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Flying Train
India Railways2 November 2015
Elara Securities (India) Private Limited
Ashish Kejriwal
ashish.kejriwal@elaracapital.com
+91 22 6164 8505
Parin Vora
parin.vora@elaracapital.com
+91 22 6164 8519
Table of Content
A) State of Affairs……………………………….……………………………….……………………………….…………………………………………………. 2
Losing its way
Roads to Railways: the story gets bigger
IR – USD 140bn opportunity
Win-win proposition with Make in India
Coal’s revival underlines affiliation with IR
Railways evolving as a safety cop
What has changed – breakneck execution
B) Traffic that returns……………………………….……………………………….……………………………….………………………………………….. 3
Passenger traffic gets a boost (5% CAGR over FY16-20)
Freight traffic builds momentum (6% CAGR over FY16-20).
C) Safety takes no holiday
Investment thrust of INR 8.5tn……………………………….……………………………….……………………………….……………………… 4
Safety with speed (capex of INR 5.0tn over FY16-20)………………………………………………………………………………. 4
Tracks & bridges (13,000km revamp over FY16-20) ……………………………….………………………………………………. 5
Electrification & signaling (10,000km underway over FY16-20) ……………………………….…………………………… 6
D) Other key reforms
Station development & logistics parks (capex of INR 1.00tn over FY16-20) …………………………………………….. 8
Rolling stocks: ferrying hopes (capex of INR 1.02tn over FY16-20) ……………………………….………………………….. 9
High speed corridors (capex of INR 1tn) ……………………………….……………………………….…………………………………….. 9
E) Show me the money
Money maker faces crunch (only ~12% available from internal sources for capex) ……………………………… 11
PPP & institutional investment – a new initiative (~30% capex over FY16-20).……………………………………….. 12
F) Trickle-down economics at play
Coal: direct beneficiary of reforms (volume CAGR of 13% over FY15-21)………………………………………………… 14
Capital Goods: huge windfall…………………………………………………………………….……………………………….…………………… 18
Ports: making the right connections (container volume to grow 1.45x over FY15-19E) ………………………. 23
Rolling stocks: rollicking ahead (14,000-16,000 wagons per year until FY20)………………………………………… 25
G) Appendix – I
How IR lost its mojo…………………………………………………………………………………….…………………………………………………… 26
Current state of Indian Railways……………………………………………………………….……………………………………………………. 28
Financials…………………………………………………………………….……………………………….……………………………………………………. 29
Challenges…………………………………………………………………..……………………………….…………………………………………………… 30
Need of the hour: rescuing IR 30
Privatization answer: muted so far…………………………..……………………………….……………………………………………………. 31
Attracting FDI …………………………………………………………….……………………………….…………………………………………………… 31
H) Case Study – China’s railway dreams………….……………………………….………………………………………………………………… 32
I) Appendix – II
Railway Budget of FY16…………………………………………….……………………………….…………………………………………………… 34
Dedicated freight corridors (DFC)…………………………………………………………….…………………………………………………… 38
Company Section
Texmaco Rail & Engineering – at the cusp of revival (TXMRE IN, Accumulate, CMP: INR 129, TP: INR 141) 41
Titagarh Wagons – back on track (TWL IN, Buy, CMP: INR 111, TP: INR 133)………………………………………………….. 57
Glo
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Elara Securities (India) Private Limited
Ashish Kejriwal • ashish.kejriwal@elaracapital.com • +91 22 6164 8505
Parin Vora • parin.vora@elaracapital.com • +91 22 6164 8519
Flying Train
Indian Railways has suffered from underinvestment for a long time.
This is set to change. The Central government is revamping its
fortunes. A five-year roadmap targets an investment of INR 8.56tn
(more than the cumulative capex since 1947), which would have a
multiplier effect on GDP growth. Immediate goals include improving
safety, increasing capacity and finding new sources of funds. Execution
focuses on partnerships, resource utilization and systems & processes.
USD 140bn opportunity = 1.8x of the past 15 years
In the 2015-16 Indian Railways (IR) budget, Railway Minister Suresh
Prabhu outlined a five-year capex plan of INR 8.56tn (USD 140bn),
which is 1.8x of what IR spent in the past 15 years (~INR 4.6tn).
According to a report by an expert group on modernization of IR,
headed by former advisor to the PM, Sam Pitroda, IR has the potential
to contribute an additional 1.5-2.0% to GDP.
Show me the money = financial avenues like State JVs & PPP route
The private sector is set to play a bigger role in IR’s revamp. While
Railways makes just enough money to meet its day-to-day needs, it has
been unable to fund capex, and the Centre’s share may not increase
forever. Hence, IR is trying to tap into newer sources of funds,
including JVs with PSU & the States, partnering with multilateral &
bilateral organizations and the public-private partnership (PPP) route.
The Ministry plans to finance ~30% of the proposed investment
through contributions from the States via the JV & PPP route;
however, IR has had limited success through the PPP route.
Trickle-down economics: cap goods, coal & ports key beneficiaries
IR remains a sustainable source of order inflows for the CG sector.
Firms benefit via specific project works and EPC & product supply
contracts across the value chain of locomotives, coaches, tracks,
transformers, traction, signaling and telecommunications. Coal too
would be a direct beneficiary, as most of it is transported via rail; any
improvement in speedy evacuation would help Coal India (COAL IN,
BUY, CMP: INR 333, TP: INR 398) meet guidance of 1.0bn tonnes by
2021. The WDFC is expected to benefit the West Coast (Gujarat &
Maharashtra) ports significantly, as they account for more than 70% of
total container volume handled at ports.
Initiate coverage on Texmaco Rail & Titagarh Wagons
Of INR 8.56tn capex, ~12% (INR 1.02tn) will be in rolling stocks. This
provides a huge opportunity for two of the largest wagon makers in
India — Texmaco Rail & Engineering and Titagarh Wagons. Texmaco is
the more diversified of the two, as along with wagon maufacturing, it
is also into laying tracks, setting up signals & telecommunications.
India | Infrastructure 2 November 2015
Initiating Coverage
Railways
Next five-year capex = 1.8x of past 15 years
Source: Indian Railways; Elara Securities Research
Source of funds: INR 8.56tn until FY20
Source: Ministry of Railways
Consistent wagon demand from IR likely
Source: Indian Railways; Elara Securities Research
Peer valuation
Company Rating
Mcap (INR mn)
CMP (INR)
TP (INR)
PAT CAGR
(%)
EBITDA
margin (%) P/E (x) ROE (%) ROCE (%)
FY15-18E FY17E FY18E FY17E FY18E FY17E FY18E FY17E FY18E
Texmaco Rail Accumulate 27,046 129 141 111.2 10.5 14.2 38.4 20.9 7.6 12.8 7.5 12.6
Titagarh Wagons Buy 12,790 111 133 104.1 11.6 13.8 26.3 15.3 6.0 9.7 6.2 9.9
Note: pricing as on 26 October 2015; Source: Elara Securities Estimate
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9th
5-y
ea
r p
lan
10
th 5
-ye
ar
pla
n
11
th 5
-ye
ar
pla
n
FY
13
FY
14
FY
15
RE
FY
16
BE
FY
17
-20
E
(IN
R b
n)
Gross Budgetary
support INR 2.56tn
30%
Internal generation INR1.00tn
12%
State JV's INR1.20tn
14%
PPP INR1.30tn
15%
Debt INR2.50tn
29%
18 17
9
0
14 15
16 16 16
0
4
8
12
16
20
FY
12
FY
13
FY
14
FY
15
BE
FY
16
E
FY
17
E
FY
18
E
FY
19
E
FY
20
E
('0
00
no
of
un
its)
Wagons procured / manufactured
Railways
2 Elara Securities (India) Private Limited
State of Affairs
Losing its way
IR, an important enabler of GDP growth, has lost its
market share from ~89% at the time of Independence to
~30% today. It has been plagued by long-term, chronic
underinvestment and often been the victim of political
upheavals.
Exhibit 1: Railways expenditure as a % of total
transport expenditure declines sharply
Source: Ministry of Railways
The exhibit illustrates that although railway capex has
been increasing, it has been unable to keep pace with its
requirements. The new government aims to change that.
Roads to Railways: the story gets bigger
Former PM Atal Bihari Vajpayee had focused on
improving roads infrastructure, birthing the 5,846-km-
long Golden Quadrilateral connecting Delhi-Mumbai-
Chennai-Kolkata, changing India’s transport landscape.
Today, PM Modi is focused on transforming Indian
Railways.
IR – USD 140bn opportunity
During February 2015 Railway budget, Minister Prabhu
outlined his government’s five-year capex plan of INR
8.56tn (USD 140bn). This amount is 1.8x bigger than
what the Railways spent in the past 15 years.
Win-win proposition with Make in India
The “Make in India “initiative can be made more fruitful if
IR regains its lost mojo. The recent Economic Survey by
Ministry of Finance shows that increasing railway output
by INR 1.0 would raise output of the economy by INR
3.3. This would have a cascading effect on the coal and
manufacturing industries.
Coal’s revival underlines affiliation with IR
During FY10-15, Coal India posted a sales volume CAGR
of mere 3% to 489mn tonnes. Before May 2014, no one
believed Coal India could post a sales volume CAGR of
8.0% YoY. During 1HFY16, it grew even faster at 9.3%
YoY, and we believe it can keep pace hereafter. An
interesting thing happened at the same time. The
average railway rake availability rose by ~12% YoY even
without IR increasing the number of overall wagons in its
portfolio. This happened due to rationalization of coal
procurement from different coalfields of Coal India. This
small step helped decongest traffic at a few busy
locations (for example, the Mughalsarai section in UP
which helps transport coal to power companies over
there) and increased the turnaround time of wagons.
We believe a similar focus will reduce inefficiency in IR.
Railways evolving role as traffic cop
India’s transport sector is significantly overstretched.
Some heavily traversed sections are working at more
than 100% capacity utilization. Some tracks cannot carry
heavy loads while others cannot run trains at higher
speeds. This situation can worsen. Traffic needs are likely
to double in the next decade, and hence this will require
huge investment for capacity expansion.
What has changed – breakneck execution
Cut short approval process by 18 months: for eg,
since February, 73 out of 77 line-doubling projects
have reached the advanced stage of tendering
(earlier this used to take 2-3 years).
GM armed with fast track approval: Zonal managers
can now okay projects < INR 10bn (earlier INR 3bn).
Better coordination between Centre-States: Since
February, 17 States have agreed to form JVs to help
in faster resolution of land acquisition issues.
FDI route: Global firms (for eg: Alstom & GE) have
pledged to set up domestic locomotive factories in
Bihar for INR 33bn.
DFC becomes a reality: INR 175bn awarded projects
since November 2014 vs ~INR 104bn since 2006.
High speed corridor: Faster passenger movement
across state lines, spurring industrialization and
urbanization (JICA has agreed to provide assistance).
0
20
40
60
80
0
500
1,000
1,500
2,000
2,500
FY
51
-FY
56
FY
56
-FY
61
FY
61
-FY
66
FY
69
-FY
74
FY
74
-FY
79
FY
80
-FY
85
FY
85
-FY
90
FY
92
-FY
97
FY
97
-FY
02
FY
02
-FY
07
FY
07
-FY
12
(%) (I
NR
bn
)
Railways Exp as a % of transport sector exp (RHS)
Railways
Infr
ast
ructu
re
3 Elara Securities (India) Private Limited
Passenger traffic gets a boost
IR reported a modest rise in passenger traffic (number of
travelling passengers) since 1951. It posted passenger
traffic CAGR of 3.0% during 1951-2014 to ~8.4bn.
Continued rise in urbanization and improving urban-
rural connectivity by IR have been major contributors.
Increasing income levels in the urban as well as rural
areas and low fares have made rail travel affordable for
most Indians. With continued urbanization, we expect
passenger traffic CAGR of ~5.0% to ~14bn over
FY15-25E.
Exhibit 2: Rising urbanization boosts passenger traffic
Source: Ministry of Railways, Elara Securities Research
We believe this growth will lead to an increase in
demand for electric multiple units (EMU) & diesel
multiple units (MEMU) for inter-city and short-distance
intracity travel. It also will increase demand for upgraded
AC coaches in express trains, and coaches for trains, such
as the Rajdhani & Shatabdi, and high frequency
locomotives, which help in speedier movement of trains.
Freight traffic builds momentum
There has been a sharp increase in originating freight
traffic, which rose at a higher CAGR of 4.3% during
1951-2014 to 1,054mn tonnes. This increase was due to
rising levels of industrialization across the country. We
expect the pace to increase even further in the next five
years, and, with continued industrialization IR would be
able to meet most of the incremental demand.
The following are two growth drivers of freight traffic —
the commissioning of three critical railway lines at
Chhattisgarh, Odisha & Jharkhand, which can evacuate
~175mn tonnes of coal of Coal India, and the
commissioning of the eastern & western dedicated
freight corridors by 2019, which would shift some road
traffic to rail. Hence, we expect originating traffic CAGR
of ~6.0% during FY15-25E to ~1.9bn tonnes, with most
growth coming in post FY19.
Exhibit 3: Industrialization aids in freight traffic
Source: Ministry of Railways, GoI
Freight business — a play on volume
Railways profitability depends on high freight volume,
which also helps in increasing market share in overall
transport. However, higher market share and margin will
be driven by 1) proper & efficient signaling, leading to
increased safety, 2) tracks capable of running high speed
trains, and 3) higher capacity wagons.
DFC – IR’s “one stop” freight solution
The commissioning of DFCs is expected to solve freight-
related issues, which IR is facing today. DFCs will benefit
by 1) creating additional freight capacity to meet
demand, 2) introducing time-tabled freight services to
ensure better services, 3) implementing improved
wagons, leading to lower turnaround time and higher
productivity, and 4) increasing rail freight share through
dedicated logistics services.
At peak capacity, the two DFCs will be able to carry more
than 500mn tpa of traffic. Container traffic would be an
important constituent of the WDFC while coal traffic will
boost EDFC.
Exhibit 4: At peak, both DFCs will carry >500mn tpa
Source: Dedicated Freight Corridor Corporation of India
0
10
20
30
40
0
2,000
4,000
6,000
8,000
10,000
19
51
19
61
19
71
19
81
19
91
20
01
20
11
20
14
(%)
(mn
)
Originating passenger Urbanization (RHS)
(10)
(5)
0
5
10
15
20
FY
05
FY
06
FY
07
FY
08
FY
09
FY
10
FY
11
FY
12
FY
13
FY
14
(%)
IIP growth (%) Freight traffic growth (%)
153
182
214
251
161
203
241
284
0
50
100
150
200
250
300
FY22E FY27E FY32E FY37E
(mn
to
nn
es)
EDFC WDFC
Traffic that returns
Urbanization and rising income to drive a passenger traffic CAGR of ~5.0% during FY15-25E
Industrialization to post an originating freight traffic CAGR of ~6.0% over FY15-25E
Two dedicated freight corridors to carry >500mn tonnes pa at peak
Railways
4 Elara Securities (India) Private Limited
Investment thrust of INR 8.56tn
Minister Prabhu says huge investment is needed to
modernize railways in India. The following exhibit lists
the proposed capex plans for the next five years:
Exhibit 6: Five-year capex plan (FY16-20)
(INR bn)
% of Total
Network decongestion (including DFC, electrification, doubling including electrification & traffic facilities)
1,993 23.3
Network expansion (including electrification) 1,930 22.5
National projects (Northeastern & Kashmir connectivity projects)
390 4.6
Safety (track renewal, bridge works, ROB, RUB and signaling & telecom)
1,270 14.8
Information technology & research 50 0.6
Rolling stocks (locomotives, coaches, wagons –production & maintenance)
1,020 11.9
Passenger amenities 125 1.5
High speed rail & elevated corridor 650 7.6
Station redevelopment and logistic parks 1,000 11.7
Others 132 1.5
TOTAL 8,560 100.0
Source: Ministry of Railways
Safety with speed
Minister Prabhu’s budget has dedicated a huge ~60% of
outlay to raise safety standards coupled with an increase
in speed of train movements. According to a high-level
safety review committee report headed by Dr Anil
Kakodkar in 2012, ~15,000 people die each year on
India’s tracks. Safety includes track renewals, bridge
works, roads over bridges (ROB), roads under bridges
(RUB), signaling & telecommunications. It also focuses on
decongestion by expanding network in oversaturated
areas.
Exhibit 7: Sizeable investment needed to address
IR safety
Accidents Fatalities
FY13 FY14 FY13 FY14
Collision of Trains 8 8 27 1
Derailments of trains 95 80 5 6
Level crossing accidents 73 61 179 112
Fires in rolling stock 14 8 31 35
Other accidents 4 4 8 7
Source: White Paper of 2015, Indian Railways
Exhibit 8: Pertinent safety issues
Source: scoopwhoop.com
Safety takes no holiday
Safety with speed: capex of INR 5.0tn over FY16-20
Station development & logistics parks: INR 1.0tn spend over the next five years
Rolling stocks: capex of INR 1.02tn over FY16-20
Exhibit 5: We expect a sharp rise in all divisions of IR in the next five years
FY10 FY11 FY12 FY13 FY14 FY15RE FY16-20E
Electrification (route km) 1,117 975 1,165 1,317 1,350 1,350 10,000
Track renewals (track km) 3,841 3,465 3,300 3,296 2,885 2,200 8,100
Construction of new lines (route km) 258 709 727 501 450 300 1,700
Gauge conversion (route km) 1,516 837 856 605 404 450 3,200
Rolling stocks
a) Locos 498 527 582 678 687 647 5,000
b) Coaches 2,761 2,824 3,637 4,023 3,887 3,359 25,000
c) Wagons (in terms of vehicle units) 13,068 14,703 18,357 16,894 9,326 10,000 75,000
Source: Ministry of Railways, Elara Securities Research
Railways
Infr
ast
ructu
re
5 Elara Securities (India) Private Limited
Tracks & bridges
Going nowhere along congested routes
The major issue facing IR today is congestion on its main
routes (refer to Exhibit 10). It slows traffic movement,
and, hence, is leading to a steady drop in IR’s share in
freight transport, which declined from ~89% at the time
of Independence to ~30% currently. The Golden
Quadrilateral and the diagonals connecting the four
major metros (Delhi, Kolkata, Mumbai & Chennai and
along the east-west diagonal extending to Guwahati)
constitute ~15% of the total route (~10,000km), but
account for more than 50% of passenger & freight traffic
combined. These routes have been working beyond
100% capacity utilization (in railway parlance, a line
capacity utilization of 80% is considered optimum).
Exhibit 10 also shows that 189 out of 212 sections on the
high density network have already reached saturation
line capacity utilization. Further, the same route is being
used by passenger as well as freight trains, with a
preference given to the former.
Exhibit 9: Major sections of IR running on more than 100% capacity, thereby leading to congestion
Source: Bibek Debroy report on Indian Railways, 2015
Exhibit 10: 189 out of 212 sections operate at more than optimal capacity
<80% 80-100% 100-120% 120-150% >150% Total
Mumbai - Chennai 10 9 5 2
26
Howrah - Chennai 1 4 7 5
17
Delhi - Chennai via Jhansi,Nagpur-Bhallarshah 3 2 5 13 2 25
Delhi - Guwahati via Sitapur- Gorakhpur-Barauni-Katihar 2 13 5 5 8 33
Delhi - Mumbai 3 5 4 11 5 28
Mumbai - Howrah 2 7 19 13 1 42
Delhi - Howrah 2 8 9 17 5 41
Total 23 48 54 66 21 212
Source: National Transport Development Policy Committee, 2014
Railways
6 Elara Securities (India) Private Limited
Exhibit 11: Sections operating at >100% capacity
Source: National Transport Development Policy Committee, 2014
Efficiency hit: track upgradation need of the hour
Network saturation restricts the flow of heavy-haul
freight trains and high speed passenger trains, which, in
turn, leads to lower transport efficiency. Hence, there is a
need to upgrade tracks, which are capable of ferrying
heavier freight trains at 25-tonne-axle load (currently:
22.5) and can achieve speeds of more than 75-100kmph
vs the current average of ~25kmph for freight trains and
~50kmph for passenger.
Bigger is better
Around 88% of total route of ~65,800km consists of
broad gauge (BG) network, and ~9% is meter gauge
(MG). IR plans to convert the entire MG network into BG
in the next seven years, barring few areas in the
mountains and of heritage importance. This conversion
would help in doubling freight-carrying capacity, as the
MG network usually carries 1,800 tonnes vs ~4,000
tonnes of freight traffic on the BG network.
