IDBI Capital Markets has presented a cautiously optimistic outlook on PSU major RITES Limited, recommending a HOLD rating with a revised target price of Rs 284. Despite resilient Q2FY26 results highlighting steady revenue growth, improved profitability, and a burgeoning order book near an all-time high, the stock faces tempered near-term growth prospects. The company's robust consultancy and export divisions offset a dip in turnkey project revenue, with expectations for turnkey segment acceleration in H2 FY27. Investors should note the stable dividend payout, strong cash flows, and strategic international diversification, while weighing the valuations and margin pressures. The stock currently trades at Rs249, offering a modest upside of 14 percent.

Q2FY26 Performance Highlights

RITES Ltd demonstrated robust financial resilience in Q2FY26 with standalone revenue reaching Rs5.1 billion, a marginal 0.7 percent year-over-year (YoY) increase and 12 percent quarter-over-quarter (QoQ) growth. Profit after tax (PAT) surged 25 percent YoY to Rs1 billion, supported by a 20 percent QoQ rise, underscoring accelerating earnings momentum. Consolidated revenue crossed Rs5.7 billion with EBITDA growing 27.6 percent YoY to Rs1.3 billion, translating to EBITDA and PAT margins of 24.4 percent and 18.8 percent, respectively. The quarter's operating cash flow of Rs2.8 billion underlines strong liquidity, enabling steady dividends and capital expenditure focused on digital innovation and fleet expansion.

Order Book & Segmental Composition

RITES maintained its remarkable streak of winning one order per day, culminating in 150 new orders worth over Rs8.5 billion during Q2, lifting the order book to a peak Rs90.9 billion. The order book exhibits healthy diversification: Rs43 billion in turnkey projects, Rs29.3 billion in consultancy, Rs15.4 billion in exports, with the remainder from leasing and REMC operations. Consultancy revenue grew 10 percent YoY fueled by strong execution in rail infrastructure and highways. Export orders witnessed revival after a gap, with a Rs160 crore locomotives order from South Africa and ongoing shipments under Mozambique and Bangladesh contracts. Leasing operations crossed 100 locomotives, consistently contributing to profitability despite margin pressures.

Outlook and Guidance

Management expressed confidence in exceeding FY25 top-line and bottom-line performance, forecasting 8-10 percent revenue growth and sustaining 20-24 percent EBITDA margins. New order inflows are expected to surpass Rs30 billion, complemented by a robust dividend payout ratio of 80-90 percent. A key growth driver will be the ramp-up of the Rs43 billion turnkey project pipeline, anticipated to gain momentum from Q4FY26 and make significant revenue contributions in FY27. Export and consultancy businesses are set to maintain steady growth, encouraged by geographic diversification extending beyond Africa and Southeast Asia into the Middle East. The company remains asset-light and debt-free, with judicious capital expenditure focused on core operational needs.

Valuation and Investment Recommendation

IDBI Capital maintains a HOLD stance on RITES with a target price of Rs284, reflecting a 14 percent upside from the current market price of Rs249. Valuations appear reasonable, with FY26 estimated price-to-earnings (P/E) ratio at 19.2 and a price-to-book (P/B) ratio of 2.6. The stock's dividend yield of approximately 5 percent adds an income cushion. Despite a shorter-term correction from peak valuations seen over the last three years, stable earnings growth, a high-quality order book, and strong free cash flow support the stock’s defensive attributes. Investors should watch for turnkey segment execution as a catalyst for re-rating, balanced by competitive pressures in consultancy and leasing margins.

Key Technical and Fundamental Levels

Investors should consider the following price levels as important for RITES stock trading:

• Support Zone: Rs238-242, representing near-term consolidation and historical buying interest.
• Resistance Levels: Rs274, approaching the revised target price zone; beyond that Rs284, the full target price suggested by IDBI Capital.
• Stop-Loss for Long Positions: Rs230 to mitigate downside risk on unexpected sectoral or market volatility.
• Entry Strategy: Buying increments on dips near support levels with a medium-term view towards target Rs284.

Financial Snapshot and Ratios

Bottomline for Investors

RITES Ltd emerges from Q2FY26 with a reinforced growth trajectory, buoyed by diverse business streams and international expansion. While near-term turnkey execution is subdued, the consultancy and export segments demonstrate significant momentum. Investors should adopt a strategic HOLD approach, acknowledging steady upside potential to Rs284 with a disciplined risk management framework around Rs230 stop-loss. This positioning reflects the stock's status as a sturdy infrastructure play with strong earnings visibility, sustained shareholder returns, and value-oriented valuation metrics.