelling growth story, investors must consider several inherent risks associated with it:

RVNL isn’t laying tracks anymore, it’s laying the groundwork for a bigger infra story. With its strong PSU roots and diversification beyond railways, the company has real potential. But new sectors bring new challenges. The real game is balanced diversification.

Investors should always check if a stock aligns with their investment objectives before deciding whether to invest.

Happy investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com

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