Fewer crosses to bear
Track upgradation also involves doing away with level
crossings and replacing them with roads over bridges
(ROB) and roads under bridges (RUB). There are ~14,900
unmanned and ~17,800 manned level crossings on IR as
on April 1, 2011, according to IR report. These level
crossings contribute to ~30% of fatalities in mishaps and
~40% of accidents. The ministry envisages eliminating all
unmanned level crossings by 1) building subways and
diverting traffic from the unmanned level crossing gates
to existing ROB & RUB, 2) manned gates by constructing
diversion roads, 3) manning unmanned level crossing
gates, and 4) upgrading infrastructure in the next five
years. It also requires strengthening ~11,000 bridges,
which can sustain heavier loads at higher speeds. IR
targets eliminating 5,000 unmanned level crossings and
1,200 manned level crossings in the next five years. It
targets 2,600km of track renewals, 300km of
construction of new lines and 500km of gauge
conversion during FY16.
These measures, if implemented, will increase carrying
capacity of freight trains. The railway has initiated a part
of the process in the form of commissioning two
dedicated freight corridors.
Electrification & signaling
IR goes green: just under half electrified
IR has installed electric railway tractions as they are
pollution-free and energy efficient. They have helped
lower the fuel bill of IR, due to switching from diesel- to
coal-generated power as a source of energy. They also
allow the use of high-powered electric locomotives,
which help in increasing the train’s speed.
Exhibit 12: Route electrification in an upward trend
Source: Indian Railways
Thus, IR is in the process of electrifying the entire
network of railways. The total route km (RKM) of railway
track electrified until FY15 was ~26,000km, which is
~40% of total RKM. During the first three years of the
Twelfth Five-Year Plan (FY12-17), 4,042 RKM of railway
tracks have been electrified against total target of 6,500
RKM. It has plans to electrify 1,600 RKM in FY16 and
~10,000 RKM during FY16-20.
Exhibit 13: Electricity cost cheaper than diesel
Source: National Transport Development Policy Committee, 2014
0 10 20 30 40 50
Mumbai - Chennai
Howrah - Chennai
Delhi - Chennai via Jhansi,Nagpur-Bhallarshah
Delhi - Guwahati via Sitapur- Gorakhpur-Barauni-Katihar
Delhi - Mumbai
Mumbai - Howrah
Delhi - Howrah
Number of sections
<80% 80-100% 100-120% 120-150% >150%
28
40
0
5
10
15
20
25
30
35
40
45
0
5,000
10,000
15,000
20,000
25,000
30,000
FY
05
FY
06
FY
07
FY
08
FY
09
FY
10
FY
11
FY
12
FY
13
FY
14
FY
15
(%) (k
ms)
Electrified % of total
0
20
40
60
80
100
2004-05 2005-06 2006-07 2007-08 2008-09
(Co
st in
IN
R/p
er
10
00
GT
KM
)
Diesel Electric
Railways
Infr
ast
ructu
re
7 Elara Securities (India) Private Limited
Exhibit 14: Around 40% of total route kilometers (26,000) electrified until FY15
Source: Indian Railways
Railways
8 Elara Securities (India) Private Limited
Right signals: technology push save lives
Bells & whistles
Effective signaling is important for railway safety. It is used
to direct railway traffic to prevent trains from colliding. This
not only improves passenger and worker safety but also
increases speed and enhances capacity utilization of
tracks. IR aspires to implement automatic block signaling
on major routes and introduce GSM-based mobile train
control communications systems on busy routes.
Exhibit 15: Robust signaling will enhance safety
Source: Elara Securities Research
Exhibit 16: Fire in the signaling system leads to chaos
Source: Times of India
Station development & logistics parks
Capex opportunity of ~USD 16bn over FY16-20
As on FY14, IR had ~7,200 stations. The redevelopment of
identified stations is done through the Indian Stations
Development Corporation (IRSDC). Since the IRSDC can
undertake redevelopment of only a few stations at a time
and there is an urgent need to redevelop many more, it
has been proposed to redevelop stations via open bids.
Modernization can include enhanced customer amenities
& services at stations.
Makeover of 400 stations: benefits real estate firms
Recently, the cabinet approved redeveloping railway
stations on an as-is-where-is basis through open
invitation from interested parties with designs and
business ideas, including permission to commercially
develop real estate owned by Zonal Railways. About 400
stations have been identified for this. These stations are
mostly based in metros, major cities, pilgrimage centers
and important tourist destinations across the country.
The existing station at Surat in Gujarat will be the first
station to be developed as an integrated model with an
estimated cost of INR 30bn. Other stations include
Chandigarh, Delhi (Bijwasan & Anand Vihar), Habibganj,
Shivajinagar at Pune, Gandhinagar, Mangalore,
Ernakulam, Vijayawada, Nagpur, Byappanahalli and
Bhubaneswar.
Exhibit 17: Anand-Vihar, New Delhi: existing station
Source: Indian Railways Presentation
Proposed architectural views
Source: Indian Railways Presentation
There is a lot of interest across India for the proposed
modernization of railway stations; once a few come up,
the pace would increase.
Railways
Infr
ast
ructu
re
9 Elara Securities (India) Private Limited
Logistics parks: a prudent business move
Along with station modernization, IR also is expected to
develop logistics parks at several locations (Navi Mumbai,
in Maharashtra, Vapi, Ahmedabad & Kutch regions in
Gujarat, Jaipur in Rajasthan and NCR of Delhi), which
provide integrated transport infrastructure facilities.
Currently, due to no last mile connectivity, consumers
prefer road transport over railways, despite the former
being expensive. It intends to provide a slew of
warehousing and value-added services, including cold
storage facilities for perishables, a container
maintenance, repair & cleaning yard, an empty container
yard and modern garage facility with a workshop for
maintenance of vehicles. These initiatives would lead to
sizeable revenue generation by attracting additional
traffic, as customers can have last-mile connectivity. IR’s
subsidiary, Container Corporation (CCRL IN, CMP: INR
1,346, Not Rated), will study the concept of logistics
parks across the world and implement them in India. A
few private sector companies, such as Navkar
Corporation (NACO IN, CMP: INR158 Not Rated), are
setting up a logistics park at Vapi at an estimated capex
of ~INR 3.0bn.
Exhibit 18: A logistics park
Source: Elara Securities Research
Rolling stocks: ferrying hopes
Capex opportunity of ~USD 17bn over FY16-20
An increased number of rolling stocks are needed to
expand the railway network in India. And, we believe it is
even more important to upgrade stocks with increased
productivity, higher speed potential for passenger trains
and axle load for freight trains. Currently, the maximum
gross load carried on IR trains is 5,400 tonnes (vs 20,000-
37,000 tonnes in China, Australia, South Africa and
Brazil). These efforts would lead to capacity
enhancement and increase productivity. However, we
believe if IR manages to decongest its network, the
existing rolling stocks can be used to double the speed as
has been done in the past few months, which would
help Coal India hike volume offtake 9% YoY in 1HFY16E.
More the merrier
IR plans to increase axle load capacity from the current
22.5 to 25.0 in the upcoming months, which will enable
freight trains to carry more cargo. After achieving an axle
load of 25.0, IR will then raise that to 32.5 in the next few
years. These will be suited for DFCs. The current and
partially completed bridges have been designed to bear
an axle load of 32.5.
In terms of wagons, we expect demand of 14-16k
wagons per year for the next few years from IR, a part of
which is replacement demand. IR may order high
capacity wagons, which may not lead to a sharp rise in
the number of wagons ordered on a yearly basis. Real
growth for wagons is likely to come after the full
commissioning of dedicated freight corridors, which may
shift a part of the traffic from roads to railways.
Exhibit 19: Consistent wagon demand from IR likely
Source: Indian Railways; Elara Securities Research
High speed corridors
Mumbai-Ahmedabad speed train – a possibility
One mega project envisaged is the construction of a
high speed railway line between Mumbai and
Ahmedabad with speeds of more than 250kmph. This
would lead to decongestion of cities & traffic, increased
connectivity and faster intercity & intracity travel. The
initial estimated cost of the project is ~INR 650bn, which
is to be funded via the PPP route. However, recently, the
Japan International Cooperation Agency (JICA) has
done a feasibility study of the Mumbai-Ahmedabad high
speed bullet train corridor project and estimated cost of
~INR 1tn and it is willing to provide both technical &
financial assistance for this project. The corridor, if
undertaken, would cut travel time from the current
seven to two hours, besides spurring industrialization
and urbanization along the same lines.
Teething problems
We believe it will be difficult to execute this project via
the PPP route. Such projects like DFCs would have to be
built by the government, as it can take years before they
become commercially viable, and private investors may
18 17
9
0
14 15
16 16 16
0
4
8
12
16
20
FY
12
FY
13
FY
14
FY
15
BE
FY
16
E
FY
17
E
FY
18
E
FY
19
E
FY
20
E
('0
00
no
of
un
its)
Wagons procured / manufactured
Railways
10 Elara Securities (India) Private Limited
not be willing to invest for such a long gestation period.
Moreover, there will always be ambiguity related to
pricing of passenger fares, which may restrict this project
from making a profit.
Exhibit 20: High speed train reduces travel time
Source: Elara Securities Research
Funding conundrum: high speed game
Due to a lack of funds, preference should be given on
priority projects, such as laying tracks facilitating faster
goods movement and easing off of passenger traffic, as
this high speed train project may not be financially viable
and caters to a small section. While we do agree with
this view, such a corridor should not be viewed on a
standalone basis. This would boost real estate and
decongest the city too and put India’s rail network on
the world map and may further help in attracting FDI,
and, hence, it is essential in nation-building. Moreover,
required capex of INR 1.8-2.0bn/km for high speed train
is lower than that of INR 2.5-3.0bn/km capex required for
metro trains.
Other mega opportunities
Additional USD 13bn capex for DFC
The most critical issue facing IR is capacity constraint
rather than rolling stocks. To decongest the network, IR
through its special purpose vehicle, DFFCIL, is setting
up two dedicated freight corridors (eastern & western
DFC of ~3,300km), which would lead to decongestion
of freight and passenger traffic on main routes. This
would speed up delivery (expected to increase to
~70kmph from the current average of ~25kmph) and
generate freight carrying capacity of more than 500mn
tpa at peak. Heavy axle loads, better wagon design and
longer freight train length would reduce unit cost too.
Estimated capex of two DFCs is ~USD 13bn (~INR
810bn). These two corridors are expected to be
completed by December 2019. The pace of ordering
will increase in the short term, and a majority of it is
expected to be finalized by 1HCY16.
Metro Rail’s ~USD 30bn opportunity
Increasing urbanization and an inability to widen
roads to a large extent demands investment in an
alternative mode of transport. Metro Rail fits the bill.
With the success of the Delhi Metro, India has already
invested ~USD 17bn in metro projects across the
country and there still lies an opportunity for further
USD 30bn investment in the next five years. With debt-
financing assistance (up to 60% of project cost)
currently available from international financial
institutions at an attractive interest rate (2-5% pa) and
desired repayment tenure (25-30 years with initial
moratorium of 5-10 years), implementation of capital-
intensive and longer gestation metro rail projects is
picking up pace across progressive states.
Exhibit 21: New metro rail projects
Project Length (km) Estimated cost (INR bn) Date of completion
Mumbai Metro Line 2 40 256 2023
Mumbai Metro Line 3 33 231 2020-21
Mumbai Metro Line 4 40 191 2023
Lucknow Metro 34 125 2017
Jaipur Metro Phase-2 23 66 2021
Bangalore Metro Phase-2 72 264 2020
Chennai Metro- Phase 2 76 360 2026
Ahmedabad-Gandhinagar 38 107 2021
Bhopal Metro 39 80 2023
Indore Metro 107 150 2018-19
Nagpur Metro 38 87
Patna Metro 60 115
Vizag Metro 45 NA
Total 645 2,032
Source: Industry, Elara Securities Research
Railways
Infr
ast
ructu
re
11 Elara Securities (India) Private Limited
Money maker faces crunch
Railway projects in India have usually been in the public
sector domain. Private firms are involved in allied
activities, such as track laying & maintenance,
manufacturing of coaches & wagons, construction of
bridges, stations, signaling and telecommunications
works. However, IR requires greater participation from
the private sector as internal generation will not be
adequate to fund capex plans and the government’s
budgetary support may not continue to increase.
Exhibit 22: Internal resource as a % of total capex
deteriorating
Source: Indian Railways
Makes just enough to survive; no room for upkeep
IR does not need funds to meet its revenue expenditure
as its operating ratio remains below 95%. In FY15, IR
generated a surplus of only INR 73bn vs capex
requirement of INR 580bn (capex of only 12% from
internal sources over FY16-20). Hence, it has to depend
on budgetary sources & loans to fund capex plans. We
do not view this only as the fallout of the efficiency of IR,
but can say it is a victim itself. The government does not
allow IR to run commercially, particularly, in the
passenger segment, by restricting fare increases as and
when needed. Hence, it has to fund IR expansion, which
may not prove to be adequate.
Exhibit 24: Higher dependence on budgetary
sources, but not enough
Source: Railway Budgets
Turns to private & institutional finance…
Over the years, a decline in internal resources has led to
increased market borrowings and financial stress in IR.
Leasing arrangement through Indian Railway Finance
Corporation (IRFC) has enabled additions to rolling
stocks; hence, the effect of lower internal resources has
been primarily felt on track renewals, bridges and other
fixed assets, which resulted in an adverse impact on train
operations. Hence, IR needs new sources of funds, which
can be in the form of PPP and institutional investment.
Recently, Life Insurance of Corporation (LIC) agreed to
provide INR 1.5tn to IR over the next five years, which
will be used primarily to decongest the railway network.
IR has already received INR20bn from LIC as financial
assistance for investment in capacity augmentation
projects.
…and also seeks help from the States and PSUs
One key issue, which negatively affects project
implementation, is land acquisition. Engaging the States
as an equity partner may help in speedier acquisition and
result in faster execution of the project. For example,
Minister Prabhu has tried to address this issue by
bringing into force a MoU for creating a SPV, which is
signed between the Ministry of Railways and Ministry of
33 31
23 22 22 24
19
0
5
10
15
20
25
30
35
0
200
400
600
800
1,000
1,200
FY
10
FY
11
FY
12
FY
13
FY
14
FY
15
RE
FY
16
BE
(%)
(IN
R b
n)
Total Capex Share of Internal resources (RHS)
43 45 44 48 50
46 40
0
10
20
30
40
50
60
0
200
400
600
800
1,000
1,200
FY
10
FY
11
FY
12
FY
13
FY
14
FY
15
RE
FY
16
BE
(%)
(IN
R b
n)
Total Capex Share of Budgetary resources (RHS)
Show me the money
Internal generation and government support not enough
Government turns on its charm offensive on private players
Plotting the PPP route: so far unable to meet needs
Exhibit 23: Sources of funds – a PPP & institutional investment – a new initiative
(INR bn) FY10 FY11 FY12 FY13 FY14 FY15 RE FY16E
Budgetary sources 169.1 183.9 200.1 241.3 270.3 301.0 400.0
Internal resources 130.0 126.3 102.6 111.1 116.6 157.3 194.4
Market borrowing under EBR 97.6 97.8 147.9 151.4 150.9 199.7 176.6
PPP - - - - - - 57.8
Institutional investment through Railway/PSUs - - - - - - 171.4
Total 397 408 451 504 538 658 1,000
Source: Indian Railways, Feb’2015 Railway Budget
Railways
12 Elara Securities (India) Private Limited
Coal & Jharkhand, which may help expedite railway
connectivity projects for coal transportation in
Jharkhand. It is forming JVs with the government, and
17 States have already agreed to participate in this
initiative, with Maharashtra setting aside capex of INR
100bn for the next four years. It also targets cash-rich
PSUs, such as Coal India, to fund its capex plans.
Exhibit 25: Source of funds: INR 8.56tn until FY20
Source: Ministry of Railways
PPP model in port connectivity is a success
So far, PPP model in port connectivity is a success for IR.
IR has created autonomy via the SPV route, which
involves both public and private investments. The port
connectivity projects under this parameter have proven
successful. Currently, four port connectivity projects are
operational and three more in progress.
FDI route can be a game-changer
Since April 2000, cumulative FDI in railways-related
components stood at USD 646mn until May 2015, which
though has increased but is not meaningful.
Exhibit 26: Increasing FDI inflows
Source: Department of Industrial Policy & Promotion
FDI to increase manifold now
The Minister is working towards greater FDI participation
in the rail sector. For example, we expect two mega
Greenfield tenders to be finalized soon. These projects
were initially conceived and announced in FY07 and
FY08 railway budgets but faced delays with successive
governments and within the ministry on the utility and
the site chosen for setting up the factories. The estimated
cost would be ~INR 34bn:
The electric locomotive factory at Madhepura in
Bihar will manufacture 800 locomotives. The
estimated capex would be ~INR13bn. Four
companies are in the running to build the factory:
Alstom, Siemens, GE and Bombardier, and
The diesel locomotive factory at Marhowra in Bihar
will manufacture 1,000 locomotives. The estimated
capex would be ~INR21bn.GE and Electro Motive
Diesel is in the fray for setting up the diesel
locomotive factory there.
Gross Budgetary
support INR 2.56tn
30%
Internal generation INR1.00tn
12%
State JVs INR1.20tn
14%
PPP INR1.30tn
15%
Debt INR2.50tn
29%
57 75 110 133
248 270
507
646
0
100
200
300
400
500
600
700
FY
08
FY
09
FY
10
FY
11
FY
12
FY
13
FY
14
FY
15
(USD
mn
)
Railways
Infr
ast
ructu
re
13 Elara Securities (India) Private Limited
Exhibit 27: Key beneficiaries
Source: Company, Elara Securities Research
Infrastructure
Logistics & Ports Capital Goods
Crompton
Greaves
Rolling Stocks
Railways
14 Elara Securities (India) Private Limited
Coal: moving at full volume
Around 50% of total freight is bulk freight, which is
transported exclusively through rail. Although IR has lost
market share in freight traffic for distances of less than
350km, it has retained market share in freight traffic
greater than 350km. As coal is an essential commodity,
there is an urgent need for speedier evacuation, which
can be done only via Indian Railways.
Exhibit 28: Urgent need for speedier evacuation
Source: Ministry of Railways
Exhibit 29: Coal as a % of total rail freight remains
high
Source: Ministry of Railways
Reducing lead distances boosts coal offtake
During FY10-15, Coal India (COAL IN, Buy, CMP: INR 333,
TP: INR 398) reported a sales volume CAGR of 3% to
489mn tonnes. Before May 2014, it seemed highly
unlikely that Coal India could manage to grow at a sales
volume CAGR of 8% over the next few years. During
H1FY16, it grew by even higher at 9.3% YoY which
further gave a boost to confidence that it can continue
to grow at a higher pace. This growth was primarily
because of the Ministry of Coal’s approving swapping
coal from nearby mines rather than distant sites for a few
power plants, thereby reducing lead distances. This
helped in increasing average railway rake availability by
~12% YoY without IR increasing overall wagons in its
portfolio. This initiative is helping decongest traffic at a
few locations and increase the turnaround time of
wagons (for example, the Mughalsarai section in UP). We
believe a similar focus will help reduce inefficiency in IR.
Development of railways needed for coal evacuation
Coal India targets selling 1bn tonnes of coal by 2021.
During FY15, it sold 489mn tonnes. Hence, it would
need to post a volume CAGR of 13% during FY15-21 to
meet its target. Besides receiving timely regulatory
approvals, coal evacuation requires a higher number of
wagons and tracks connecting coalfields. Roads cannot
meet its requirements, and, hence, the company is
relying heavily on IR to lay additional track lines to help
in evacuation. There are currently three critical railway
lines in Chhattisgarh, Odisha and Jharkhand, which will
assist in evacuating ~175mn tonnes at completion, as
per Coal India management.
252 271 294 313
337 370
396 420
456 496 508
543 585
0
100
200
300
400
500
600
700
FY
04
FY
05
FY
06
FY
07
FY
08
FY
09
FY
10
FY
11
FY
12
FY
13
FY
14
FY
15
RE
FY
16
BE
(mn
to
nn
es)
Coal movement by railways
CAGR of 6.7% over FY10-16E
47
.2
46
.6
45
.5
45
.1
45
.1
44
.1
43
.8
71
.1
80
.6
44
.6
45
.6
47
.0
49
.2
48
.3
49
.3
30
40
50
60
70
80
90
0
100
200
300
400
500
600
FY
01
FY
02
FY
03
FY
04
FY
05
FY
06
FY
07
FY
08
FY
09
FY
10
FY
11
FY
12
FY
13
FY
14
FY
15
RE
(%)
(mn
to
nn
es)
Coal (LHS) % of total freight (RHS)
Exhibit 30: Three critical railway lines essential for transporting coal
Railway lines State Length
(km) Command
area Associated Coalfield
Projected capacity (mn tpa)
Expected date of completion
Jharsuguda-Barpali-Sardega Odisha 53 MCL Ib Valley fields 35 December 2016
Bhupdevpur-Dharamjaigarg Chhattisgarh 64 SECL Mand-Raigarh 60 June 2017
Tori-Shivpur Jharkhand 44 CCL North Karanpura 60 3 years post land acquisition
Shivpur-Kathautia Jharkhand 53 CCL North Karanpura 20 3 years post land acquisition
Total
214
175
Source: Indian Railways, Elara Securities Research
Trickle-down economics at play
Coal: direct beneficiary of reforms with a volume CAGR of 13% over FY15-21
Capital Goods: huge windfall
Ports: making the right connections
Rolling stocks: rollicking ahead
Railways
Infr
ast
ructu
re
15 Elara Securities (India) Private Limited
Odisha
Jharsuguda-Barpali-Sardega railway line (53km) in the IB valley
The line passes through Jharsuguda & Sundergarh districts around 24 villages and two tehsils: Jharsuguda &
Hemgir.
