Mutual funds invested Rs 62 crore in this multibagger in May. What’s working for this railway stock?

Railway wagon

Several mutual funds have put their money in Jupiter Wagons, helping the stock climb to the top 10 buys of May in the small-cap space. The fund houses bought Rs 62 crore worth of shares of Jupiter Wagons in May compared with none in April, according to ICICI Direct.

Tata Retirement Savings Fund – Moderate and Progressive Plans and Tata Business Cycle Fund – Regular Plan held the highest value of Jupiter Wagons stocks.

Funds that held Jupiter Wagons’ shares in May

Strong growth prospects and an attractive valuation of 17.4 times its FY24 EPS and 12.8 times its FY25 EPS have made Jupiter Wagons an emerging play in the small-cap capital goods space, according to Sharekhan by BNP Paribas.

Investors have been making whoopee with the stock’s journey to the north.

In just a month, the stock has gained 25 percent and it has climbed almost 50 percent in three months. And in the past one and three years it has spiralled over 150 percent and 1,000 percent.

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About the company

Jupiter Wagons makes rail wagons, components for coaches, steel castings for rolling stocks and tracks. It also makes marine and refrigerated containers. Its clients include the Indian Railways, private wagon aggregators, commercial vehicle manufacturers, Indian defence companies and logistics providers.

The Kolkata-based company exports to North America, while its subsidiary Jupiter Electric Mobility plans to manufacture light commercial electric vehicles by the fourth quarter of FY24.

In the quarter ended March 2023, the company’s consolidated net sales jumped 96 percent YoY to Rs 711.70 crore and net profit soared 184 percent to Rs 39.21 crore. EBITDA (earnings before interest, taxes, depreciation, and amortisation) shot up 189 percent on year to Rs 93.23 crore.

In three years, the company’s revenue and EPS have risen two-fold, while net profit has more than doubled.

EPS and RoE trend

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Focus on rolling stock

The upcycle in railway rolling stock will herald opportunities across the value chain, analysts pointed out. Nuvama Institutional Equities said in a note recently that Jupiter Wagons is among a few on the bandwagon of beneficiaries.

Of almost Rs 10 lakh crore capital expenditure by Indian Railways over FY15-22, network expansion garnered the largest share (39 percent), followed by rolling stock (30 percent), the brokerage pointed out in earlier reports.

Rolling stock includes locomotives, railroad cars, coaches, and wagons among others. Having set up the infrastructure, the Indian Railways is now enhancing focus on rolling stock procurement.

It has already awarded contracts for 200 Vande Bharat trains and about 72,350 wagons, while bids for another 200 trains are underway. Nuvama expects awarding of tenders for 200 additional Vande Bharat trains, 238 AC rakes, a mega wagon order (potentially 50,000 wagons), and about 1,000 metro coaches.

The company’s order book stood at Rs 5,818 crore, which is 2.8 times its FY23 revenue, and railway wagon orders stood at Rs 5,000 crore, Arihant Capital Markets said.

About 60 percent of the wagon order books are expected to be executed in FY24 whereas brake systems, which will become captive for wagons, are expected to improve margins, said the brokerage, which has a positive outlook on the stock.

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Growth play

Jupiter Wagons is transforming into a consistent growth play by enhancing wagon manufacturing, launching new products in wagon accessories and expanding into light electric commercial vehicles, Sharekhan said.

Profit and sales trend

With the company registering robust growth in FY23, the brokerage expects Jupiter Wagons to maintain strong growth momentum of 41 percent and 82 percent compounded annual growth over FY23-25. Sharekhan sees return on equity and return on capital employed at 24.6 percent and 29.1 percent, respectively, by FY25 against 15 percent and 20.8 percent in FY23.

Some analysts said Jupiter Wagons can clock higher margins than its rivals because it has integrated operations and bids selectively on new orders.

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