Jefferies, a prominent brokerage firm, has slashed its target price for Jupiter Wagons Ltd (JWL) to Rs 185 from an earlier Rs 210, while reiterating an 'Underperform' rating on the railway stock. The revised target suggests a potential 27% downside from current levels.
Key Reasons for the Downgrade
The primary driver behind Jefferies' revised outlook is Jupiter Wagons' June quarter performance, where its Ebitda (Earnings Before Interest, Taxes, Depreciation, and Amortization) fell a significant 32% short of the brokerage's estimates. This shortfall was largely attributed to weak Wheelset sales and compressed margins.
Further contributing to the cautious stance is the anticipated delay in commissioning Jupiter Wagons' new wheel manufacturing plant in Odisha, which is now expected to be operational only by the end of fiscal year 2028 (FY28). Additionally, the company's component manufacturing joint ventures (JVs) are still in their nascent stages, offering limited immediate upside.
Revised Earnings Estimates and Valuation
In light of the June quarter's miss, Jefferies has cut its estimated earnings per share (EPS) for Jupiter Wagons for FY27E-29E by 6-20%. The brokerage now values JWL's core business at 24 times its September 2028E EPS, contrasting with Titagarh Wagons, which is valued at 28 times, reflecting its higher projected EPS CAGR of 44% compared to Jupiter Wagons' 23% over FY26-30E.
The report highlighted that the weak-growth wagon segment could still account for over 60% of Jupiter Wagons' sales even by FY28, making the new wheel manufacturing plant a critical, albeit delayed, catalyst for the company's growth trajectory.
Order Book and Execution Challenges
Jupiter Wagons currently holds a robust order book worth Rs 3,000 crore, comprising 7,000 wagons, which is approximately 1.4 times its FY26 sales. A significant 80% of these orders originate from the private sector, and management has indicated the inclusion of new wagon designs.
However, the execution of these orders has faced headwinds. Delays in design and prototype approvals for the new wagons have led to slower execution. Moreover, gross margins experienced a 700 basis points year-on-year decline, partly due to a high base that included specialized wagons in the previous period. Jefferies also noted low visibility on a crucial new 1 lakh wagon tender, which is significant given that wagon sales are projected to contribute 68% of the estimated FY28 Ebitda.
Upside Risks and Market Perception
Despite the cautious outlook, Jefferies identified potential upside risks, including a strong pickup in JV profits and an increase in new wagon orders. Currently, the Jupiter Wagons stock trades at 43 times its estimated September 2027 EPS, a valuation similar to Titagarh Wagons despite the latter's significantly higher projected earnings growth.