Expected coal output: 35mn tpa from the Gopalpur-Manoharpur blocks in IB valley fields of Mahanadi Coalfelds
Status on land acquisition: Almost all land has been acquired except for 14 acres, which MCL has to acquire. This
is due to incomplete update on revenue land records; some plots could not be identified for acquisition initially.
Now, land is to be acquired under the New Land Acquisition Act.
Project completion date: It received Stage 2 forest clearance in June 2014 after 8 years. Contracts for bridges have
been given, and tenders for station buildings have been invited. Seven high tension transmission lines will need to
be shifted, which are en route. It is likely to be completed by December 2016.
Jharsuguda coal critical line
Source: Indian Railways, Elara Securities Research
Railways
16 Elara Securities (India) Private Limited
Chhattisgarh
Bhupdevpur- Korichapar- Dharamjaigarh (64km) at the Mand Raigarh coalfield
This project has been taken under the SPV route with equity from Chhattisgarh (10%), South Eastern Coalfields, a
subsidiary of Coal India (SECL) [64%] and Ircon International (IRCON) [26%].
Expected coal output: 60mn tpa from the Raigarh-Mand fields of SECL
Status on land acquisition: Almost all land (520 hectares) has been acquired. Stage 1 forest clearance has been
received. Compliance has been taken to file Stage 2 clearance.
Project completion: June 2017, subject to forest clearance.
Bhupdevpur-Korichapar-Dharamjaigarh at the Mand Raigarh coalfield in Chhattisgarh
Source: Indian Railways, Elara Securities Research
Korichapar
Bhupdeopur
DharamjaigarhKorba
Railways
Infr
ast
ructu
re
17 Elara Securities (India) Private Limited
Jharkhand
Tori-Shivpur (44km) railway line at North Karanpura
Expected coal output: 60mn tpa from North
Karanpura of CCL
Status on land acquisition: Total land required is
~1,120 acres; around 30% of land is yet to be acquired.
Most land is in Raiyati. Jharkhand may frame the rule
for its acquisition after passing of the New Land
Acquisition Act. The current available land is also in
small and non-continuous stretches due to which
construction cannot start in full swing.
Exhibit 31: Status of land acquisition
Type of land Required
(acres) Acquired Balance
% of land acquisition remaining
Forest 257 257 -
Govt. Jungle Jhari 128 112 15 11.9
Govt/GM (Gair Majuri) 210 188 22 10.5
Raiyati 528 206 321 60.9
Total 1,122 763 359 32.0
Note: as on June 2015; Source: Indian Railways, Elara Securities Research
Project completion date: Contract for earthwork and
minor bridges is in position for first 36km and from
40km to 44km been awarded. Due to high rates,
negotiations for 36-40km are being negotiated.
Contracts for major bridges have been awarded.
However, it will take three years from the date of
handing over all land to IR. As balance land has not
been made available, the timelines for project
completion will get shifted accordingly.
Shivpur-Kathautia (53km) railway line at North Karanpura
Expected coal output: 20mn tpa from North
Karanpura of CCL
Status on land acquisition: Total land required is
~1,300 acres. Land in the Chatra and Hazaribagh
districts has to be acquired and handed over to IR. No
land has been acquired as on yet. Process will restart
after the new LA Act is implemented.
Exhibit 32: Status of land acquisition
Type of land Required
(acres) Acquired Balance
% of land acquisition remaining
Forest 678 0 678 100
Govt. Jungle Jhari 188 0 188 100
Govt/GM(Gair Majuri) 72 0 72 100
Raiyati 367 0 367 100
Total 1,304 - 1,304 100
Note: as on June 2015; Source: Railways, Elara Securities Research
Project completion: It will take three years after
getting forest clearance and land for construction
Jharkhand coal critical line
Source: Indian Railways, Elara Securities Research
Railways
18 Elara Securities (India) Private Limited
Capital goods: huge windfall Analyst: Deepak Agrawala, Harshit Kapadia
The capital goods sector is in a sweet spot. Minister
Prabhu’s intent to improve customer satisfaction got a
boost with the announcement to increase spend on
upgradation and modernization of existing
infrastructure. PM Modi’s “Make in India” initiative also
will lead to significant pickup in areas of metros and
locomotives. Opportunities can take the form of EPC
contracts, specific-projects works and product supply
contracts across the entire spectrum of locomotives,
coaches, tracks, signaling, telecommunications,
transformers, traction motors and engines.
Order inflows pick up
Order inflows have seen an increase in momentum
compared to the past few years over
FY15-16 YTD.
Exhibit 33: Announced contracts of INR 67,450mn
Contracts Order inflows (INR mn)
FY15-16 YTD
Electrification 32,340
Track laying, signaling & communications 17,850
Rolling stocks (coaches & locomotives) 17,260
Source: BSE India, Elara Securities Research
Metro: beginning of a new era
Exhibit 34: New metro rail projects
Project Length
(km) Estimated cost
(INR bn) Date of
completion
Mumbai Metro Line 2 40 256 2023
Mumbai Metro Line 3 33 231 2020-21
Mumbai Metro Line 4 40 191 2023
Lucknow Metro 34 125 2017
Jaipur Metro Phase-2 23 66 2021
Bangalore Metro Phase-2 72 264 2020
Chennai Metro- Phase 2 76 360 2026
Ahmedabad-Gandhinagar 38 107 2021
Bhopal Metro 39 80 2023
Indore Metro 107 150 2018-19
Nagpur Metro 38 87
Patna Metro 60 115
Vizag Metro 45 NA
Total 645 2,032
Source: Industry, Elara Securities Research
Increasing urbanization, population density, strain on
existing transport infrastructure and the success of the
Delhi Metro necessitated investments in the modern
mass rapid transit system (MRTS). Metro is catching up as
an additional source of order inflows and a revenue
contributor, especially is several tier-II and tier-III cities, as
well as feeder line for the main Metro in tier-I cities
during the current and the next 3-4 years. Cities, such as
Mumbai (Line-3), Lucknow, Jaipur, Ahmedabad, Noida &
Greater Noida, Nagpur, and Bangalore (Phase 2), have
announced metro projects and are either in an advanced
stage of planning and implementation in India. Monorail
projects announced at Delhi, Kozhikode and Trivandrum
are likely to add more business opportunities to IR in the
upcoming years. However, it is unlikely the government
would go ahead with a PPP model to build a metro
network, (a model which was used in Mumbai Line 1,
Hyderabad) and instead follow the EPC route with
ownership retained by the respective States and IR.
Locomotives attract FDI
This is another area where we see two mega Greenfield
tenders likely to be finalized soon. They include:
Electric locomotive factory at Madhepura in Bihar to
manufacture 800 locomotives of 12,000 HP,
especially to meet requirements of the eastern
dedicated freight corridor. Four companies are in the
running for building the factory: Alstom, Siemens,
GE and Bombardier, and
Diesel locomotive factory at Marowhra in Bihar to
manufacture 1,000 locomotives (700 of 4,500 HP
capacity and 300 of 6,000 HP). GE and Electro
Motive Diesel are in the fray for setting up the diesel
locomotive factory there.
Apart from this, IR also has received bids to set up a
factory for electric locomotives at the Dankuni unit in
West Bengal to service the WDFC. About 200 electric
locomotives of 9,000 HP each are estimated to be
manufactured there, out of which about 40 will be
imported from Japan and the rest manufactured in India.
Among products, IR has received an encouraging
response from global as well as India entities to
manufacture 15 EMU train sets worth ~INR 25bn. The
project involves manufacture and supply of 315 rail cars
with AC sleeper as well seating facilities (40 imported
and 275 to be manufactured in India). The participating
companies include CSR Zhuhou Electric Locomotive
(China), Zhuhou CSR Times Electric (China), Siemens,
Kawasaki-Toshiba-BHEL consortium, Hitachi-AnsalDo
consortium, Bombardier-CAF consortium, BEML-Alstom
consortium and Rotem- Melco. The project is expected to
be awarded in H2FY16.
Railways
Infr
ast
ructu
re
19 Elara Securities (India) Private Limited
Product profile
The exhibit below lists several capital goods companies and their product portfolio for IR. These companies would be
significant beneficiaries of a revival in rail capex.
Exhibit 35: Product profile of CG companies
Company Product profile
ABB India Rolling stocks: traction transformers, converters
& motors, auxiliary converters & battery
chargers, semiconductors, low voltage products
and surge arrestors
Infrastructure: traction substations, power &
distribution transformers, high voltage
switchgear, static frequency converters,
protection & control equipment
Services: spare parts, maintenance, upgrade and
retrofit
Robots
Traction substation
Bharat
Earth
Movers
Metro train & integral rail coaches, overhead
equipment (OHE) inspection cars, postal vans,
AC/DC electric multiple units, d-EMU, utility track
vehicles, track laying equipment, broad-gauge rail
buses, treasury vans and spoil disposal units
Utility track vehicle
Electric multiple unit (metro coach)
BHEL Traction machines and drives: insulated gate
bipolar transistor (IGBT) propulsion equipment
includes traction motors & converters, auxiliary
converter, and traction generators, transformers
& switchgear and alternators
Transportation system: urban transportation
systems, electric & diesel locomotives, EMU
coaches, OHE inspection cars, dynamic track
stabilizers, well wagons, rail-cum-road vehicles,
utility vehicles and ballast cleaning machines
AC electric locomotives
Source: Company websites
Railways
20 Elara Securities (India) Private Limited
Company Product Profile
Crompton
Greaves
Propulsion equipment: traction motors &
alternators, electrical traction control, IGBT
technology-based propulsion equipment
Traction electronics: auxiliary & power converters,
control electronics and static inverters
Railway signaling: signaling relays, point machines,
data loggers, carriage fans, integrated power
supply system and inverter motors
Traction motors
Cummins
India
Industrial engines Locomotive engine
Kalpataru
Power
Civil infrastructure including earthworks, bridges,
tunnels, station buildings and facilities
New track laying & rehabilitation of existing tracks
Railway electrification and power system
Signaling and telecommunications network
Signaling
Track laying
KEC
International
Civil & track works: bridges, buildings (at stations &
yards), platforms, and workshop modernization.
Track works includes track laying & linking and
preparation of ballast bed & earthwork
information
Electrification: overhead electrification, traction
substations, and general electrical works (building
& station yard lighting)
Signaling: interlocking works, outdoor & indoor
supply and installation works
Track laying
Railway station
Source: Company websites
Railways
Infr
ast
ructu
re
21 Elara Securities (India) Private Limited
Company Product profile
Larsen &
Toubro
Integrated solutions for railway construction
(monorail transit system)
EPC work in railway electrification (traction
overhead equipment, and traction & switching
stations)
Dedicated rail links and merry-go-round system
(end-to-end rail connectivity solutions for sectors,
such as power, steel, aluminium & cement)
Complete civil and track works (to construct rail
beds and permanent way works involving
embankments, bridges, associated civil works
comprising station buildings, passenger amenities
and staff quarters)
Signaling and telecommunications (automatic
train supervision, protection and operations
including electronic interlocking)
Steel & concrete bridges and tunnels
Automated track laying machine at the DFC project
Rigid overhead contact system of the Delhi Metro Rail
Corporation
Siemens
India
Rail automation: railway electrification like
signaling & control equipment, relays, audio
frequency track vacancy detection, axle counters,
safety system, auxiliary warning system, point
machines and thermo flashers
Rolling stocks: Metro bogies, components of a
propulsion system, such as traction converters &
motors, auxiliary converters, control system,
locomotives and urban transport vehicles
Electric multiple unit (EMU)
Source: Company websites
Railways
22 Elara Securities (India) Private Limited
Order inflows
The following are orders bagged by CG companies in the past few quarters from IR. Data suggests inflows have picked
up in recent quarters.
Exhibit 36: Order flows pick up
Year Order Supplier Customer Order size (INR mn)
CY14 Supplying new & rehabilitation of turbochargers to Diesel Modernization Works, a
division of IR
ABB India Indian Railways, Punjab
NA
FY13 Electrification of Phase III of the Delhi Mass Rapid Transit System (MRTS) Siemens India Delhi Metro Rail Corporation
1,760
FY13 Gurgaon Metro South Extension project Siemens India IL&FS Rail 1,841
FY14 Supply of traction motors Siemens India Diesel Locomotive Works, Varanasi
743
FY14 Construction package of rail line doubling between Jhansi and Bhimsen stations in
Uttar Pradesh
GMR Consortium Rail Vikas Nigam 2,670
FY15 To supply Phase III propulsion system for diesel & electric locomotives Siemens India Indian Railways 4,500
FY15 Supply of track-side transformers Crompton Greaves Indian Railways NA
FY15 Order of a Phase-III, diesel-electric multiple unit (DEMU) propulsion system Crompton Greaves Indian Coach Factory (ICF), Chennai
NA
FY15 Orders for 38 HP D-EMU Crompton Greaves Indian Coach Factory (ICF), Chennai
NA
FY15 Supply of 72 traction motors Crompton Greaves Rail Coach Factory, Kapurthala.
NA
FY15 Supply of CNG-fuelled dual engine (using CNG as an alternative to diesel) for DEMU Cummins India Indian Railway Organization for Alternate Fuels
NA
FY15 Electrification of 914km from Rewari to Vadodara Larsen & Toubro DFCCIL (Dedicated Freight Corridor Corporation of India)
30,970
FY15 Supply of axle box housing castings required for rail coaches BEML Integral Coach Factory
NA
FY15 Manufacture and supply of 70 cars in addition to 92 standard gauge metro cars for
Phase III
BEML Delhi Metro Rail Corporation
NA
FY15 Secured order for railway electrification KEC International Central Organisation of Railway Electrification
1,370
FY15 Construction of 48km of railway lines for the transportation of coal from coal mines Larsen & Toubro NA NA
FY15 Construction of viaduct and stations for YMCA - Ballabhgarh Larsen & Toubro Delhi Metro Rail Corporation
2,280
FY15 Construction of Lucknow Metro Larsen & Toubro Lucknow Metro Rail Corporation
6,310
FY15 To supply 10 traction alternators TD Power Systems Diesel Locomotive Works
NA
FY15 Received two railways orders in JV Kalpataru Power Indian Railways 1,000
FY15 Construction of rail line doubling of multi modal transport system (MMTS) – Phase II
works on Secunderabad division of South Central Railway in Andhra Pradesh
GMR Consortium Rail Vikas Nigam 3,890
FY16 Design, manufacture, supply test and commission 74 board gauge metro cars BEML Delhi Metro Rail Corporation
6,450
FY16 Secured order for electrification, civil works, track laying, signaling and
telecommunications works in Madhya Pradesh
KEC International Rail Vikas Nigam 2,880
FY16 Construction of special steel bridges on the western DFC Larsen & Tubro and IHI Infrastrucutre System, Japan
DFCCIL 10,200
FY16 Design, construction, supply, testing and commissioning of 2X25 kV AC 50 Hz
electrification, signaling, and telecommunications and associated works of double
track rail lines under construction on a design build lump sum basis for the
Bhaupur-Khurja Section of eastern DFC
Alstom India DFCCIL 14,970
FY16 Four projects in the railway division Kalpataru Power Indian Railways 3,250
FY16 EPC for a 417-km-long eastern DFC railway project in two phases: first build a
180km stretch between Mughalsarai and Karchana (near Allahabad) and second
involving a 237km stretch between Karchana and Bhaupur (near Kanpur)
GMR Consortium DFCCIL 50,800
Source: Elara Securities Research
Railways
Infr
ast
ructu
re
23 Elara Securities (India) Private Limited
Ports: right connections Analyst: Adhidev Chattopadhyay
India’s West Coast currently accounts for more than 70%
of total container volume handled at ports; to decongest
this route, Indian Railways SPV, DFFCIL, is building the
eastern and western DFCs of 3,300km dedicated to
moving freight from ports to the hinterland; this will, to a
large extent, alleviate congestion at ports. In this context,
DFC is expected to significantly benefit ports along
India’s West Coast, especially in Gujarat and
Maharashtra.
Among the West Coast ports, the ports of Mundra and
Pipavav are far away from the existing rail line. Post DFC
which is running near to existing rail tracks, Pipavav
would still be 370km from Mehsana while Mundra will
connect to DFC at Palanpur, which is 440km away.
Though DFC does not reduce distance, it provides a
dedicated freight line, which is missing currently. The
Hazira Port would be the best connected as it is just
28km from Surat on the DFC. As per Adani Ports
management, land acquisition for the Hazira rail line has
been completed, and it expects it to be commissioned
once DFC is operational.
DFC to unchoke ports
West Coast capacity to grow 1.6x over FY15-19E
Gujarat Pipapav (GPPV IN, Sell, CMP: INR 173, TP: INR
122) is currently expanding capacity to 1.35mn TEUs
from 0.85mn TEUs at Pipavav Port. Its peers like Mundra
are setting up a new container terminal in a 50:50 JV
with CMA-CGM having capacity of 1.3mn TEUs that will
be equivalent to GPPV’s capacity post expansion.
Further, work has started on Phase I (2.4mn TEUs) on the
PSA container terminal at JNPT that will become
operational in FY18. Also, the Hazira Port is set for
expansion to 1.5mn TEUs from current capacity of 0.7mn
TEUs, as land for setting up the rail line has already been
acquired. It would be operational by FY18.
Container volume to grow 1.42x over FY15-19E
We assume a 10% CAGR in West Coast container volume
over FY15-19E despite a challenging demand
environment. Overall capacity utilization is still expected
to fall to 82% in FY19E from 92% in FY15.
Challenge from Hazira if new IR line & DFC happens
While GPPV does offer superior rail evacuation, it will
face significant competition from Hazira once the railway
line is completed and the WDFC is commissioned as
Hazira is closest to the DFC (about 28km from Surat).
Pipavav would be 370km away (Palanpur) while Mundra
would be 440km away (Mehsana & Ahmedabad).
Pricing pressures to persist on capacity expansion
We believe pricing competition will persist and impact
margin, owing to new capacity coming up at major
container ports on the West Coast. Capacity is likely to
come up well ahead of demand, and, hence, ports would
be competing with one another to retain market share.
