RITES jumps 16% on Rs 175 crore university consultancy order

The broader capital goods sector also saw gains Monday. The Nifty Infrastructure Index rose 0.7%, and the BSE Capital Goods Index added 0.5%. The move in RITES was outsized relative to peers. The order served as a specific catalyst for the stock.

The Rs 175 crore order represents about 2.6% of RITES' order backlog as of December. It is not transformative. It adds to the visibility of future revenue. The company's order backlog stood at Rs 6,640 crore as of December, up 12% year-on-year. The order will contribute to revenue over the next 2-3 years, with margins likely in line with the company's consultancy segment average.

Motilal Oswal rates RITES a major beneficiary of the government's infrastructure push in education and railways. The brokerage flagged margin pressure from rising input costs and competition on smaller consultancy contracts. The stock trades at 28 times trailing earnings, above its five-year average of 21 times.

The government's focus on expanding central universities under the National Education Policy 2020 provides a multi-year pipeline for consultancy orders. RITES is well-positioned to capture a share given its track record in large-scale campus projects. Engineers India and NBCC also compete for such contracts. RITES' focus on education infrastructure gives it an edge.

Execution will be the key variable. Revenue growth has lagged order inflows in recent quarters, a trend that investors will watch closely.