State-owned IRCON International Ltd witnessed sharp appreciation in its share price over the past week, as investor sentiment towards the stock remains boisterous. On Friday’s special trading session, the company’s scrip surged over 15% to hit a one-year high of Rs. 261.35.
This considerable upswing has brought returns exceeding 320% for IRCON shareholders in the past year alone. Such outperformance suggests the company’s operational fundamentals and growth outlook seem to align well with market expectations currently.
However, the steep pace of recent gains also raises questions over whether this bullish form can continue unabated. A technical pullback or minor correction cannot be ruled out in the short term, given stretched market valuations. But analysts observe certain factors supporting an optimistic long-term view.
A key driver lifting IRCON and other railway majors is expectations of record capex allocation to the infrastructure sector in the upcoming Union Budget. As the flagship transport ministry, railways often receives heightened focus from policymakers regarding modernization and network expansion plans.
Additionally, being a ‘Navratna’ PSU affords IRCON benefits like preferential government contract awards and performance-linked capital infusion. The company specializes in transport project development, both domestically and overseas, leveraging engineering prowess attained over decades of operations.
Fundamentally, IRCON’s order book position remains robust, providing revenue and cash flow visibility over the medium term. Successful project execution under challenging COVID-19 conditions also speak well of its execution capabilities. New tenders flowing indicates the addressable market runway remains versatile.
While near-term trading may witness bouts of profit booking following recent exuberance, IRCON’s structural advantages make it an attractive long-term play on India’s infrastructure story. Supportive government policies are supportive of multi-year growth at decent profitability for PSU champions like itself.
If the upcoming Budget speech reaffirms infrastructure as a developmental priority, allocating funds ambitiously, then IRCON shall retain favour with the investing community. Beyond short-term gyrations, its shares appear poised to keep riding India’s infrastructure building theme in a compounding fashion over the years to come.
Some analysts believe that while the long term potential remains robust owing to the reasons mentioned earlier, a technical pullback or minor correction in the counter cannot be fully overlooked in the immediate future, especially after such exuberant market performances that have stretched valuations considerably. Only time will tell if the positive momentum persists or if some volatility ensues in the period to come.