Exhibit 37: Connectivity of the key West Coast ports to DFC
Rail connectivity of Mundra and Pipavav to the western rail corridor
Source: Gujarat Infrastructure Development Board
To
De
lhi
To
Mu
mb
ai
Existing Rail Line
DFC
Pipavav
Hazira
Dahej
Surat
Bharuch
Ahmedabad
Mahesana
Palanpur
MundraKandla
Gujarat
Railways
24 Elara Securities (India) Private Limited
Exhibit 38: Container volume to grow 1.42x over FY15-19E to 13.4 mn TEUs
Container Volumes Handled at Ports (mn TEUs) FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E FY19E
JNPCT (Owned by JNPT trust) 1.0 0.8 0.9 1.1 1.2 1.3 1.4 1.4 1.4 1.4 1.5
% YoY growth
(20.0) 12.5 22.2 10.0 8.3 3.1 0.0 0.0 3.7 3.6
NSICT (DP World) 1.5 1.5 1.5 1.5 1.0 1.0 1.1 1.1 1.1 1.2 1.2
% YoY growth
1.3 0.7 (3.9) (29.7) (6.7) 8.2 1.0 3.8 4.5 4.3
Nhava sheva New DP World terminal (expansion) - - - - - - - - 0.2 0.4 0.4
% YoY growth
NM 100.0 0.0
GTI(APM Terminals - CONCOR) 1.7 1.8 1.9 1.9 2.0 1.9 2.0 1.9 2.0 2.1 2.2
% YoY growth
1.4 6.3 3.2 4.2 (6.0) 6.4 (3.0) 3.1 5.0 4.8
PSA Singapore Terminal - - - - - - - - - 0.5 0.8
% YoY growth
NM 50.0
Total JNPT Volumes (mn TEUs) 4.2 4.1 4.3 4.5 4.3 4.2 4.4 4.4 4.7 5.6 6.0
% YoY growth
(3.7) 5.4 4.7 (5.6) (2.1) 5.8 (1.1) 6.9 19.4 8.1
Mundra Port (CT-I and CT-II) 0.5 0.8 1.0 1.3 1.7 1.7 2.0 2.2 2.3 2.4 2.5
% YoY growth
52.0 32.9 24.8 38.1 (1.7) 17.0 10.0 4.5 4.3 4.2
Mundra(CT-III) JV with MSC - - - - - 0.7 1.1 1.4 1.5 1.5 1.5
% YoY growth
57.1 27.3 7.1 0.0 0.0
Mundra(CT-IV) JV with CMA-CGM - - - - - - - - 0.5 0.7 1.0
% YoY growth
40.0 42.9
Total Mundra Port Volumes (mn TEUs) 0.5 0.8 1.0 1.3 1.7 2.4 3.1 3.6 4.3 4.6 5.0
% YoY growth
52.0 32.9 24.8 38.1 38.5 28.6 16.1 19.4 7.0 8.7
Gujarat Pipavav 0.2 0.3 0.5 0.6 0.6 0.7 1.0 0.7 0.9 0.9 1.0
% YoY growth
60.0 45.6 30.9 (6.6) 16.1 48.4 (24.0) 15.0 10.0 10.0
Hazira - - - - - 0.1 0.3 0.5 0.6 0.8 0.8
% YoY growth
278.9 50.0 25.0 25.0 0.0
Others (Kandla, Cochin, Murmagao, New Mangalore) 0.7 0.7 0.6 0.8 0.6 0.6 0.6 0.6 0.6 0.6 0.6
% YoY growth
(1.5) (2.1) 23.8 (25.0) 0.0 0.0 0.0 0.0 0.0 0.0
Total Volumes (mn TEUs) 5.6 5.8 6.4 7.2 7.2 7.9 9.4 9.8 11.0 12.5 13.4
% YoY growth
3.8 10.3 11.6 (0.1) 10.6 18.9 4.0 12.6 13.1 7.6
Source: Company, Industry sources, Elara Securities Estimate
Exhibit 39: West Coast container operating capacity to reach 16.4mn TEUs by FY19E from 10.2mn TEUs in FY15
Operating capacity (mn TEUs) FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E FY19E
JNPCT (Govt owned) 1.1 1.1 1.1 1.1 1.2 1.3 1.3 1.3 1.3 1.3 1.3
NSICT (DP World) 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2
Nhava sheva New DP World terminal (expansion) - - - - - - - - 0.4 0.8 0.8
GTI(APM Terminals - CONCOR) 1.8 1.8 1.8 1.8 1.8 1.9 1.9 2.0 2.0 2.0 2.0
PSA Singapore Terminal - - - - - - - - - 2.4 2.4
JNPT total (MTEU) 4.1 4.1 4.1 4.1 4.2 4.4 4.4 4.5 4.9 7.7 7.7
Mundra Port (CT-I and CT-II) 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5
Mundra(CT-III) JV with MSC - - - - - 1.5 1.5 1.5 1.5 1.5 1.5
Mundra(CT-IV) JV with CMA-CGM - - - - - - - - 0.7 1.3 1.3
Mundra Port Total 2.5 2.5 2.5 2.5 2.5 4.0 4.0 4.0 4.7 5.3 5.3
Gujarat Pipavav (Elara Sec estimates) 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 1.4 1.4 1.4
Others 0.5 0.5 0.5 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6
Hazira - - - - - - 0.4 0.8 1.5 1.5 1.5
Total capacity 8.0 8.0 8.0 8.0 8.1 9.8 10.2 10.7 13.0 16.4 16.4
% YoY Capacity Growth - 0.0 0.0 0.8 1.2 20.9 4.1 4.9 21.0 26.6 0.0
Source: Company, Industry sources, Elara Securities Estimate
Exhibit 40: West Coast container capacity utilization to fall to 82% in FY19E from 92% in FY15
Capacity utilization (%) FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E FY19E
JNPCT (Govt owned) 90.9 72.7 81.8 100.0 100.8 100.8 103.8 103.8 103.8 107.7 111.5
NSICT (DP World) 125.8 127.5 128.3 123.3 86.7 80.8 87.5 88.3 91.7 95.8 100.0
Nhava sheva New DP World terminal (expansion) - - - - - - - - 50.0 50.0 50.0
GTI(APM Terminals - CONCOR) 95.8 97.2 103.3 106.7 111.1 98.9 105.3 97.0 100.0 105.0 110.0
PSA Singapore Terminal - - - - - - - - - 20.8 31.3
JNPT total 103.3 99.5 104.9 109.8 101.2 94.5 100.0 96.7 94.9 72.1 77.9
Mundra Port (CT-I and CT-II) 20.0 30.4 40.4 50.4 69.6 68.4 80.0 88.0 92.0 96.0 100.0
Mundra(CT-III) JV with MSC - - - - - 46.7 73.3 93.3 100.0 100.0 100.0
Mundra(CT-IV) JV with CMA-CGM - - - - - - - - 76.9 53.8 76.9
Mundra Port Total 20.0 30.4 40.4 50.4 69.6 60.3 77.5 90.0 92.5 86.8 94.3
Gujarat Pipavav 23.5 37.6 54.8 71.8 67.0 77.8 115.4 87.7 63.5 69.9 76.8
Others 128.8 126.9 124.2 137.9 103.4 103.4 103.4 103.4 103.4 103.4 103.4
Hazira - - - - - - 82.4 61.8 41.2 51.5 51.5
Total Container Utilisation (%) 70.3 73.0 80.6 89.3 88.1 80.5 92.0 91.2 84.9 75.9 81.6
Source: Company, Industry sources, Elara Securities Estimate
Railways
Infr
ast
ructu
re
25 Elara Securities (India) Private Limited
Rolling stocks: rollicking ahead
Exhibit 41: Coal as a % of total rail freight remains high
Source: Ministry of Railways
COAL target of 1.0bn tonnes to light fire
Coal India has a target to sell 1.0bn tonnes of coal per
year by 2021. During FY15, it sold 489mn tonnes. Hence,
it must grow at a CAGR of 13% during FY15-21E to
achieve the target. Besides receiving timely regulatory
approvals, coal evacuation requires transportation
facilities. Roads cannot fulfill the requirements along,
and, hence, railways have to act and lay track lines,
which will help in coal evacuation. This would help in
consistent demand of wagons for the next few years.
Wagons on a roll
IR has set an internal target to increase daily passenger
carrying capacity from 21mn to 30mn, a rise in track
length by ~20% from 114,000km to 138,000km. It can
grow annual originating freight carrying capacity from
1.0bn tonnes to 1.5bn tonnes in the next five years.
Consequently, in February 2015 budget, Minister of
Railways unveiled its five-year capex plan in which it
proposed to spend ~INR 1.02tn in rolling stocks
(locomotives, coaches & wagons production and
maintenance) in the next five years.
Exhibit 42: Wagon demand set to improve
Source: Indian Railways, Elara Securities Estimate
The current Railway budget indicates investment in
wagons would see a significant increase compared to
investment made during the earlier period. The plan
shows investment will be prioritized in the following
areas: DFC, high capacity rolling stocks, last mile rail
linkages and port connectivity. Interactions with Railways
officials reveal a requirement of 14-16k wagons per year.
Exhibit 43: Different types of wagons being used by IR
Wagons Commodities
Open top wagon coal, ore & minerals
Covered wagons fertilizer, cement & foodgrains
Flat wagons steel, container, timber
Tank wagons oil, milk, acid, caustic soda
Tank wagons (pressurized) Liquefied petroleum gas
Tank wagon (with air fluidizing system)
alumina & cement
Hopper wagon coal & ballast
Special purpose wagon (multi axle/well type)
oversized/extra heavy consignments, defense equipment
Source: Indian Railways
Cast in steel
Rail castings involve bogies and couplers which are parts
of wagons and CMS crossings. IR is a major consumer of
steel castings in the country. Steel castings required for
wagon manufacturing must be procured from foundries
approved by IR.
In recent years, there is an increasing export potential for
rail as well as industrial castings. Companies, such as
Texmaco Rail and Titagarh Wagons, have already started
to export a major part of its produce to manufacture
wagons. The steel foundry is labor intensive, and high
labor cost involved in the operations of a foundry
becomes a deterrent. Labor-related issues like strikes also
pose a problem.
47
.2
46
.6
45
.5
45
.1
45
.1
44
.1
43
.8
71
.1
80
.6
44
.6
45
.6
47
.0
49
.2
48
.3
49
.3
30
40
50
60
70
80
90
0
100
200
300
400
500
600
FY
01
FY
02
FY
03
FY
04
FY
05
FY
06
FY
07
FY
08
FY
09
FY
10
FY
11
FY
12
FY
13
FY
14
FY
15
RE
(%)
(mn
to
nn
es)
Coal (LHS) % of total freight (RHS)
18 17
9
0
14 15
16 16 16
0
4
8
12
16
20
FY
12
FY
13
FY
14
FY
15
BE
FY
16
E
FY
17
E
FY
18
E
FY
19
E
FY
20
E
('0
00
no
of
un
its)
Wagons procured / manufactured
Railways
26 Elara Securities (India) Private Limited
Appendix I
How IR lost its mojo
Stuck in a vicious circle
Although IR is considered as a commercial entity, political
parties have not allowed running it commercially,
particularly in the passenger segment. As the entity is a
monopoly with no separate policymakers and regulators,
it has failed to respond to new demands for expanded
services. The cost continues to increase due to a large
employee pool. In addition, political pricing of passenger
fares has forced IR to charge uncompetitive and high
freight tariffs. Although IR has not lost much share in
traffic beyond 350km and the bulk freight segment, it
has not managed to cater to the high-value segment
which has shifted to road transport. With revenue falling,
IR has found it difficult to adequately maintain assets or
create new capacity to serve customers, and this, in turn,
has forced more customers to turn away, leading to a
crisis-like situation.
Exhibit 44: Under investment in IR
Source: Elara Securities Research
Network improves but lags demand
IR has improved its network capacity over the past 65
years. It has added ~12,000km of new lines since
independence. It has grown passenger and freight
volume faster than growth in population or the route
kilometers. Freight carried has increased from 73mn
tonnes in FY51 to 1,052mn tonnes in FY14, according to
IR. The network is being more intensively used at many
places, and it is running beyond 100% capacity
utilization. However, these supply-side improvements
have not been commensurate with demand
requirements. Hence, it continues to lose its share to
other modes of transport despite being the most cost
effective.
Not a pure commercial organization
IR does not run fully on commercial terms. It has
continuously subsidized passenger fares which have
increased losses in this segment. During FY13, loss per
passenger km was ~30 paise.
Exhibit 45: Loss remains high in the passenger
segment
Year Cost per PKM Earnings per PKM (Earnings
/cost)
FY00 35.8 22.2 62.0
FY09 48.9 26.1 53.5
FY10 52.9 26.0 49.1
FY11 52.6 26.3 50.0
FY12 54.4 27.0 49.6
FY13 57.8 28.5 49.4
Source: White paper on IR, 2015
Highest freight rates lead to fall in traffic
In the past, IR increased freight rates to offset losses in
the passenger segment. During FY13, profit per tonne
km was ~64 paise. This makes India’s freight rates among
the highest in the world.
Exhibit 46: Freight rates across other nations
Country Freight yield
Usc/passenger km at nominal prices
Freight yield Usc/passenger km adjusted for PPP (India = 1)
India 2.11 1.00
China 1.49 0.58
Russia 2.20 0.75
US 2.28 0.51
Source: White paper on IR, 2015
Exhibit 47: High freight rate makes it noncompetitive
Year Cost per NTKM Earnings per NTKM (Earnings/cost)
FY00 55.9 72.3 129.3
FY09 63.7 96.9 152.0
FY10 65.8 97.4 147.9
FY11 67.6 100.4 148.5
FY12 69.6 104.2 149.6
FY13 75.3 123.3 163.7
Source: White paper on IR, 2015
Given higher freight rates coupled with a delay in
delivery and a lack of last-mile connectivity, its share in
total traffic has been declining. The modal mix of
transport has shifted in favor of road transport, not only
for freight but also for passenger transport with shorter
leads.
Under Investment
Inability to increase fares
Lower surplus for investment
Lower resource
generation
Poor quality services &
delays
Railways
Infr
ast
ructu
re
27 Elara Securities (India) Private Limited
At the time of independence, IR used to carry 89% of
freight. Its share keeps on declining and currently it is
~30% of total originating traffic. However, it manages to
maintain its share in bulk freight and traffic beyond
350km, which may be due to no better alternative
option.
Exhibit 48: IR share in origination tonnage continues
to decline
Source: National Transport Development Policy Committee
Salaries, fare subsidy eat into profit
Higher wages, cross subsidization of passenger fares and
inefficiency have led to declining traffic, leading to lower
internal resource generation.
Low investment taking a toll
One major challenge faced by IR is that it has to meet
not only operational expenses but also generate
adequate funds for investment. Over the years, railways
expenditure as a percentage of the transport sector
expenditure has declined from 67% in the Third Five-Year
Plan (1961-66) to 30% in the Eleventh Five-Year Plan
(2007-12).
Exhibit 49: Underinvestment in IR over the years
Five-year plans IR expenses
(INR bn) As a % of the transport sector
expenses
FY51-56 2.2 50
FY56-61 7.2 66
FY61-66 13.3 67
FY69-74 9.3 37
FY74-79 21 37
FY80-85 66 47
FY85-90 165 56
FY92-97 322 49
FY97-02 457 38
FY02-07 841 36
FY07-12 1921 30
Source: White paper on IR, 2015
Exhibit 50: Railway expenditure as a % of total
transport declining
Source: White paper on IR, 2015
Poor execution chips away at investment
The real problem plaguing IR is the delay in execution of
projects, which has not only resulted in time overruns
but in cost overruns. Thus, despite continued investment,
it seems to be under-invested, which has led to its
current state. The primary reason for cost and time
overruns is inadequate funds allotted for projects, a lack
of coordination with local authorities & sub-contractors,
land acquisition issues, a delay in finalizing detailed
engineering plans and a lack of familiarity with the latest
technology.
Exhibit 51: Pending projects
Plan Number of
projects Cost to complete
FY15 (INR bn)
New lines (construction) 170 1,336
Gauge conversion 67 245
Doubling 233 396
Traffic facilities (yard re-modeling & others)
598 55
Road safety works (level crossings)
204 11
Road safety works (road over/under bridges)
1,535 425
Track renewals 2,355 152
Bridge works 286 23
Signaling and telecommunications
582 63
Electrification projects 54 67
Workshops including production units
481 174
Metropolitan transport projects 16 217
Total 6,581 3,164
Bridge works 1,287 1,750
Grand total 7,868 4,914
Source: Bibek Debroy Committee report, 2015
89
65
53
31
0
20
40
60
80
100
FY51 FY79 FY87 FY15
(%)
0
20
40
60
80
0
500
1,000
1,500
2,000
2,500
FY
51
-FY
56
FY
56
-FY
61
FY
61
-FY
66
FY
69
-FY
74
FY
74
-FY
79
FY
80
-FY
85
FY
85
-FY
90
FY
92
-FY
97
FY
97
-FY
02
FY
02
-FY
07
FY
07
-FY
12
(%) (I
NR
bn
)
Railways Exp as a % of transport sector exp (RHS)
Railways
28 Elara Securities (India) Private Limited
Current state of Indian Railways
Things could be better
IR carries ~23mn passengers and ~3mn tonnes of freight
per day. There are only four countries in the world that
carry more than 1.0bn tonnes of originating freight
every year (China, Russia, the US and India).
Exhibit 52: Statistical snapshot
FY14
Number of passengers carried (mn) 8,397
Passenger kilometers (bn) 1,159
Passenger earnings as a % of gross earnings 25
Express long-distance passenger as a % of passenger earnings
80
Average suburban lead (km) 37
Average non-suburban lead (km) 258
Number of railway stations 7,172
Number of daily passenger trains 12,961
Average speed of mail & express trains on broad gauge (km/hr)
51
Average rate per passenger km (paise) 32
Revenue originating tonnes (mn) 1,052
Net tonnes km (bn) 692
Bulk freight as a % of goods earnings 89
Number of daily goods trains 8,637
Wagon turnaround time on broad gauge (days)
5
Average speed of goods trains on broad gauge (km/hour)
26
Average net load of goods trains on broad gauge (tonnes)
1,686
Average rate per NTKM (paise) 138
Working expenses as a % of gross earnings (operating ratio)
94
Number of employees (‘000s) 1,334
Wage bill as a % of working expenses 49
Rate of return on capital (%) 7
Number of locomotives 9,956
Wagons 245,267
Coaches 66,392
Land owned by IR 455,000 hectares
Source: Bibek Debroy Committee report, 2015
Segment-wise revenue for IR
Exhibit 53: Freight and passenger revenue on an
increasing trend
Source: Ministry of Railways
Exhibit 54: Freight earnings remain critical
Source: Ministry of Railways
Freight: two-thirds of revenue
Freight trains constitute ~35% of train network but yield
more than 65% of revenue. Despite this, it has lower
priority vs passenger trains in operational matters.
Higher growth but not adequate
IR performance is well below potential despite high
growth witnessed in freight traffic during the past
decade. The transport elasticity to GDP is 1.25. IR’s freight
CAGR was at 7% over FY04-14.
Exhibit 55: Rail freight traffic CAGR of ~7% over the
past 10 years
Source: Ministry of Railways
Of total freight, ~50% is bulk freight, which can be
transported primarily via rail. Hence, price elasticity with
regards to bulk freight is low. Hence, we believe IR will
continue to increase freight rate to subsidize passenger
fares.
Exhibit 56: Composition of freight traffic in FY14
Source: Ministry of Railways
0
200
400
600
800
1,000
1,200
0
100
200
300
400
500
FY
04
FY
05
FY
06
FY
07
FY
08
FY
09
FY
10
FY
11
FY
12
FY
13
FY
14
FY
15
(INR
bn
)
(IN
R b
n)
Passenger earnings (LHS) Freight traffic (RHS)
Passenger earnings
27%
Freight traffic 67%
Others 6%
55
7
60
2
66
7
71
6
47
4
45
8
88
8
92
2
96
9
1,0
08
1,0
52
0
200
400
600
800
1,000
1,200
FY
04
FY
05
FY
06
FY
07
FY
08
FY
09
FY
10
FY
11
FY
12
FY
13
FY
14
(mn
to
nn
es)
Freight traffic
Coal 48%
Ore to Steel Plants
6%
Ore - Export
1%
Cement 11%
POL 4%
Foodgrains 5%
Fertilizers. 4%
Iron & Steel 4%
Others 17%
Railways
Infr
ast
ructu
re
29 Elara Securities (India) Private Limited
Remains an economical mode of travel
Even if IR were to maintain its current market share of
~30%, it would have to grow at 7-8% over next few
years. According to National Transport Development
Policy Committee (NTDPC), roads transportation is
economical for distance upto 400km only. Around 65%
of India’s freight traffic comprises bulk commodities and
is transported over a distance of more than 400km. This
can be more economically served by IR. Also, the
average lead distance travelled is 620-630km where IR
has not lost much market share.
Exhibit 57: Rail freight cheaper by >50% from road
for distance beyond 500km
Source: Indian Railways, Elara Securities Research
IR must improve productivity and efficiency, particularly
in its freight segment. In our view, it can 1) introduce and
proliferate higher pay load to tare weight ratio wagons,
2) improve average speed of goods train by using longer
trains, and 3) decongest a few of the highly saturated
track networks.
Passenger traffic less elastic to price movement
The Economic Survey of 2014-15 provides estimates of
price elasticity of demand for different components of rail
services. It shows that passenger services are far less
price elastic than freight services. A 10% increase in fares
would reduce passenger demand by 1.4% while in case
of freights, it would fall by 5.5%. Thus, IR can increase
passenger fares more than freight rates but is unable to
do so due to political compulsions. The current loss per
passenger km is ~50 paise.
Exhibit 59: Loss remains high in the passenger
segment
Year Cost per PKM
(%) Earnings per PKM
(%) Ratio (%)
FY00 35.8 22.2 62.0
FY09 48.9 26.1 53.5
FY10 52.9 26.0 49.1
FY11 52.6 26.3 50.0
FY12 54.4 27.0 49.6
FY13 57.8 28.5 49.4
Source: White paper on IR, 2015
Financials
In a bad shape
IR’s operating ratio has been in the range of 85-93%;
thus, there is not much of surplus to invest, and it has to
depend on external sources to fund capex plans. In some
countries, an operating ratio of ~75% provides their
railways adequate room for further investment. There
are several public service obligations that IR bears (for
example, support for investment in national projects and
strategic lines, such as in J&K and the Northeast states).
However, IR is not at fault as it has not been allowed to
raise passenger fares in a commercial way. Hence, the
government has to continuously provide capital to fund
its capex plans.
