RVNL stock news

RVNL Stock Gains on MSCI India Index Inclusion | Antique Stock Broking Issues ‘Sell’ Rating

Shares of RVNL saw an increase on August 13, driven by positive investor sentiment following its inclusion in the MSCI India Index. This boost comes despite the company reporting a 35% drop in its Q1FY25 net profit.

Key Points:

Stock Performance: RVNL shares were up over 1% to ₹585.60 on the NSE as of 12:07 PM on August 13. The stock has surged 222% year-to-date, significantly outperforming the Nifty 50, which gained over 12% during the same period. Over the past year, RVNL has delivered an impressive return of around 364%, compared to the Nifty’s 25% return.
Q1FY25 Financials:
- Net Profit: ₹224 crore, reflecting a 35% decline year-on-year.
- Revenue: Down 27% YoY, largely due to a slowdown in overseas sales from the Maldives, labor shortages, and delays related to elections impacting land and approval processes.
- EBITDA: Fell 48% YoY to ₹180 crore, with an EBITDA margin of 4.5%, compared to 6.3% in Q1FY24.
Company Guidance: RVNL’s management indicated that the decline in results was due to one-off issues, and expects execution to improve in the coming quarters. The company anticipates FY25 revenue to be relatively flat compared to FY24.
Analyst View:
- Antique Stock Broking: Despite RVNL’s inclusion in the MSCI India Index, Antique resumed coverage with a “sell” rating and a price target of ₹283. They are cautious about the stock due to:
  - Execution Concerns: The brokerage highlighted that RVNL’s revenue execution has been strong up until FY22, but has been largely flat over FY23-25E.
  - Order Book: RVNL’s order book remains substantial at ₹83,200 crore, which is four times its trailing twelve-month revenue. However, the brokerage is concerned about the stagnation in order wins and execution, noting that MoUs signed have yet to translate into substantial opportunities.
  - Valuation: The stock is currently priced at 62x its 1HFY27E EPS, which Antique believes prices in an upside to the current market price. They emphasize that their “sell” rating could be at risk if execution improves or if there are significant order wins.

Advantages:

MSCI India Index Inclusion:
- Positive Impact on Stock Price: Inclusion in the MSCI India Index typically leads to increased investor interest and potential inflows, as seen with RVNL’s stock price increase.
- Increased Visibility: Being part of a prominent index can enhance the company’s visibility among global investors, potentially attracting more institutional investment.
Impressive Historical Performance:
- Strong Return on Investment: RVNL’s stock has shown remarkable performance with a 222% increase year-to-date and a 364% rise over the past year, highlighting strong investor confidence and market success.
- High Order Book: The company’s substantial order book of ₹83,200 crore provides a significant revenue visibility and growth potential.

Disadvantages:

Weak Q1FY25 Financial Results:
- Decline in Profit: The 35% drop in net profit and 27% decline in revenue highlight underlying financial challenges, which could affect investor sentiment.
- Margin Pressures: A significant 48% decrease in EBITDA and a drop in margin are concerning and suggest operational inefficiencies or increased costs.
Execution and Order Book Concerns:
- Stagnant Revenue Execution: Analysts have noted that RVNL’s revenue execution has been flat, with concerns about stagnant order wins and the actual outcomes of signed MoUs.
- High Valuation Risks: The stock’s high valuation at 62x its projected EPS might limit potential upside and could lead to volatility if the company’s performance does not meet expectations.
Market and Operational Challenges:
- Dependence on MoUs: The lack of substantial opportunities from signed MoUs and ongoing issues with labor shortages and election-related delays may impact future performance.
- Execution Risks: The company’s future performance hinges on improved execution and order wins, which have yet to materialize fully.

Conclusion:

RVNL’s stock has benefited from its inclusion in the MSCI India Index, reflecting positive investor sentiment and significant returns. However, the company faces challenges including declining profits, margin pressures, and execution concerns. Analysts have issued a cautious “sell” rating based on these factors, despite the stock’s impressive historical performance.

FAQs

Q1: Why did RVNL’s stock increase despite the weak Q1FY25 results? A1: The stock rose due to investor optimism following RVNL’s inclusion in the MSCI India Index, which is expected to result in substantial inflows.

Q2: What were RVNL’s financial results for Q1FY25? A2: For Q1FY25, RVNL reported a net profit of ₹224 crore (down 35% YoY), revenue declined by 27% YoY, and EBITDA fell 48% YoY to ₹180 crore.

Q3: What is the company’s guidance for FY25? A3: RVNL expects revenue for FY25 to be flat compared to FY24 and anticipates improved execution in the coming quarters.

Q4: What is Antique Stock Broking’s view on RVNL? A4: Antique has resumed coverage with a “sell” rating and a price target of ₹283, citing concerns over execution, order book stagnation, and high stock valuation.

Q5: How has RVNL’s stock performed compared to the Nifty 50? A5: RVNL’s stock has surged 222% year-to-date and delivered a 364% return over the past year, significantly outperforming the Nifty 50’s gains of 12% and 25%, respectively.