Concord Control Systems: Your ticket to India's railway boom

The is currently enjoying significant growth, driven by its vast network and the expected surge in demand for its services. As the fourth largest railway network globally, Indian Railways operates over 22,593 trains daily, catering to 24 million passengers and transporting 204 million tonnes of freight across its 68,103 km route and 7,337 stations.

The sector is anticipated to see substantial growth, with India projected to become the fifth largest outbound travel market by 2027, necessitating an increase in the daily number of trains. The railway boom In response to the expected boom, Indian Railways has earmarked for new train acquisitions over the coming years to accommodate the projected annual passenger count of 7 billion, which is likely to rise to 10 billion by 2030.

This massive plan involves acquiring 7,000 8,000 new train sets over the next 15 years, aiming to enhance passenger and domestic goods transport capabilities and create a future ready railway system. The government’s significant investment in the sector aims to upgrade infrastructure for higher efficiency and reliability.

The railway minister's upgrade initiative focuses on meeting evolving transportation needs and addressing long term waiting lists. The goal is to boost the railway's modal share in freight from the current 26 27% to 40 45%, aligning with global commitments to reduce emission levels. The government's efforts include electrifying 90% of the railway network, with full electrification expected by early 2024, leading to the phase out of diesel locomotive hauled trains.

Future plans include commissioning new Dedicated Freight Corridors, high speed Passenger Corridors, and undertaking multi tracking and signaling upgrades on congested routes. The next decade will see substantial capital expenditure in the railway sector, outpacing demand by 2030. The railway boom Indian Railways has earmarked a massive investment of 1 trillion to acquire new trains over the next few years to cater to the projected 7 billion passengers annually, with an anticipated increase to 10 billion by 2030.

The plan involves procuring 7,000 8,000 new train sets over the next 15 years, aligning with broader efforts to enhance passenger and domestic goods transportation capabilities. The goal also is to create a future ready railway system that meets passenger demand but also boosts the modal share of railways in freight from the current 26 27% to 40 45%.

The government's pivotal role in fostering this growth is evident through substantial investments in the sector, focusing on upgrading the country's railway infrastructure to achieve higher efficiency and reliability. The railway minister's upgrade initiative focuses on meeting evolving transportation needs and addressing long term waiting lists.

The goal is to boost the railway's modal share in freight from the current 26 27% to 40 45%, aligning with global commitments to reduce emission levels. The government's efforts include electrifying 90% of the railway network, with full electrification expected by early 2024, leading to the phase out of diesel locomotive hauled trains.

Future plans include commissioning new Dedicated Freight Corridors, high speed Passenger Corridors, and undertaking multi tracking and signalling upgrades on congested routes. The next decade will see substantial capital expenditure in the railway sector, outpacing demand by 2030. Concord Control Systems: Ticket to the booming Indian railway sector Concord Control, listed in 2022, manufactures and supplies coach related and electrification products for Indian Railways and other railway contractors.

It is an approved vendor by the Research Design and Standards Organisation ("RDSO"), enabling it to manufacture and supply critical products for the Indian Railways. The company manufactures a key component used in the railways known as the inter vehicular coupler, which is used to make electrical connections between two coaches.

Apart from this, it also manufactures products required in railway coaches like emergency lighting systems, brushless dc carriage fans, exhaust fans, cable jackets, bellows etc, and products required in the electrification of coaches and the broad gauge network of Indian Railways. Concord Control commenced operations in 2011, gaining approval to manufacture and supply battery chargers for railway electrification traction systems.

Subsequently, it expanded into critical emergency light units and other products. While the Indian Railways commands a large chunk of the company’s revenue share, Concord Control Systems has also been diversifying its client base. It supplies railway components to marquee players in the industry, such as KEC International, Larsen & Toubro, Kalpataru Power Transmission, , Fedders Lloyd Corporation, and Tata Projects.

Business Performance: Growing on a Strong Footing Between 2019 and 2023, the business has performed admirably. Sales and net profit have reported a three year CAGR of 46% and 73%, respectively. The returns have been strong, with the Return on Equity and Return on Capital Employed averaging at 34% and 36% over a 3 year period.

As the company listed in 2022, the uptick in shareholder’s equity adjusted its debt to equity downwards from 0.65 in 2019 to 0.13 in 2023. And now, the company boasts a healthy balance sheet, paving the way for future growth. While the company holds a distinct approval from the Indian Railways, it is not immune to competition.

It competes with some players, however, none of them are listed as yet. Despite the competitive landscape, the company does have a leg up, considering its years of experience dealing with the Indian Railway and the first mover advantage. The company is constantly investing in new technology, growing organically or inorganically.

It aims to collaborate with new players and work on more products for the Indian Railways. Recently, it acquired 26% stake in Progata India to develop the prototype of control and relay panels. It also forged an alliance with IISc startup for railways – L2MRail – in the form of a joint venture to fortify the safety of Indian Railways.

While the business growth has been healthy, the elevated debtor days can be a cause for concern. Generally, extended debtor days imply the company is waiting longer to collect payments from its customers. This delay in cash collection can lead to liquidity issues, affecting the company's ability to meet its short term financial obligations, pay suppliers or invest in growth opportunities.

As Concord Control Systems deals with the public sector undertakings, (in this case Indian Railways), this is a common phenomenon. So, there is a good chance the company will continue to experience prolonged payment cycles. However, the IPO addressed this issue for the company in the near term, capitalising its balance sheet well enough to handle any working capital pressures.

In 2022, Concord raised capital (IPO in 2022) with a primary need to expand its working capital needs. Stock Price Performance In the past six months, the stock price has moved up sharply, tripling in value from 276 in July 2023 to 875 at present. The stock has moved up following the strong half yearly results reported by the company.

While the sales are up 16%, the net profit has doubled in comparison to the same period last year. The company's October 2023 shareholder filing added to the positive momentum. The filing revealed that Mukul Agarwal, a prominent investor in India, well known for his microcap stocks and smallcap stock picks has invested in the company.

of the company, amounting to around 4.01% of the total paid up capital of the company. At present, the stock is trading at a price to earnings ratio of 54 times, a premium to its 1 year median PE and the industry PE. Conclusion Concord Control Systems, a potentially hidden gem in the , is well positioned to reap significant benefits from the flourishing expansion of India's railway network.

The company's strong financials and diverse clientele with a focus on supplying crucial components, present an optimistic outlook. However, the recent run up in the stock price indicates that investors may have already factored in the bright outlook, possibly limiting the upside in the stock price in the near term.

Nevertheless, for investors with a long term perspective, Concord Control Systems could make for an interesting prospect in the thriving railway sector. Livemint tops charts as the fastest growing news website in the world to know more. Unlock a world of Benefits! From insightful newsletters to real time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away!.