Exhibit 60: Operating ratio hovering at ~90%
Source: Indian Railways
1.3 1.3 1.8 1.8 2.0 2.0
3.3 3.3 3.3 3.5
4.5
5.1
0.00
1.00
2.00
3.00
4.00
5.00
6.00
FY11 FY12 FY13 FY14 FY15 FY16E
(pe
r km
pe
r to
nn
e)
Rail freight Road freight
91.0
83.7
78.7
75.9
90.5
95.3 94.6 94.9
90.2
93.6 91.8
70
75
80
85
90
95
100
FY
05
FY
06
FY
07
FY
08
FY
09
FY
10
FY
11
FY
12
FY
13
FY
14
FY
15
(%)
Exhibit 58: Railway financials can easily meet revenue expenses
(INR bn) FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 RE FY16 BE
Gross traffic receipts 627 717 799 870 945 1,041 1,237 1,396 1,592 1,836
Total working expenses 490 545 718 822 895 987 1,116 1,303 1,460 1,622
Excess/shortfall 102 134 45 0 14 11 83 37 73 143
Operating ratio (%) 78.7 75.9 90.5 95.3 94.6 94.9 90.2 93.6 91.8 88.5
Source: Indian Railways, February 2015 Railway Budget
Railways
30 Elara Securities (India) Private Limited
Challenges
Key challenges faced by IR are constraints of
infrastructure, primarily in line capacity on busy routes,
the absence of difference between policymakers &
regulators and deteriorating financials.
Capacity constraints on busy routes…
The high density network is the one which connects the
metros and this is overstretched. The main lines
(connecting the four metros), which comprise ~16% of
the total rail network, carry ~60% of freight and more
than 50% of passenger traffic, and, thus, is oversaturated.
Despite having a large-scale network, traffic distribution
is highly uneven.
Exhibit 61: Line capacity utilization of sections on
high density network
Source: National Transport Development Policy Committee
…leading to slower speed
Most developed countries have high speed railways
(speeds upto 300-350km per hour) and have rebuild
their old tracks for speeds upto 200km per hour. The
maximum permissible speed on IR is only 150km per
hour and average speed actually is 50-60km per hour for
passenger trains and ~25km per hour for goods trains.
The problem is not rolling stocks but stretched capacity
with mixed traffic of high speed, slow passenger trains
and goods trains. Thus, if IR were able to decongest the
track, the existing asset would run at double the speed.
Need of the hour: rescuing IR
Modernize and augment core assets
Key revenue-generating assets of IR, such as tracks &
bridges, signaling, rolling stocks and stations & terminals,
need to be modified to meet increasing demand.
Review and prioritize projects
As on 2014-15, a total of 11,709 projects that have been
approved by the Railways Board are in the process of
completion with an estimated cost to completion of INR
4.95tn. There are several projects which were started
before 2000 that have still to be completed.
Financing should not be a problem
As internal generation of IR is low, there is an urgent
need to mobilize additional funding from private
participation and FDI. IR needs to change its investment
strategy through ring-fenced investments in high-yield
projects, which can be funded through multilateral
funding agencies like insurance companies and pension
funds. These agencies can provide long-term, lower
interest rate funds. Hence, these funds should be used
for capacity generation and not for asset replacement.
For example, the upcoming DFCs.
Set up an independent regulator
It would be difficult to unlease the potential of private
sector & FDI participation unless there is a clear policy
and independent regulator. The government has started
working on these directions, and, accordingly, the
Railways Budget of 2015-16 proposes to have a
regulation mechanism independent of the service
provider. It is proposed to set up a mechanism which will
make regulations, setting up performance standards and
determine tariffs. Proper functioning may help attract
private participation in the sector.
Reduce approval process by 18 months
Earlier, the practice was to include a project in Railway
Budget and send for an ‘In Principle Approval’ to the NITI
Aayog, hold meetings of extended Board of Railways
and finally seek approval of the Cabinet. Once Cabinet
approval is available, IR used to go for final location
survey (FLS), and, subsequently, prepare a detailed
estimate. Expenditure can be incurred only after this is
sanctioned. This process used to take 2-3 years. To
reduce this time gap, Ministry Railways asked zonal
railways to carry out the FLS after inclusion of the work
in the Railway Budget. After the FLS, zonal railways were
asked to send a detailed project report (DPR) to the
Board with cost estimates. This change yielded results:
out of 77 line-doubling projects sanctioned this year, DPR
of 73 have been prepared and received.
Power delegation to GM a welcome move
An important step is the devolution of decision-making
and tendering power to GMs, making them “nodal
points” to implement and execute contracts faster. One
way this devolution is in play is that project size has been
0 10 20 30 40 50
Mumbai - Chennai
Howrah - Chennai
Delhi - Chennai via Jhansi,Nagpur-Bhallarshah
Delhi - Guwahati via Sitapur- Gorakhpur-Barauni-Katihar
Delhi - Mumbai
Mumbai - Howrah
Delhi - Howrah
Number of sections
<80% 80-100% 100-120% 120-150% >150%
Railways
Infr
ast
ructu
re
31 Elara Securities (India) Private Limited
increased from INR 3bn to INR 10bn. Any project above
INR 10bn now requires cabinet approval.
DFC: a game-changer
The most critical aspect of IR is capacity constraints rather
than rolling stocks. To decongest the network, the
government is setting up DFCs (eastern & western of
~3,300km) which would lead to decongestion of freight
and passenger traffic on main routes, speed up delivery
and generate additional freight carrying capacity of >500
mn tpa at peak. Heavy axle loads, better wagon design,
longer freight train length can also to reduce unit cost.
Privatization answer: muted so far
Private sector participation in IR has been muted,
particularly compared to other sectors, such as ports,
telecom, electricity, airports and roads. Several attempts
have been made in the past to involve the private sector,
particularly in wagon procurement & leasing, freight
trains & container operations, terminals & warehousing
facilities, catering services, and other rail infrastructure
through schemes framed by the Ministry of Railways.
However, high cost and low returns, policy uncertainty, a
lack of a regulator to create a level-playing field, few
incentives for investors, and procedural & operational
issues have deterred private sector participation.
Private sector on the line
During FY06, IR decided to allow private firms to obtain
licenses for running container trains on its network.
Initially, 14 operators signed an agreement with IR to run
container trains. However it came down to two next year
as CONCOR, a subsidiary, imposed restrictions on 13
container train operators to do business with its existing
customers as a precondition for accessing its terminals.
Further, huge cost and special treatment to CONCOR
has brought down investor interest even further. The
sharp rise in haulage charges by IR has been a big
negative for these private container train operators.
SPV-based model for port connectivity is successful
IR achieves some success by adopting the SPV-based
model for port connectivity. It has created autonomy
through the SPV route, which involves both public and
private investments. Currently, four port connectivity
projects are operational and three more are in progress.
Attracting FDI
On August 27, 2014, FDI regulations were changed to
permit 100% FDI in the following activities of the railway:
Construction, operations and maintenance of the
following:
Suburban projects through PPP
High speed train projects & dedicated freight lines
Rolling stocks, including train sets, and locomotives/
coaches manufacturing and maintenance facilities
Railways electrification & signaling systems
Freight & passenger terminals
Infrastructure in industrial parking pertaining to
railway line/ sidings, including electrified railway
lines and connectivity to main railway line
Takeaways for IR
Financing should not be a problem
Private investment will take time to come due to
absence of a regulator
Freight rates will continue to increase as cross
subsidization for passenger fares remains
Key focus areas would be increasing the track
network, improving safety systems, expanding the
signaling network, removing level crossings and
redeveloping a few stations.
Rolling stock upgradation would take place, but we
do not expect any major uptick
Exhibit 62: Port-based projects through SPVs
(INR mn) Pipavav Railway
Kutch
Railway Bharuch Dahej
Railway Krishnapatnam
Railway
Route length (km) 271 301 67 113
Date of commissioning Apr-03 Phase I - Mar'06 &
Phase II - Nov'06 Mar'12 July'09
Project cost 4,060 5,000 3,850 12,030 (Including
Phase II and III)
Total equity contribution of promoters 1,960 2,000 1,550 2,700
Total debt 2,100 3,000 2,300 9,330
Investment by MoR or its PSU 980 1,000 550 810
% of cost invested by MoR/its PSUs (%) 24.1 20.0 14.3 6.7
Annual traffic FY14 (mn tonnes) 8.7 26.9 6.6 15.4
Expected annual traffic FY15 (mn tonnes) 9.83 (upto Feb'15) 29.19 11 16.4 (upto Dec'14)
SPV share in earnings FY15 2,662.5 (upto Feb'15) 5,840 1,390 450 (upto Dec'14)
IR's share in earnings FY15 12,610 44,710 14,220 14,430 (upto Dec'14)
Source: Bibek Debroy Committee report
Railways
32 Elara Securities (India) Private Limited
China’s Railway Dream
According to International Union of Railways, India has
the fourth-largest railway network in the World. The US
has 224,792km, China has 120,000km, Russia has
128,000km and India has 64,460km. The maximum
gross load carried on trains in IR is 5,400 tonnes vs
~20,000 tonnes in China. In China, railways carry
~51% of domestic freight whereas in India, railways
carry ~30%.
We found that except for the US, railways are
controlled by the government in all major countries.
China: the success story
China’s rail network has witnessed a steady rise over
the past decade after a series of restructuring exercises
undertaken by the government to improve
productivity. In 2014, railways in China reported 2.4bn
passenger trips and carried 3.8bn tonnes of freight. The
railway network has expanded with the government
setting aside a budget of USD 130bn for railway
investment in 2014 alone. It has a long-term plan to
expand its network to 270,000km by 2050.
Exhibit 63: A consistently huge investment
Source: China Railway Corporation
Exhibit 64: China’s rail network km grows at a
CAGR of 4% in the past 15 years
Source: Industry
Source: Wikimedia
705
843
591 634
666
809
400
500
600
700
800
900
2009 2010 2011 2012 2013 2014
(RM
B in
bn
)
69
112
0
20
40
60
80
100
120
20
00
20
05
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
('0
00
s km
)
Railways
Infr
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33 Elara Securities (India) Private Limited
Result of several years of hard work
The Chinese Academy of Railway Sciences (CARS) is a
comprehensive research institute with multi-discipline
and multi-specialty in China Railway industry, set up in
1950. After 60 years, CARS possesses the technological
innovative ability and core competitiveness in railway
transportation. It has developed high and new
technologies of rail transport with the integration of
scientific research, development, production and
consultation. It has undertaken commissioning tasks for
several high-speed lines. For example, Beijing-Tianjin,
Qingdao-Ji’nan, Wuhan-Guangzhou and Shanghai-
Nanjing.
Investment in skills and know-how bearing fruit
Our analysis shows China’s railway has achieved its
goals in quick time, following years of investment in
building skills and know-how (for example, in case of
high-speed passenger lines, specialized units were set
up years in advance to study and adapt technologies
employed internationally, such as track systems, rolling
stocks design, and signaling & communications). The
technologies selected were absorbed: in some cases
by technology transfer agreements with foreign
manufacturers, and in other cases by adapting them to
China’s needs. Several high speed projects may not be
commercially viable but have changed the landscape
of rail network in China, which indirectly boosts the
economy.
Exhibit 65: Numero Uno in high speed train network within a short span of time
Route (km) 2008 2009 2010 2011 2012 2013 2014
Total Railway length 79,687 85,500 90,600 93,000 98,382 103,968 112,395
Newly added length 1,721 5,813 5,100 2,400 5,382 5,586 8,427
High speed railway (HSR) 4,042 6,123 8,546 9,967 12,690 14,362 19,853
Newly added high speed railway 3,522 2,081 2,423 1,421 2,723 1,672 5,491
HSR as a % of total network 5.1 7.2 9.4 10.7 12.9 13.8 17.7
Source: National Bureau of Statistics of China
Faster completion of project
China’s railway entered a new phase of development
in 2004. A project that might take about 5-6 years from
government approval of project concept to system
commissioning in China would take 7-15 years other
countries. For example, the 1,068-km-long Wuhan-
Guangzhou high speed railway started construction in
2005 and was commissioned in December 2009.
Three reasons behind speedier delivery:
Proper planning and design
In China, authorities implement project in a timely
manner as there are minimal changes during
construction. This is done due to the detailed planning
and schedule for each project, freezing of the budget
and receiving all regulatory approvals at the time of the
start of the project. Designs and technical specifications
are standardized, emphasis on physical & financial
capacity on contractors and tight contract award
process are some factors that assist in faster
procurement.
Project management with accountability
There is a project management team which has been
allocated funds and has the authority to implement the
project.
The project team remains together until it is
completed; it is held fully accountable. This continuity
together with significant financial incentives built into
team earnings for timely delivery of the project acts as
a strong motivator of team performance.
Ongoing reforms, policymaking and execution
In March 2013, China decided to restructure its railway
sector by dissolving the Ministry of Railways (MoR) and
separating railway policy & regulation from
commercial operations. As a result, MoR’s railway
planning and policy-making functions have been
assigned to the Ministry of Transport (MoT) while its
administrative functions such as establishing &
monitoring technical standards, safety standards and
service quality have been assigned to a new
organization, the State Railways Administration (SRA).
The responsibility for the enterprise (commercial
operations of railways) has been assigned to the newly
formed China Railway Corporation (CRC). The CRC is
to operate the railway on commercial lines. It is
understood that in line with this policy, CRC would be
compensated financially if it is required to provide
services that are financially not viable.
Railways
34 Elara Securities (India) Private Limited
Appendix II
Railway Budget of FY16
Aggressive plan; implementation is key
IR, one of the most important enablers of faster GDP
development, has been in shambles for a long time. Lots
of initiatives have been considered, but the real issue has
been implementation, due to a lack of finance and
political will. In the 2015 railway budget, Minister Suresh
Prabhu tried to address issues hampering the success of
Indian Railways and announced aggressive plans, which
will help it regain its lost glory and accelerate GDP
growth.
The following are the key takeaways:
Focus on governance & transparency
Minister Prabhu has focused on governance and
reiterated transparency in recruitment as well as
procurement. He has tried to decentralize decision-
making and making authorities accountable to fast track
implementation. The Minister has appealed to MPs, the
States and local bodies to help with land acquisition and
project implementation.
Plan outlay hiked 52% YoY in FY16: seems aggressive
The Minister chalked out an aggressive plan outlay for
FY16, which was increased by 52% YoY to INR 1,000bn.
He plans to reduce dependence on budgetary support
(down 13% YoY) and try to tap into new sources of
funds, including JV with PSUs, partnering with
multilateral & bi-lateral organizations, and the PPP route.
Indian Railways will increase market borrowings (up 47%
YoY) and try to raise internal funds for expansion plans.
We believe new sources of revenue may take time, but
will provide sustainability long term.
Cleanliness, safety, and self sustaining – top focus
Minister Prabhu focused on increasing customer
satisfaction by raising service quality and cleanliness. The
capex plan includes provisions for safety, such as
eliminating manned & unmanned crossings and a
proper signaling system. IR will also increase track length
by 20% from 114,000km to 138,000km and grow annual
freight carrying capacity from 1.0bn tonnes to 1.5bn
tonnes within the next five years. The Minister plans to
make railways financially self-sustaining by improving
operating efficiency, and proper project selection &
execution. The total capex estimate for the next five years
is at ~INR 8.56tn.
Raise freight rates, not passenger
Freight rates, which are among the highest in the world,
have been increased further by revising class rates and
distance slabs, thereby denying any benefits of lower
diesel prices. Freight traffic constitutes ~66% of total
railway revenue. Minister Prabhu has not raised
passenger fares in the budget, thereby increasing
subsidy burden. During FY13, railways loss on passenger
fare per km was 30 paise.
Exhibit 66: Sources of funds: INR 100bn (FY16)
Source: Ministry of Railways
Exhibit 67: Application of funds (FY16)
Source: Ministry of Railways
Exhibit 68: Freight and passenger traffic earnings
Source: Ministry of Railways
Budgetary sources
41%
Market borrowing under EBR
18%
Internal resources
18%
PPP6%
Institutional investment
through Railway/PS
Us17%
New Lines 13%
Doubling19%Rolling
Stock19%
Invst. In NGU's13%
Others36%
939 1,058 1,069 1,214
365 446 430
502
0
500
1,000
1,500
2,000
FY14 FY15BE FY15RE FY16BE
(IN
R b
n)
Freight Earnings Passenger traffic
Railways
Infr
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ructu
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35 Elara Securities (India) Private Limited
Exhibit 69: Railways revenue estimates
(INR bn) FY14 FY15BE FY15RE FY16BE YoY (%) Remarks
Freight traffic 939 1,058 1,069 1,214 13.6 Volume growth of ~8% and a price increase of 6% taking into account proposed revision of class rates, rationalization of commodity classification & distance slabs
Passenger earnings 365 446 430 502 16.7 No increase in fares; assume a 3% increase in originating passengers
Other coaching 37 42 40 46 14.5
Sundries 57 55 52 73 39.6
Gross traffic receipts 1,398 1,601 1,592 1,835 15.3
Operating ratio (%) 93.6 92.5 91.8 88.5
Source: Ministry of Railways
Exhibit 70: Source of funds
(INR bn) FY15BE FY15RE FY16BE YoY (%)
Capital 275.8 278.5 388.4 39.4
Capital fund 54.6 54.5 62.9 15.4
Depn reserve fund 70.3 73.8 75.0 1.6
Development fund 28.6 29.0 40.0 38.0
Safety fund 22.0 22.0 16.5 (25.2)
Bond 193.0 190.7 176.6 (7.4)
Institutional finance NA NA 171.4
Deposit (PPP) NA NA 57.8
Total 451.3 457.8 988.5 115.9
Metropolitan transport projects 10.2 9.5 11.6 22.9
Grand Total 654 658 1,000 52.0
Source: Ministry of Railways
Exhibit 71: Application of funds
(INR bn) FY14 FY15BE FY15RE FY16BE YoY (%)
Transfer to national investment fund 176.3 301.0 301.0 400.0 32.9
New lines (construction) 58.1 85.7 89.8 128.3 42.8
Gauge conversion 31.0 25.4 34.3 55.5 62.0
Doubling 29.8 36.7 40.5 184.2 355.2
Rolling Stock 175.0 153.2 173.8 193.5 11.3
of which
Locomotives 90.7 84.2 84.7 84.7 0.0
Carriages 52.5 48.0 49.7 43.8 (11.8)
Wagons 31.4 7.8 24.0 45.0 87.4
Leased assets - Payment of capital component 49.7 54.6 54.5 62.9 15.4
Track renewals 49.9 48.0 50.5 60.4 19.6
Workshops including production units 18.2 27.8 27.2 26.2 (3.6)
Invst. In non gov undertakings including JVs and SPVs 40.9 100.1 78.1 130.9 67.6
Others 87.4 122.9 109.3 158.2 44.7
Total 539.9 654.5 658.0 1000.1 52.0
Source: Ministry of Railways
Railways
36 Elara Securities (India) Private Limited
Exhibit 72: Five-year capex plan (FY16-20)
(INR bn)
Network decongestion (including DFC, electrification, doubling including electrification and traffic facilities) 1,993
Network expansion (including electrification) 1,930
National projects (Northeast & Kashmir connectivity projects) 390
Safety (track renewal, bridge works, ROB, RUB and signaling & telecom) 1,270
Information technology and research 50
Rolling stocks (locomotives, coaches, wagons production & maintenance) 1,020
Passenger amenities 125
High speed rail & elevated corridor 650
Station redevelopment and logistic parks 1,000
Others 132
TOTAL 8,560
Source: Ministry of Railways
Exhibit 73: Major development activities
FY14 FY15 FY16
Target Achieved Target (revised/achieved) Target
Electrification (route km) 1,350 1,350 1,350 1,600
Track renewals (track km) 2,100 2,885 2,200 2,600
Construction of new lines (route km) 450 450 300 300
Gauge conversion (route km) 404 404 450 500
Rolling stock
a) Locomotives
i) Diesel 375 385 397 375
ii) Electric 300 302 250 261
b) Coaches
i) EMU/MEMO/DMUs/Metro 4,086 3,887 3,359 3,390
c) Wagons (in terms of vehicle units) 15,666 9,326 10,000 16,800
Source: Ministry of Railways
Exhibit 74: Increase in freight rates of selected commodities
Avg lead (km) Freight class Freight rate/ tonne (INR) Variation
Existing Proposed Existing Proposed (INR) Weightage (%)
Cement 551 150 140 785 806 21 2.7
Coal 535 150 145 723 769 46 6.3
Iron or steel 897 180 165 1,379 1,391 12 0.8
Grains & pulses 1,280 130 130 1,415 1,557 142 10.0
Urea 772 130 130 891 981 89 10.0
Limestone, dolomite & manganese ore 575 160 145 837 834 (3) (0.3)
Iron ore (domestic) 300 180 165 501 505 4 0.8
Scrap and pig iron 645 160 150 902 931 28 3.1
Slag 575 150 140 785 806 21 2.7
Groundnut oil 1,600 140 140 2,000 2,043 43 2.1
High speed diesel oil 723 200 180 1,291 1,278 (13) (1.0)
Bituman and coal tar 645 170 160 959 993 34 3.5
Kerosene 645 180 165 1,015 1,024 9 0.8
LPG 645 180 165 1,015 1,024 9 0.8
Source: Ministry of Railways
Railways
Infr
ast
ructu
re
37 Elara Securities (India) Private Limited
Key highlights
Infrastructure
Station redevelopment: Minister Prabhu has
proposed to revamp the station redevelopment policy
and simplify processes for faster redevelopment by
inviting open bids from interested parties. He further
suggested developing 10 satellite railway terminals in
major cities this fiscal, with the twin purposes of
decongesting the city as well as providing services to
passengers residing in the suburbs
Capacity augmentation: Fast-track sanctioned work
on 7,000km of double, third and fourth lines and
commission 1,200km in FY16 at an investment of INR
86.86bn. Additionally, he sanctioned 77 projects
covering 9,400km of doubling, tripling and
quadrupling works along with electrification at a total
cost of INR 961.8bn, which is 2,700% higher in terms of
amount sanctioned in FY14. FY15 is a Plan holiday
Dedicated freight corridor: Target awards for 750km
of civil contracts and 1,300km of system contracts in
FY16 under the DFC. Durgawati-Sasaram, a 55-km
section of the Eastern DFC, is proposed to be
completed in the current year
Bullet train: The feasibility study for the Ahmedabad-
Mumbai high speed train is in the advanced stages.
Regarding the other high speed routes on the
diamond quadrilateral, studies are being commissioned
The minister also proposed to set up joint ventures with
states for focused project development, resource
mobilization, land acquisition, project implementation
and monitoring of critical rail projects
PPP & BOT: Proposal to launch projects worth INR
25bn through the BOT and annuity routes
Capital Goods
Introduction of train sets which are similar to
bullet trains in design and can run on existing
tracks without an engine to haul them
Traffic facility works like construction of longer
loops, creating smaller block sections, building
bypass lines, making crossing stations,
augmenting terminals and removing permanent
speed restrictions
Railway electrification work sanctioned for a route
of 6,608km against 462km in FY14
Indigenous manufacturing of high-horse power
and green technology locomotives, commodity-
specific wagons, such as auto carriers, signaling
systems and train protection systems and track
laying & maintenance machines
Install a train protection warning system and train
collision avoidance system on select routes
Conversion of 100 DEMUs to dual fuel – CNG and
diesel
Increase in the number of planned wagons by
68% to 16,800 from 10,000 in FY16. The budget
estimate for this work is INR 45bn
Increase track length by 20% to 138,000km from
114,000km
Build 970 ROBs and RUBs and other safety-related
works to eliminate 3,438 level crossings
Source: Indian Railways
Railways
38 Elara Securities (India) Private Limited
Dedicated freight corridors (DFC)
IR, through its SPV, DFFCIL has been working on DFC
project to construct high capacity, high speed, and
dedicated freight corridors along the golden
quadrilateral linking the four metropolitan cities of Delhi,
Mumbai, Chennai & Kolkata and its diagonals (Delhi-
Chennai and Mumbai-Howrah). This is ~16% of IR’s route
km and carries 52% of passengers & 58% of freight. The
DFC will not only speed up freight movement but also
decongest the existing tracks on IR network.
Two main routes in first phase
In the first phase, it is working to construct DFCs on the
western and eastern routes, involving construction of
~3,300km, to carry primarily coal & steel on the eastern
corridor and containers on the western corridor. It
targets to complete both DFCs by December 2019.
Eastern DFC (1,840km)
It connects Dankuni (West Bengal) to
Ludhiana (Punjab) with the Dadri-
Khurja link. It will pass through
Jharkhand, Bihar, Uttar Pradesh and
Haryana and terminate at Ludhiana in
Punjab. It will carry primarily coal and
steel from East India to plants in North
India
Western DFC (1,502km)
It connects Jawaharlal Nehru Port
(JNPT) at Mumbai to Dadri, near Delhi
via Vadodara-Ahmedabad-Palanpur-
Phulera-Rewari. It is proposed to join
eastern corridor at Dadri. The traffic
on this route would primarily
comprise containers from JNPT &
Mumbai Port in Maharashtra and
ports of Pipavav, Mundra & Kandla in
Gujarat destined for inland container
depots (ICDs) in northern India,
especially at Tughlakabad, Dadri and
Dandharikalan. Besides containers,
other commodities moving on the
western DFC are POL, fertilizer, food
grains, salt, imported coal, iron & steel
and cement.
Source: DFFCIL
Punjab
Uttarakhand
Uttar Pradesh
Haryana
Rajasthan
Madhya
PradeshChhatisgarh
Jharkhand
Bihar
Saharanpur
MeerutzHapurKhurjaAligarhHathras
BhaupurKanpurPrempur
Allahabad
Tundla
MughalsaraiNew Ganjkhwaja
New Karwandiya
Sonnagar
West BengalDankuni
Ludhiana
Ambala
Etawah
Uttar Pradesh
Dadri
Madhya Pradesh
Maharashtra
Gujarat
Rajasthan
Rewari
Rewari
Nim Ka Thana
Ringas
PhuleraAjmer
SendraMarwar
Sirohi
Abu Rd
Palanpur
Mahesana
Sanad
Makarpura
Mahesana
Ahmadabad
Vadodara
BharuchSanjali
Surat
Valsad
SanjanDahanu
Vaitarna
PanvelJNPT
Vasai
Marwar
Phulera
Palanpur
Railways
Infr
ast
ructu
re
39 Elara Securities (India) Private Limited
Speedier movement of traffic
Although the maximum speed under the existing rail
network is 75kmph, it achieves an average speed of
25kmph, due to congestion on busy routes. The
maximum speed on DFC routes can be 100kmph. The
distance between the two stations will be ~40km vs 7-
10km on the existing IR network, which will help in the
speedier movement of trains. The average speed of
freight trains can easily go up from 25kmph to 70kmph,
which will help in reducing transit time significantly.
Huge opportunity with technology upgrade
The axle loads of DFC routes will be minimum 25.0
tonnes, which can go up to 32.5 tonnes progressively vs
a maximum of 25.0 tonnes in IR’s existing system. The
length of the train can be upto 1,500m vs 700m
currently. Wagons with much better pay load to tare
ratio would also get introduced. These changes will
increase the train loading capacity from ~5,000 tonnes
to ~13,000 tonnes. Newer technology in signaling, train
communications and track maintenance & operations
would get introduced. All these will change the freight
scenario of the rail network.
DFCs to change landscape of freight traffic
Both DFCs will add ~3,300km of new railway network,
enhancing total transport capacity. It will help in faster
movement and customers can rely on timely delivery.
Although haulage charges are yet to be decided, we
believe unit cost of transportation taking into account
the time will not be higher than the current rate.
Indirectly, it releases capacity on IR’s existing network,
which can be used to augment and speed up passenger
trains. It also will help in port connectivity and decongest
major highways. However, the success of DFC depends
on how quickly industrial corridors come up.
Traffic to jump 9x from the current levels
The existing traffic on rail routes parallel to EDFC and
WDFC is ~55mn tonnes per year and ~50mn tonnes per
year, respectively. With industrial growth kicking in and
shifting of traffic from road to rail, both DFCs can carry
more than 500mn tonnes per year at peak capacity.
Exhibit 75: Proposed timelines
Section
Route (km) Timelines
EDFC
1,840
Khurja-Bhaupur EDFC-1 342 March'18
Bhaupur-Mugalsarai EDFC-2 391 Dec'18
Khurja-Ludhiana EDFC-3 400 Dec'19
Khurja-Dadri EDFC-3 50 Dec'19
Mugalsarai-Sonnagar Indian Railway funded 123 Dec'17
Sonnagar-Dankuni PPP 534
Dankuni-Gomoh PPP: Phase-1 282 Based on finalisation of PPP Contract
Gomoh-Sonnagar PPP: Phase-2 261
WDFC
1,502
Rewari-Iqbalgarh Phase-1 625 Dec'18
Iqbalgarh-Vadodara Phase-1 325 Dec'19
Vadodara-JNPT Phase-2 425 Dec'19
Rewari-Dadri Phase-2 127 Dec'19
Source: DFFCIL
Exhibit 76: DFC vs IR
Indian Railways DFC routes
EDFC WDFC
Height 4.265mt 5.1mt 7.1mt
Container stack Single Single Double
Train length 700mt 700/1,500mt
Train load 5,000 tonnes 13,000 tonnes
Axle load 22.9/25t 25t; bridges and formation designed for 32.5t
Maximum speed 75kmph 100kmph
Station spacing 7-10km 40km approx
Signaling Absolute/automatic with 1km spacing Automatic with 2km spacing
Source: DFFCIL
Railways
40 Elara Securities (India) Private Limited
Exhibit 77: Projected traffic (mn tonnes)
Corridor FY22E FY27E FY32E FY37E
EDFC 153 182 214 251
WDFC 161 203 241 284
Source: DFFCIL
Capex and source of funding
The project completion cost of two DFCs is estimated at
~INR 815bn, excluding the Dankuni–Sonnagar section
(534km) of eastern DFC, which is proposed to be
implemented through a PPP. A major part of the project
is being financed through multilateral & bilateral debt.
About 45% of EDFC is financed through loans by the
World Bank (INR 136bn) and ~75% of WDFC is financed
through loan by JICA (INR 387bn). The Dankuni–
Sonnagar section of eastern DFC (INR 100bn) is to be
implemented via the PPP route. The balance would be
met through budgetary support. Both DFCs are targeted
for completion by December 2019.
Exhibit 78: Funding details
(INR bn) EDFC WDFC Total
Equity from MOR 130 80 210
Loan from JICA
387 387
Loan from World Bank 136
136
Total (without land) 267 467 734
Land (MoR) 37 44 81
Total 304 511 815
Source: DFFCIL
Of the total fund requirement of ~INR 815bn, ~INR53bn
for the interest during construction of the western DFC
needs to be paid off after the moratorium period of 10
years. Hence, ~INR 761bn will be needed during the
construction period.
Status on awarding projects
In two DFCS, DFFCIL has awarded projects worth ~INR
170bn since November 2014, a large jump from INR
104bn order awarded since inception. The status of
project implementation as on August 2015 is: 1)
compensation award of 85% of land has been
completed, 2) 65% of civil contract and 48% of system
contract have been awarded, and 3) the physical
progress of civil work is 20%. Management informs the
entire project will be awarded by 1HCY16 (to award 85%
of contracts by March 2016 and the balance by June
2016 on EDFC and the entire contract by March 2016 on
WDFC). The draft concession agreement has been
finalized for the 534km Sonnagar-Dankuni section in
EDFC to be developed along the PPP mode.
Status on land acquisition
Land for construction under DFCCIL is being acquired
under the Railway Amendment Act (RAA) 2008. Out of
total 10,548 hectares land to be acquired for the project,
85% has been acquired except in the Sonnagar-Dankuni
Section of EDFC. Due to resistance from land losers, land
acquisition has been held up in 144 patches covering a
length of 245km in EDFC and in 296 patches covering a
length of 113km in WDFC.
Proposed DFCs
Apart from EDFC & WDFC, preliminary engineering cum
traffic surveys (PETS) have been taken up for the
following DFC:
East-West corridor (Kolkata-Mumbai): It will traverse
through West Bengal, Jharkhand, Odisha, Chhattisgarh
and Maharashtra.
North-South corridor (Delhi-Chennai): It will traverse
through Haryana, Uttar Pradesh, Rajasthan, Madhya
Pradesh, Maharashtra, Andhra Pradesh and Tamil Nadu.
East Coast corridor (Kharagpur-Vijaywada): It will
traverse through West Bengal, Odisha and Andhra
Pradesh.
Southern corridor (Chennai-Goa): It will traverse through
Tamil Nadu, Andhra Pradesh, Karnataka and Goa.
Exhibit 79: Future DFCs
Corridor (km) Remarks
East – West Corridor (Kolkata–Mumbai)
2,000 Draft PETS submitted in September 2014
North-South Corridor (Delhi-Chennai)
2,173 Draft PETS submitted in June 2014. Sent to Railway Board
East Coast Corridor (Kharagpur-Vijayawada)
1,100 Traffic study & field data collection completed. Draft PETS in 2014-15
Southern Corridor (Chennai-Goa)
890 Traffic study completed. Field data upto Hubli collected. Draft PETS in CY15
Source: DFFCIL
Glo
ba
l M
ark
ets
Re
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rch
Elara Securities (India) Private Limited
Ashish Kejriwal • ashish.kejriwal@elaracapital.com • +91 22 6164 8505
Parin Vora • parin.vora@elaracapital.com • +91 22 6164 8519
At the cusp of revival
Best player to benefit from Indian Railways drive
Texmaco Rail (TEXRAIL IN), the largest wagon manufacturer in India, is
best suited to take advantage of any growth opportunity coming from
Indian Railways (IR). The recent acquisition of Kalindee Rail, an EPC
contractor, helps it meet demand from other segments, such as
signaling, laying of tracks and bridges.
Demand picks up for wagons from non-IR; IR to take off from FY17
IR constitutes ~10% of the current order book of wagons of ~INR 6bn
as the company has yet to receive any orders from IR in FY16, due to
the fall in wagon prices. Wagon prices dipped following predatory
pricing by new entrants. However, orders from defense & the private
sector (order book of ~INR 5.4bn) have picked up and are expected to
support FY16 earnings. We believe the company will be able to win a
sizeable order (1500-2,000 wagons) from IR in the upcoming tender,
which is expected to be floated in H2FY16. This along with continued
traction in orders from the private sector, including defense, would aid
in revenue growth from FY17.
Earnings support from exports and diversification initiatives
Over the past few years, TEXRAIL developed its presence in steel
foundries, the hydromechanical segment, bridges and structurals due
to its focus on exports, which are expected to offset any slow orders
from IR. Around 52% of the current order book of INR 12.5bn is non-
wagon order comprising steel foundries, structurals & bridges.
Changing into total rail solutions provider with Kalindee Rail deal
Amalgamation of Kalindee Rail, an EPC player with focus on rail infra,
helps TEXRAIL to cater to a wide gamut of IR demand. The Ministry of
Railways focus on modernization of IR, which involves better signaling,
and increasing tracks & bridges, helps it in consistent order flows. It
may benefit in form of getting EPC contracts in dedicated freight
corridors (DFC) too.
Valuation We Initiate coverage of Texmaco Rail & Engineering with an
Accumulate rating and a TP of INR 141 based on a SOTP method
(valuing the merged entity at 20.0x FY18E P/E). The company is set
to post an earnings CAGR of 111% during FY15-18E on the back of
higher volume amid improved demand for wagons. We believe
growth will start coming in from FY17, with higher ordering from
IR. Meanwhile, growth from its hydromechanical segment and steel
casting, due to its focus on exports, help to offset any slow orders
from IR. At a CMP of INR 129, it is trading at 17.7x FY18E P/E.
Price performance
Source: Bloomberg
Key Financials YE
March
Revenue
(INR mn)
YoY
(%)
EBITDA
(INR mn)
EBITDA
margin (%)
Adj PAT
(INR mn)
YoY
(%)
Fully DEPS
(INR)
RoE
(%)
RoCE
(%)
P/E
(x)
EV/EBITDA
(x)
FY15 4,386 (1.7) 195 11.1 137 (29.9) 0.7 1.8 2.8 227.9 147.0
FY16E 5,227 19.2 299 53.0 225 63.8 1.1 2.5 2.9 120.5 77.9
FY17E 8,824 68.8 930 210.9 705 213.5 3.4 7.6 7.5 38.4 24.8
FY18E 11,632 31.8 1,649 77.4 1,295 83.6 6.2 12.8 12.6 20.9 13.6
Note: pricing as on 26 October 2015; Source: Company, Elara Securities Estimate
India | Infrastructure 2 November 2015
Initiating Coverage
Texmaco Rail & Engineering
Rating: Accumulate Target Price: INR 141
Upside: 9%
CMP: INR 129 (as on 26 October 2015)
Key data
Bloomberg /Reuters Code TXMRE IN/TEXA.BO
Current /Dil Shares O/S (mn) 210/210
Mkt Cap (INR bn/USD mn) 27/416
Daily Volume (3M NSE Avg) 186,355
Face Value (INR) 1
1 USD = INR 64.9
Note: *as on 26 October 2015; Source: Bloomberg
Price & Volume
Source: Bloomberg
Shareholding (%) Q2FY15 Q3FY15 Q4FY15 Q1FY16
Promoter 63.3 54.8 54.8 54.8
Institutional Investor 21.6 30.7 34.3 34.3
Other Investor 6.7 8.4 6.2 3.8
General Public 8.4 6.1 4.7 7.0
Source: BSE
Price performance (%) 3M 6M 12M
Sensex (2.7) (0.3) 1.9
Texmaco Rail 5.6 (3.4) 39.7
Titagarh Wagons (1.3) 6.9 145.6
Source: Bloomberg
60
110
160
210
Oct-14 Jan-15 Apr-15 Jul-15 Oct-15
Re
ba
sed
to
10
0
Texmaco Rail Sensex
0.0
5.0
10.0
15.0
20.0
25.0
50
80
110
140
170
200
Oct-14 Jan-15 Apr-15 Jul-15 Oct-15
Vol. in mn (RHS) Texmaco Rail (LHS)
Texmaco Rail & Engineering
42 Elara Securities (India) Private Limited
Valuation trigger
Source: Bloomberg, Company, Elara Securities Estimate
Valuation
(INR mn) FY18E
Net profit 1,606
Texmaco 1,295
Kalindee 312
No. of shares (mn) 227
EPS (INR) 7.1
Target multiple (x) 20.0
TP (INR) 141
Source: Elara Securities Estimate
Valuation driver – Margin to witness a V-shaped recovery
Source: Company, Elara Securities Estimate
Investment summary
Wagon capacity utilization to improve;
volume CAGR of ~30% over FY15-18E
Diversification constitutes ~50% of
current order book
Earnings CAGR of 111% over FY15-18E
Total rail solutions provider post its
acquisition of Kalindee Rail
Valuation trigger
1. Winning orders from IR of ~5,500
wagons during FY15-18E
2. Improved demand from the private
sector and defense, leading to ~4,000
wagons during FY15-18E
Key risks
Uncertainty in timely placement of
wagon orders by IR
Competition may lead to lower margin
Delay in demand from the private
sector may hit growth
Delay in execution may lead to longer
working capital cycle
Our assumptions
Wagons volume CAGR of 31% during
FY15-18E to 4,600 wagons in FY18E
Margin improvement to 14.0% in
FY18E from 4.5% in FY15
0
20
40
60
80
100
120
140
160
180
Oct-
14
No
v-1
4
De
c-1
4
Jan
-15
Fe
b-1
5
Ma
r-1
5
Ap
r-1
5
Ma
y-1
5
Jun
-15
Jul-1
5
Au
g-1
5
Sep
-15
Oct-
15
No
v-1
5
De
c-1
5
Jan
-16
Fe
b-1
6
Ma
r-1
6
Ap
r-1
6
Ma
y-1
6
Jun
-16
Jul-1
6
Au
g-1
6
Sep
-16
Oct-
16
Improved demand from the private sector and defense,
leading to ~4,000 wagons during FY15-18E
12
Winning orders from IR of ~5,500 wagons during FY15-18E
3.9
14.2
0
2
4
6
8
10
12
14
16
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
FY13 FY14 FY15 FY16E FY17E FY18E
(%)
(IN
R m
n)
EBITDA EBITDA margin (%)
Texmaco Rail & Engineering
Infr
ast
ructu
re
43 Elara Securities (India) Private Limited
Financials (YE March) Income Statement (INR mn) FY15 FY16E FY17E FY18E
Net Revenues 4,386 5,227 8,824 11,632
EBITDA 195 299 930 1,649
Add:- Non operating Income 237 293 293 296
OPBIDTA 432 592 1,222 1,945
Less :- Depreciation & Amortization 149 168 178 188
EBIT 283 424 1,044 1,757
Less:- Interest Expenses 121 103 79 31
PBT 162 321 966 1,726
Less :- Taxes 25 96 261 432
Add/(Less): Associates/(Minorities) - - - -
Adjusted PAT 137 225 705 1,295
Add/Less: - Extra-ordinaries - - - -
Reported PAT 137 225 705 1,295
Balance Sheet (INR mn) FY15 FY16E FY17E FY18E
Share Capital 210 210 210 210
Reserves 8,724 8,861 9,389 10,431
Borrowings 1,068 1,068 568 68
Deferred Tax (Net) 76 76 76 76
Minority Interest 0 0 0 0
Other Liabilities 81 81 81 81
Total Liabilities 10,159 10,296 10,324 10,866
Gross Block 3,459 3,659 3,859 4,109
Less:- Accumulated Depreciation 1,396 1,564 1,741 1,930
Net Block 2,064 2,095 2,118 2,179
Add:- Capital work in progress 48 48 48 48
Investments 1,440 1,440 1,440 1,440
Cash & cash equivalents 5,056 4,710 5,041 4,829
Net Working Capital 1,407 1,858 1,533 2,225
Other Assets 145 145 145 145
Total Assets 10,159 10,296 10,324 10,866
Cash Flow Statement (INR mn) FY15 FY16E FY17E FY18E
Cash profit adjusted for non cash items 263 496 961 1,514
Add/Less : Working Capital Changes 146 (451) 325 (692)
Operating Cash Flow 408 45 1,286 821
Less:- Capex (181) (200) (200) (250)
Free Cash Flow to Firm (2,596) (155) 1,086 571
Financing Cash Flow 2,820 (88) (677) (753)
Investing Cash Flow (362) (303) (279) (281)
Net change in Cash 2,867 (346) 331 (212)
Ratio Analysis FY15 FY16E FY17E FY18E
Income Statement Ratios (%) Revenue Growth (1.7) 19.2 68.8 31.8
EBITDA Growth 11.1 53.0 210.9 77.4
PAT Growth (19.1) 63.8 213.5 83.6
EBITDA Margin 4.5 5.7 10.5 14.2
Net Margin 3.0 4.1 7.7 10.9
Return & Liquidity Ratios Int/PBIT 42.7 24.2 7.5 1.7
Net Debt/Equity (x) (0.4) (0.4) (0.5) (0.4)
ROE (%) 1.8 2.5 7.6 12.8
ROCE (%) 2.8 2.9 7.5 12.6
Per Share data & Valuation Ratios Diluted EPS (INR/Share) 0.7 1.1 3.4 6.2
EPS Growth (%) (29.9) 63.8 213.5 83.6
Book Value 42.5 43.2 45.7 50.7
DPS (INR/Share) 0.3 0.4 0.7 1.0
P/E Ratio (x) 227.9 120.5 38.4 20.9
EV/EBITDA (x) 147.0 77.9 24.8 13.6
Price/Book (x) 3.5 3.0 2.8 2.5
Dividend Yield (%) 0.2 0.3 0.5 0.8
Note: pricing as on 26 October 2015; Source: Company, Elara Securities Estimate
Revenue & margin growth trend
Source: Company, Elara Securities Research
Adjusted profit growth trend
Source: Company, Elara Securities Research
Return ratios
Source: Company, Elara Securities Research
4.5 5.7
10.5
14.2
0
5
10
15
0
5,000
10,000
15,000
FY15 FY16E FY17E FY18E
(%)
(IN
R m
n)
Net Revenues (LHS) EBITDA Margin (RHS)
(19.1)
63.8
213.5
83.6
(50)
0
50
100
150
200
250
(300)
0
300
600
900
1,200
1,500
FY15 FY16E FY17E FY18E
(%)
(IN
R m
n)
Adjusted PAT (LHS) PAT Growth (RHS)
1.8 2.5
7.6
12.8
2.8 2.9
7.5
12.6
0
2
4
6
8
10
12
14
FY15 FY16E FY17E FY18E
ROE (%) ROCE (%)
Return ratios to improve on volume growth
EPS CAGR of 111% over FY15-18E
Texmaco Rail & Engineering
44 Elara Securities (India) Private Limited
Wagons demand set to improve
Railways focus would drive wagon demand from IR…
The Central government’s thrust with the highest-ever
investment proposed in the Indian Railways bodes well
for the sector. The government has announced a five-
year capex plan of INR 8.56tn (out of which INR 1.02tn is
in rolling stocks) during FY16-20.
...however, it is at a slow pace; a pickup is expected
During FY16, IR has released a tender of ~8,500 wagons.
However, private sector wagon manufacturers have not
accepted orders from IR, due to low prices quoted by
one of the new entrants, Jindal Rail, for a price which
would lead to losses at the operating level. We expect IR
to open tender of ~14k wagons for FY17E in H2FY16,
which may provide growth to the industry. We expect
14-16k wagons demand per year from IR for the next
few years.
Demand from defense and private sector improves
The GoI’s focus on the defense sector has opened new
avenues of wagon demand. Enquiries from the private
sector too have started after being subdued over the
past few years. We believe with industrial demand start
picking up from FY17, demand from this segment will
further inflate overall demand for wagons. TEXRAIL’s
wagons order book of ~INR 6bn comprises ~90% of
non-IR wagons demand.
DFC commissioning for sustained demand of wagons
The eastern and western dedicated freight corridors
(DFC), encompassing ~3,300km, are expected to be
commissioned by December 2019. With expectations of
economic growth and faster & timely delivery of goods,
the two DFCs may help in taking market share of traffic
from roads. Hence, even if demand from IR were to
decline after the DFCs (IR has to provide ~70% of traffic
to DFCs) start their operations, additional demand would
be able to offset the dip and provide sustainable growth
of wagons demand in India. However, DFCs would need
wagons of improved quality (higher axle load). TEXRAIL
is in the process of developing high axle load wagons
upto 25 tonnes for the upcoming DFC. The current
maximum axle load on the IR track is 22.9 tonnes and
the DFC proposes to progressively move up to 32.5
tonnes. TEXRAIL is all geared to tap this demand.
Volume growth to kick in
The company has total wagon manufacturing capacity
of 10,000 wagons pa. It operated at 8% capacity
utilization in FY14 and 21% in FY15.
Wagons volume CAGR of 31% during FY15-18E…
With improvement in demand from the defense and
private sectors and expected improvement in orders
from IR, we expect utilization to improve to 34% in FY17E
(3,400 wagons) and by 46% in FY18E (4,600 wagons).
This would lead to a volume CAGR of 31% during
FY15-18E.
Exhibit 1: Wagons production CAGR of 31% over
FY15-18E
Source: Company, Elara Securities Estimate
…but margin improvement to take time
With more than 25.000 wagons capacity in the industry,
there is a stiff competition, and, thus pricing is expected
to be low. In the recent tendering of IR, Jindal Rail
quoted a low price, which was not supported by the
industry. Thus, we believe it will be difficult to garner
higher margin from an IR order as every producer is
underutilizing capacity. Margin will improve only from
higher volume, absorbing fixed cost, in our view.
TEXRAIL is expected to post a ~14% margin from its
defense and private sector orders. This along with a
marginal improvement in IR order margin would help it
post an overall ~10% margin in FY17E and a higher
~14% margin in FY18E from the lows of 5% in FY15.
However, it would still be below 17-18% margin enjoyed
by the company during FY11-12.
2,674
161
1,862
550
2,000
3,000
1,202
671
200
974
1,400
1,600
0
1,000
2,000
3,000
4,000
5,000
FY13 FY14 FY15 FY16E FY17E FY18E
(un
its)
IR Non-IR
Best player in the game
Wagon capacity utilization to improve; volume CAGR of 31% during FY15-18E
Diversification plays a bigger role
Earnings CAGR of 111% during FY15-18E
Total rail solutions provider with Kalindee Rail acquisition
Texmaco Rail & Engineering
Texmaco Rail & Engineering
Infr
ast
ructu
re
45 Elara Securities (India) Private Limited
Exhibit 2: EBITDA margin to witness a V-shaped
recovery
Source: Company, Elara Securities Estimate
Benefits of diversification to kick in
During order slowdown from IR in FY14, TEXRAIL
earnings were cushioned by steel foundry, bridges and
structurals. As on Q1FY16-end, non-IR order comprised
~52% of order book (~INR 6.5bn). It also focused on
export orders. For example, it recently constructed and
exported railway girders for the Bhairab bridge in
Bangladesh. Its steel foundry business, which reported
losses in FY15, reverted in the black in Q1FY16.
Strong order book gives two-year revenue visibility
The current order book stands at INR 12.5bn, which is
2.9x FY15 revenue, providing visibility for the next two
years. Around 48% of it is from wagons while the rest
comes from the steel foundry, bridges and structurals.
Exhibit 3: Order book position
As on Q1FY16-end (INR mn) Remarks
Total 12,500
Wagons 6,000 ~10% is IR order
Non-wagons 6,500
Source: Company, Elara Securities Research
Acquisition of Kalindee Rail
Besides being the largest wagon manufacturer in India,
TEXRAIL’s acquisition of Kalindee Rail enhanced its
portfolio. The combined synergy will provide with a wide
range of offerings, from track laying, civil construction,
structural fabrication, signaling (including route relay),
telecommunications & auto fare collection as well as end
products, such as wagons, coaches and locomotive shells
& assemblies.
To benefit from DFC commissioning
While higher wagons demand may start to come from
the fag end of commissioning of both DFCs in 2019, the
company also should benefit by winning orders in the
form of laying tracks and installing signaling system
while DFCs are getting commissioned. This happened
with Kalindee’s acquisition.
Strong balance sheet; cash of INR 4bn
TEXRAIL has a strong balance sheet with net cash of INR
4bn as on FY15-end. The company raised ~INR 2.9bn in
FY15, which provides it the flexibility to acquire a
company or to infuse money to scale up business of
Kalindee Rail. The company does not have any plans of
further equity raising.
Exhibit 4: Net cash per share to increase 1.2x
Source: Company, Elara Securities Estimate
Investment risks
Uncertainty in timely placement of IR wagon orders
IR continues to form a majority of revenue for the
company. During FY15, it made up ~45% of overall
revenue. Any delay or not releasing new orders will
adversely affect TEXRAIL operations, just as it has for the
past two years and continues into FY16.
Competitive market may lead to lower margin
TEXRAIL operates in a competitive environment with
~15 peers. The industry has capacity of ~25,000 wagons
per year. Over the past few years, due to lower demand
by IR, capacity utilization for all producers was low.
Hence, every other producer may bid aggressively to win
a share in the increasing pie. Also, new entrants may
quote a low bid to become regular vendors of IR (for
example, during FY16 tendering of IR, Jindal Rail quoted
a low price of INR 1.08mn per wagon, which was not
supported by other manufacturers, as it would be a loss-
making proposition at that price). Hence, any such
events may adversely affect margin.
15.1
3.9 4.5
5.7
10.5
14.2
2
5
8
11
14
17
FY13 FY14 FY15 FY16E FY17E FY18E
(%)
10
6
19 17
21 23
0
5
10
15
20
25
FY13 FY14 FY15 FY16E FY17E FY18E
(IN
R/s
ha
re)
Texmaco Rail & Engineering
46 Elara Securities (India) Private Limited
Kalindee Rail deal may not lead to desired results
Although the Kalindee Rail acquisition will enhance
TEXRAIL portfolio (it will enter into track laying, signaling
& telecommunications), it requires huge working capital
and the company would have to do capex in this
business. This segment is also highly competitive, and
any delay in receiving orders or getting low margin
orders may adversely affect return ratios.
Stilted growth from delay in private sector demand
Demand from the private sector for special purpose
commodity-specific wagons depends on GDP growth,
which, in turn, sustains demand for specific commodities,
such as coal, steel, cement and alumina. TEXRAIL enjoys
higher margin in wagon orders from the private sector
vs that coming in from IR. Although there have been
increased inquiries from the private sector in the past six
months, there could be a possibility of order delay from
there, which may adversely affect our FY17 numbers.
Delay in execution may lengthen WC cycle
There exists a possibility that despite receiving orders and
mobilizing main raw materials, execution may be
delayed, due to a delay in finalizing design parameters
for the newly developed wagons by Integral Coach
Factory (ICF) and Rail Coach Factory (RCF), which had
been assigned the responsibility by IR. In that case, the
company has to keep higher inventory, thereby taking a
hit on higher working capital.
Background
Texmaco Rail & Engineering (TEXRAIL) was incorporated
and demerged from the Texmaco effective April 2010.
The heavy engineering and steel foundry divisions of
Texmaco are engaged in the business of designing &
manufacturing wagons; hydro-mechanical equipment
structurals & steel castings at its units at Belgharia,
Agarpara, Panihati and Sodepur in West Bengal were
demerged. During FY14, it acquired ~49% in Kalindee
Rail Nirman, which is engaged in the business of
providing EPC services to railways & metros, especially in
the field of signaling tracks, telecommunication and auto
fare collection machines. Now, it is in the process of
merging the company with itself which is expected to be
completed by December 2015.
Operational overview
TEXRAIL is the largest wagons manufacturer in India
with capacity of 10,000 wagons pa. It has received an
approval from Research Design and Standards
Organization (RDSO) to manufacture 6,800 wagons pa,
based on its past production record. It has further
deepened its roots and expanded operations from
products into project segments in areas of railway
signaling, communications and track work by acquiring
Kalindee Rail Nirman (KRNL) during FY14. Now, it is a
total rail solutions provider.
The company also has ventured into locomotive
assemblies and metro coaches by forming a JV with
leading multinationals.
Standalone business
Heavy engineering (~70% of revenue in FY16E)
This division comprises rolling stocks (wagons, coaches
and electric locomotive components & assemblies),
hydro-mechanical equipment, and bridges & heavy
structures.
Wagons
TEXRAIL produces conventional wagons along with
commodity-specific wagons. Indian Railways is its largest
customer. Recently, the company started supplying
wagons to the defense sector. It caters to other
customers, including container freight operators and
industries involved in the production of commodities. It
has manufacturing facilities at Agarpara and Sodepur in
West Bengal.
Coaches
The company has recently set up a production facility to
manufacture electrical multiple units (EMU), diesel
electric multiple units (DEMU) and mainline electric
multiple units (MEMU) coaches, passenger coaches,
locomotive shells & assemblies and sub-assemblies. Its
coach manufacturing facility is at Sodepur, West Bengal,
as a part of the traction and coaching division.
Texmaco Rail & Engineering
Infr
ast
ructu
re
47 Elara Securities (India) Private Limited
Types of wagons
Petrol tank car
Bogie open wagon
Bottom discharge hopper car
Container flat car
Source: Company
Car for transportation of LPG
Specialized wagon for transporting alumina
EMU Coaches
250T payload car for transportation of transformers
Source: Company
Texmaco Rail & Engineering
48 Elara Securities (India) Private Limited
Hydro-mechanical equipment
TEXRAIL is a leading manufacturer of hydro-mechanical
equipment in India. The company offers “one stop”
solution to customers from designing to commissioning
of hydro-mechanical equipment and providing after-sales
services. It manufactures components, such as radial &
vertical gates, flap gates, hoists, gantry & electric
overhead travelling (“EOT”) cranes and other heavy steel
structures, including barrage equipment. It has also
forayed into refurbishment and replacement work
opportunities in existing hydro projects and barrage
equipment after successful execution of rehabilitation
work at the Farakka Barrage and Rampur HEP of SJVN
(SJVN IN, Buy, CMP: INR 29, TP: INR 33). It is currently
executing a contract to commission and design a 456
MW hydropower project at Upper-Tamakoshi in Nepal. It
supplies products to public sector companies, such as
NHPC, NTPC, Tehri Power & SJVN as well as private
sector companies, such as Mitsubishi Heavy Industries.
Bridges & Structures
This division manufactures steel superstructure, including
girders, hull blocks and other parts of bridges & flyovers
for large bridges for railways as well as roads at its
manufacturing facilities at Panihati and Sodepur near
Kolkata. It has recently started delivering steel girders for
railway bridges in Bangladesh through IRCON
International. Its primary competitors include Larsen &
Toubro, Bridge and Roof India, Braithwaite & Company
and BBJ Construction.
Steel foundry (~30% of revenue in FY16E)
This unit has a manufacturing capacity of 30,000 tpa,
based at Belgharia in West Bengal. It is engaged in
manufacturing railway castings, such as bogies &
couplers, which are a part of wagons and CMS crossings.
It supplies steel castings to Indian Railways and other
wagon builders in India. It also exports steel castings to
the US, Australia and Southeast Asia. It has reported a
profit in Q1FY16 after incurring losses in FY15. We
expect capacity utilization to increase to 77% in FY18E
from 44% in FY15. Hence, we expect it to post a volume
CAGR of 20% to 23,000 tonnes during FY15-18E.
Collaboration with MNCs
Texmaco UGL JV, Australia
TexUGL, a 50:50 JV with Australia-based UGL Rail
Services, has set up a specialized fabrication facility to
manufacture high precession fabrications, primarily
catering to the exports market. It commenced
commercial operations in April 2013. TexUGL executed
its first order to supply bogies for Kazakhstan Railways.
However, due to a slowdown in commodities market, it
has not picked up much else since then. The deal has
been signed on 28 September 2015 where Texmaco will
buy out the entire stake of UGL Rail in a JV for a nominal
consideration of INR 1.
JV with Touax Rail, a French Group (May 2012)
The firm formed a 50:50 JV company, Touax Texmaco
Rail Car Leasing (TTRPL) with Touax Rail (a French group)
for leasing wagons. This JV can benefit if IR permits
leasing companies to own and lease wagons to the
industry on an operating lease basis.
Exhibit 5: Key competitors and customers
Segment Key competitors
Wagons Titagarh Wagons, Hindustan Engineering Industries, Modern Industries, Besco, Jessop & Company, Jupiter Wagons, Om Metals Infraprojects, PES Engineers, Bharat Wagon & Engineering and BBJ Construction EMU coaches
Loco shells, components and assemblies
Hydro–mechanical equipment Alstom (Portugal), Technoprome Export (Russia), Andritz Hydro (Austria), Om Metals Infraprojects and Precision Technofab
Bridges & structures Larsen & Toubro, Bridge and Roof India, Braithwaite & Company and BBJ Construction Segment Key customers
Wagons Indian Railways, ACC, UltraTech Cement, Bulk Cement (India), Vedanta Aluminium, Hindalco, National Aluminium, BALCO, NTPC
EMU coaches Indian Railways
Loco shells, components and assemblies Indian Railways
Hydro-mechanical equipment NHPC, NTPC, Tehri Power, SJVN, Mitsubishi Heavy
Bridges & structures IRCON, Bangladesh Railways, Sri Lanka Railways
Steel foundry Indian Railways, Sandvik Shark (Australia), Progress Rail Services (US) and Dellner Couplers (Sweden)
Source: Company, Elara Securities Research
Texmaco Rail & Engineering
Infr
ast
ructu
re
49 Elara Securities (India) Private Limited
JV arrangement with Wabtec International (US)
The company has formed a JV with Wabtec International
to provide Indian Railways with the latest safety and
control equipment & systems. Wabtec is a leading global
provider of products for freight rail & passenger transit
cars and locomotives, including brake equipment,
electronics, doors, couplers and bogies. Construction has
started in Q1FY16.
Technical tie-up with Kawasaki of Japan (January 2012)
The company has entered into a technical tie-up to
manufacture EMU coaches with Kawasaki of Japan,
which is expected to be extended to include metro
coaches in the near future.
Acquisition of Kalindee Rail – a step forward
During FY14, Texmaco acquired Kalindee Rail, which is in
the business of providing EPC services to IR and metros,
especially in the field of signaling, track, telecommunications
and auto fare collection machines. This is the thrust area of
Railways as emphasized in the February 2015 budget.
Moreover, the initial phase of commissioning of DFCs will
provide more orders. Thus, the company has made inroads
in the entire value chain of railways. Kalindee will be able to
bid for higher value project with financial strength coming
in after the merger (higher working capital and weak
balance sheet were chief concerns for Kalindee).
TEXRAIL acquired a 49% stake in the company after
purchasing from erstwhile promoters at ~INR 510mn.
Subsequently, it is merging the company with itself to
emerge as a “total rail solutions provider” from 1 April 2014.
Exhibit 6: Kalindee – a turnkey solutions provider
Source: Company, Elara Securities Research
Exhibit 7: Major areas of expertise of Kalindee Rail
Railways Metro Private siding
Ballasted track Y Y Y
Ballastless track N Y Y
Signaling Y N Y
Telecommunications Y N Y
Automatic fare collection systems N Y N
Source: Company, Elara Securities Research
Exhibit 8: Signaling
Source: Elara Securities Research
Kalindee undertakes total turnkey projects, which
include design, preparation of engineering drawings,
supply of all materials & equipment, installation, testing,
training, commissioning, documentation, maintenance
and warranty services.
Exhibit 9: Telecommunications
Source: Company, Elara Securities Research
Kalindee provides optical fiber and radio wireless
systems, including wide & local area networking, GSM
systems and mobile train radio.
Design
Preparation of Engineering Drawings
Supply of all Materials & Equipments
Installation
Testing
Commissioning
Documentation
Training
Maintenance & Warranty Services
Texmaco Rail & Engineering
50 Elara Securities (India) Private Limited
Exhibit 10: Railway tracks
Source: Elara Securities Research
Kalindee provides track construction on a turnkey basis
for industrial units that need their own railway facilities,
gauge conversion, rail tracks for underground tunnels
and elevated tracks.
Exhibit 11: Railway automatic fare collection at a
Metro station
Source: Company, Elara Securities Research
Kalindee offers services that primarily include access
control systems and automatic fare collection. It also has
made offers for centralized train control, train
management, passenger information and centralized
security systems in association with major MNCs.
Some Kalindee projects are as follows:
Talwandi Sabo Power: railway siding and linkage
from the Sada Singh Wala Railway station to
Talwandi Sabo Plant, including the plant yard at
Banwala village in Mansa District of Punjab
Bangalore, Kolkata and Jaipur Metro Rail: design,
manufacture, supply installation testing and
commissioning of automatic fare collection system
Bangladesh Railways: rehabilitation of Laksman–
Chandpur section of Bangladesh Railways on a
turnkey basis
Broad Gauge Railway: siding works at a 2x500MW
super thermal power station at Chandrapur,
Maharashtra
Gauge conversion of meter gauge track between
Lucknow and Pilibhit: construction of roadbed,
bridges, electricals, signaling and
telecommunications works at Lucknow and
Izatnagar divisions of the North Eastern Railway, UP
Exhibit 12: Kalindee Rail’s technical partners
Company Country Projects
Track and Civil
TSO France Track work for Delhi Metro corridor (Phase I)
Pandrol UK Track work for Kolkata Metro Rail Corp
Signaling equipment
Siemens Germany Signaling projects for Indian Railways
Ansaldo Italy Signaling projects for Indian Railways
Railway automation
Samsung SDS
South Korea
Delhi Metro AFC Work For Phases I & II
Jaipur Metro AFC Work For Phase I
Bangalore Metro AFC Work For Phase I
Source: Company, Elara Securities Research
Exhibit 13: P&L snapshot of Kalindee Rail
(INR mn) FY12 FY13 FY14 FY15 FY16E FY17E FY18E
Net Sales 2,443 2,572 2,540 3,085 4,011 5,214 6,778
% growth 6.4 5.3 (1.3) 21.5 30.0 30.0 30.0
EBITDA 208 243 (30) 204 360 499 683
EBITDA margins (%)
8.5 9.5 (1.2) 6.6 9.0 9.6 10.1
Net Profit 77 82 (71) 65 70 164 312
% growth 11.7 6.8 0.0 0.0 7.7 135.6 89.6
Source: Company, Elara Securities Estimate
Acquisition of Bright Power – moving deeper
During September 2015, TEXRAIL went ahead and
strengthened its positioning as a total rail solution
provider company. It is going to acquire a 76% stake in
Bright Power Projects (India), an EPC company,
specializing in over head electrification (OHE) solutions
for the Indian Railways. It also serves diverse sectors such
as power, utilities, petrochemicals, pharmaceuticals and
real estate. The enterprise value of the deal is ~INR 1bn
which is to be funded through internal accruals. Bright
Power had a net turnover of INR 782mn in FY15.
Texmaco Rail & Engineering
Infr
ast
ructu
re
51 Elara Securities (India) Private Limited
Financial Analysis
Sales CAGR of 38% during FY15-18E
We expect a net sales CAGR of 38% during FY15-18E,
driven by its heavy engineering and steel foundry
segments. The heavy engineering segment is expected
to record a revenue CAGR of 40% during FY15-18E, led
primarily by wagons volume growth of 31% during the
similar period. The foundry segment too is expected to
record a 22% revenue CAGR during FY15-18E again, due
to volume growth, from the lows reported in FY15.
Exhibit 14: Net sales show an increasing trend
Source: Company, Elara Securities Estimate
Exhibit 15: Revenue breakdown (as a % of revenue)
Source: Company, Elara Securities Estimate
Exhibit 16: Wagons, realization and revenue
FY12 FY13 FY14 FY15P FY16E FY17E FY18E
Total wagons 3,471 3,876 832 2,062 1,524 3,400 4,600
Blended Realization (INR mn/wagon)
1.9 2.0 4.0 1.6 2.6 2.2 2.2
Wagons Revenue (INR mn)
6,760 7,568 3,323 3,236 3,971 7,442 10,038
Source: Company, Elara Securities Estimate
EBITDA of 8x in FY18E over FY15
We expect an EBITDA CAGR of 104% during FY15-18E,
driven by volume growth. This would lead to higher
absorption of fixed cost, thereby causing margin
improvement as well. We expect an EBITDA margin of
14% in FY18E from the lows of 4.5% in FY15, although
this is still lower than the historical average of 15-17%
during FY12-13.
Exhibit 17: EBITDA margin to recover sharply
Source: Company, Elara Securities Estimate
PAT to grow 9x in FY18E
We expect 9x in net profit growth in FY18E to INR 1.3bn
from the FY15 levels of INR137mn, driven by higher
operating profit.
Exhibit 18: PAT growth to be V-shaped by FY18
Source: Company, Elara Securities Estimate
Strong balance sheet with net cash
TEXRAIL has a strong balance sheet with net cash of INR
4bn at FY15-end (INR 19 per share). However, this
includes INR 2.9bn cash raised during FY15 through a
QIP, which may be either used in acquiring a company
or higher capex once it merges Kalindee Rail with itself. It
currently has balance sheet strength to go for either
expansion or acquisition. We have not assumed the
merger or acquisition in our valuation; hence, net cash is
expected to increase to INR 4.7bn (INR 23 per share) in
FY18E from INR 4.0bn in FY15.
(60)
(40)
(20)
0
20
40
60
80
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
FY13 FY14 FY15 FY16E FY17E FY18E
(%) (I
NR
mn
)
Net Sales growth (%)
80%
74% 90% 71%
78%
79%
9,880
4,875 4.386
5,911
9,597
12,698
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
FY13 FY14 FY15 FY16E FY17E FY18E
(IN
R m
n)
Heavy engineering Steel foundry
0
2
4
6
8
10
12
14
16
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
FY13 FY14 FY15 FY16E FY17E FY18E
(%)
(IN
R m
n)
EBITDA EBITDA margin (%)
0
2
4
6
8
10
12
0
200
400
600
800
1,000
1,200
1,400
FY13 FY14 FY15 FY16E FY17E FY18E
(%)
(IN
R m
n)
PAT PAT margin (%)
Texmaco Rail & Engineering
52 Elara Securities (India) Private Limited
Exhibit 19: Net cash company
Source: Company, Elara Securities Estimate
Equity history
During FY15, the company raised ~INR 3.0bn through a
QIP by issuing 28mn shares at INR 106 per share.
TEXRAIL is currently in the process of amalgamating
Kalindee Rail. It proposed to issue 106 shares of TEXRAIL
for every 100 shares of Kalindee Rail. Hence, additional
shares issued by TEXRAIL will be 17.5mn shares, taking
total shares outstanding to 227.5mn shares with a face
value of INR 1.
10
6
19 17
21 23
0
5
10
15
20
25
FY13 FY14 FY15 FY16E FY17E FY18E
(IN
R/s
ha
re)
Texmaco Rail & Engineering
Infr
ast
ructu
re
53 Elara Securities (India) Private Limited
Initiate with Accumulate
We initiate coverage of TEXRAIL with an Accumulate
rating. We arrive at a fair value of INR 141 after valuing it
at 20x FY18E P/E. The stock may not provide an
adequate return in the near term; however, it can be a
good investment from a three-year perspective once the
full impact of the macro recovery, led by Indian Railways,
including DFCs-related investment, starts to kick in.
“One-stop” rail solutions provider
TEXRAIL is best suited to capitalize on growth
opportunity arising from IR. With the recent acquisition
of Kalindee Rail, it may benefit in the form of getting EPC
contracts (track laying, signaling, telecommunications &
electrification) in railways, metro rails and dedicated
freight corridors. Kalindee can see a major operational
improvement after its merger, as it will be able to bid for
large value projects.
JV-related benefits not factored in
We have factored in lower-than-historical margin in both
the heavy engineering and the foundry businesses,
assuming continued competitive pressures due to
overcapacity in the industry. If the company manages to
revert to historical margin along with higher demand
from the upcoming DFCs, there could be upside risks to
our FY18 earnings. We have not factored in any benefits
which may come from its JVs (UGL, Wabtec, Touax &
Kawasaki).
Earnings boost on higher volume
The company is set to post an earnings CAGR of 111%
during FY15-18E on the back of higher volume amid
improved demand for wagons. We believe growth will
start coming in from FY17, with increased orders from IR.
Meanwhile, growth from the hydro-mechanical segment
& steel casting, due to focus on exports, helps to offset
slow or delayed orders from IR.
Exhibit 20: Valuation
(INR mn) FY18E
Net profit 1,606
Texmaco 1,295
Kalindee Rail 312
No of shares (mn) 227
EPS (INR) 7.1
Target multiple (x) 20.0
TP (INR) 141
Source: Elara Securities Estimate
Exhibit 21: Trading close to average (Apr11-13) one-
year forward P/E of 19.5x
Source: Company, Bloomberg, Elara Securities Estimate
0
50
100
150
200
Ap
r-1
1
Jul-1
1
Oct-
11
Jan
-12
Ap
r-1
2
Jul-1
2
Oct-
12
Jan
-13
Ap
r-1
3
Jul-1
3
Oct-
13
Jan
-14
Ap
r-1
4
Jul-1
4
Oct-
14
Jan
-15
Ap
r-1
5
Jul-1
5
Oct-
15
(x)
Rolling 1yr fwd P/E Avg
+ 1 Std dev - 1 Std dev
Valuation & Recommendation
Initiate with an Accumulate and a one-year TP of INR 141 on 20x FY18E P/E
Best suited for opportunities in the IR-related reforms and investment
Earnings CAGR of 111% during FY15-18E
Exhibit 22: Peer valuation
Company Rating
Mcap (INR mn)
CMP (INR)
TP (INR)
PAT CAGR (%)
EBITDA margin (%)
P/E (x) ROE (%) ROCE (%)
FY15-18E FY17E FY18E FY17E FY18E FY17E FY18E FY17E FY18E
Texmaco Rail Accumulate 27,046 129 141 111.2 10.5 14.2 38.4 20.9 7.6 12.8 7.5 12.6
Titagarh Wagons Buy 12,790 111 133 104.1 11.6 13.8 26.3 15.3 6.0 9.7 6.2 9.9
Note: pricing as on 26 October 2015; Source: Elara Securities Estimate
Texmaco Rail & Engineering
54 Elara Securities (India) Private Limited
Board of Directors & Management
Saroj Kumar Poddar, Executive Chairman
Saroj Kumar Poddar has been the Chairman of the
company since September 2010. He is a gold medalist
with a bachelor’s degree in commerce (honors) from
Calcutta University. Poddar is the Chairman of Adventz
Investments and Holdings, Chambal Fertilisers and
Chemicals, Chambal Infrastructure Ventures, Gulbarga
Cement, Paradeep Phosphates, Simon India, Texmaco
Infrastructure and Holdings, Zuari Cement, Zuari
Fertilisers and Chemicals, Zuari Agro Chemicals, Zuari
Global, Adventz Finance and Hettich India.
Ramesh Maheshwari, Executive Vice Chairman
Ramesh Maheshwaris has been the Executive Vice
Chairman since September 2010. He has been associated
with the organization for more than 50 years and had
served as the president of Texmaco prior to the
demerger of the heavy engineering and steel foundry
divisions of Texmaco to the company.
Sandeep Fuller, Executive Director & CEO (heavy engineering division)
Sandeep Fuller has been a Director since February 2014.
He has experience of more than 24 years in the industry.
Prior to joining the company, he worked with Indian
Railways for 20 years with core expertise in metro
coaches, locomotives, traction operations and
maintenance and thereafter with Larsen & Toubro for
three years. He was MD of Kalindee Rail Nirman
(Engineers).
DH Kela, Executive Director & CEO (Steel Foundry)
DH Kela has been a Director since September 2010. He
graduated with a degree in metallurgical engineering in
1964 and has experience of more than 46 years in the
industry. Prior to joining the company, Kela had also held
senior positions in several engineering and metallurgical
companies.
AK Vijay, Executive Director, Finance
AK Vijay has more than 38 years of experience looking
after commercial activities at the macro level, including
procurement, marketing exports, finance, accounts, plant
coordination, project coordination, legal matters and
collaborations. He was previously employed with
Hindusthan Engineering and Industries before joining
the company in October 2001.
Company Description
Texmaco Rail & Engineering was incorporated and demerged from Texmaco, a part of Adventz Group of companies
from April 2010. It has been manufacturing wagons for the past 60 years and is the largest wagons manufacturer in
India, with capacity of 10,000 wagons per year. It has five manufacturing facilities near Kolkata, West Bengal. It is
also the largest supplier of steel casting in India, with capacity of 30,000 tpa. It recently acquired Kalindee Rail
Nirman, an EPC service provider to IR & metros in the field of signaling track, telecommunications and auto fare
collection machines, Post this acquisition, Texmaco has become a total rail solutions provider.
Texmaco Rail & Engineering
Infr
ast
ructu
re
55 Elara Securities (India) Private Limited
Coverage History
Date Rating Target Price Closing Price
1
26-Oct-2015 Accumulate INR 141 INR 129
Guide to Research Rating
BUY Absolute Return >+20%
ACCUMULATE Absolute Return +5% to +20%
REDUCE Absolute Return -5% to +5%
SELL Absolute Return < -5%
1
70
90
110
130
150
170
190
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14
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Not Covered Covered
Texmaco Rail & Engineering
56 Elara Securities (India) Private Limited
Notes
Glo
ba
l M
ark
ets
Re
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rch
Elara Securities (India) Private Limited
Ashish Kejriwal • ashish.kejriwal@elaracapital.com • +91 22 6164 8505
Parin Vora • parin.vora@elaracapital.com • +91 22 6164 8519
Back on track
Demand for wagons to improve from FY17
Demand for wagons may start improving from FY17 from Indian
Railways (expect a new tender for wagons of 14-16k in H2FY16E) and
the private sector, owing to a pickup in industrial activity. Titagarh
Wagons (TWL IN), being one of the largest wagon manufacturers, is
set to benefit, in our view.
Capacity utilization to rise, leading to volume growth
TWL has manufacturing capacity of 6,000 wagons per year. It has
been operating at 11-13% capacity utilization over FY14-15. We expect
utilization to improve to 37% in FY17E and a further 57% in FY18E
based on higher orders from IR and demand improvement from the
private sector. This would lead to a volume CAGR of 58% during FY15-
18E to 3,400 wagons in FY18E.
Likely margin expansion due to better absorption of fixed cost
We believe it will be difficult to garner higher margin from IR orders, as
the market is highly competitive and every producer is underutilizing
capacity. Overall margin may improve to ~14% in FY18E from ~8% in
FY15 based on higher absorption of fixed cost and fair business
practices among wagon manufacturers, which helps in achieving
good returns. Moreover, once demand comes in from private
customers from FY17, margin may improve further.
Focus on exports, defense to offset slow orders from IR
TWL’s 75% subsidiary, CIMMCO, with a 2,400-wagon manufacturing
capacity, is all set to focus on the defense sector. Recently, it received
an industrial license to cater to defense demand. Besides, TWL has
started to focus on exports, which would help to offset some pains on
account of the slowdown in IR orders.
Valuation We initiate coverage of Titagarh Wagons with a Buy rating and a TP
of INR 133 based on 17x FY18E P/E. The company, which is one of
the largest private sector wagon manufacturers of India, is set to
post an earnings CAGR of 104% during FY15-18E on the back of
higher capacity utilization of its underutilized wagon capacity. Its
strategy of diversifying in the exports market would aid in
generating earnings growth. The real value for the company may
start emerging from FY19, with demand coming in from two DFCs.
This may generate additional demand for wagons, due to the
partial shift of traffic from roads to railways.
Price performance
Source: Bloomberg
Key Financials YE
March
Revenue
(INR mn)
YoY
(%)
EBITDA
(INR mn)
EBITDA
margin (%)
Adj PAT
(INR mn)
YoY
(%)
Fully DEPS
(INR)
RoE
(%)
RoCE
(%)
P/E
(x)
EV/EBITDA
(x)
FY15 3,761 44.0 295 NM 99 162.2 1.0 1.6 3.8 117.2 36.6
FY16E 4,427 17.7 379 28.3 287 152.7 2.5 4.0 4.3 44.7 30.4
FY17E 6,072 37.2 702 85.2 487 69.8 4.2 6.0 6.2 26.3 16.0
FY18E 8,516 40.2 1,173 67.3 838 72.3 7.3 9.7 9.9 15.3 9.8
Note: pricing as on 26 October 2015; Source: Company, Elara Securities Estimate
India | Railways 2 November 2015
Initiating Coverage
Titagarh Wagons
Rating: Buy Target Price: INR 133
Upside: 20%
CMP: INR 111 (as on 26 October 2015)
Key data
Bloomberg /Reuters Code TWL IN/TITW.BO
Current /Dil. Shares O/S (mn) 100/100
Mkt Cap (INR bn/USD mn) 13/197
Daily Vol. (3M NSE Avg.) 697,974
Face Value (INR) 2
1 USD = INR 64.9
Note: * as on 26 October 2015; Source: Bloomberg
Price & Volume
Source: Bloomberg
Share holding (%) Q3FY15 Q4FY15 Q1FY16 Q2FY16
Promoter 53.1 53.1 53.1 53.1
Institutional Investors 7.6 11.1 13.3 16.8
Other Investors 22.5 18.2 22.0 15.7
General Public 16.8 17.6 11.7 14.5
Source: BSE
Price performance (%) 3M 6M 12M
Sensex (2.7) (0.3) 1.9
Titagarh Wagons (1.3) 6.9 145.6
Texmaco Rail 5.6 (3.4) 39.7
Source: Bloomberg
50
150
250
350
450
Oct-14 Jan-15 Apr-15 Jul-15 Oct-15
Re
ba
sed
to
10
0
Titagarh Wagons Sensex
0.0
20.0
40.0
60.0
0
50
100
150
200
Oct-14 Jan-15 Apr-15 Jul-15 Oct-15
Vol. in mn (RHS) Titagarh Wagons (LHS)
Titagarh Wagons
58 Elara Securities (India) Private Limited
Valuation trigger
Source: Bloomberg, Company, Elara Securities Estimate
Valuation overview
FY18E
TWL’s standalone EPS (INR) 7
Multiple (x) 17
TP (INR) 124
CIMMCO
EPS (INR) 4.4
Multiple (x) 17
TP (INR) 74
No of shares (mn) 20.1
Derived market cap (INR mn) 1493
TWL's share (%) 75.7
TWL's share (market cap) INR mn 1,131
No of shares of TWL (mn) 115.4
Per share of TWL (INR) 10
Total arrived TP (INR) 133
Source: Elara Securities Estimate
Valuation driver - Margin to recover close to historic average
Source: Company, Elara Securities Estimate
Investment summary
Wagons volume to jump 4x in FY18E
to 3,400 from FY15
Three-pronged strategy: focus on
railways, defense and exports
Margin expansion to 14% in FY18E
from 8% in FY15, leading to an EPS
jump of 9x in FY18E
Valuation trigger
1. Winning orders from IR of ~4,200 over
FY16-18E
2. Improved demand from the private
and defense sectors, with wagons
order of ~2,500 over FY16-18E
Key risks
Uncertainty in timely placement of
wagon orders by IR
Competitive market may lead to lower
margin
Delay in increased demand from the
private sector may hit margin
Our assumptions
Wagons volume CAGR of 58% during
FY15-18E to 3,400 wagons
Realization to remain subdued
Margin improvement to 13.8% in
FY18E from 7.8% in FY15
1
2
0
20
40
60
80
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120
140
160
180
Oct
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Jun
-15
Jul-1
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-16
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Oct-
16
Improved demand from the private and defense
sectors, with wagons order of ~2,500 over FY16-18E
Winning orders from IR of ~4,200
over FY16-18E
15.7
(2.4)
13.8
(5)
0
5
10
15
20
25
(300)
0
300
600
900
1,200
1,500
FY
12
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
(%) (I
NR
mn
)
EBITDA EBITDA margins (%)
Titagarh Wagons
Ra
ilw
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59 Elara Securities (India) Private Limited
Financials (YE March) Income Statement (INR mn) FY15 FY16E FY17E FY18E
Net Revenues 3,761 4,427 6,072 8,516
EBITDA 295 379 702 1,173
Add:- Non operating Income 180 180 144 112
OPBIDTA 475 559 846 1,285
Less :- Depreciation & Amortization 91 93 112 131
EBIT 385 466 734 1,154
Less:- Interest Expenses 63 36 36 36
PBT 150 430 698 1,118
Less :- Taxes 52 143 211 279
Add/(Less): Associates/(Minorities) - - - -
Adjusted PAT 99 287 487 838
Add/Less: - Extra-ordinaries - - - -
Reported PAT 99 287 487 838
Balance Sheet (INR mn) FY15 FY16E FY17E FY18E
Share Capital 201 231 231 231
Reserves 6,100 7,721 8,073 8,709
Borrowings 146 146 146 146
Deferred Tax (Net) 8 8 8 8
Minority Interest 0 0 0 0
Other Liabilities 37 37 37 37
Total Liabilities 6,491 8,143 8,495 9,131
Gross Block 1,995 2,445 2,895 3,345
Less:- Accumulated Depreciation 848 940 1,052 1,183
Net Block 1,148 1,505 1,843 2,162
Add:- Capital work in progress 8 308 608 908
Investments 2,157 2,157 2,157 2,157
Cash & cash equivalents 1,049 1,830 1,566 1,229
Net Working Capital 1,800 2,013 1,991 2,345
Other Assets 329 329 329 329
Total Assets 6,491 8,143 8,495 9,131
Cash Flow Statement (INR mn) FY15 FY16E FY17E FY18E
Cash profit adjusted for non cash items 161 416 635 1,006
Add/Less : Working Capital Changes 748 (213) 23 (354)
Operating Cash Flow 909 202 658 652
Less:- Capex (92) (750) (750) (750)
Free Cash Flow to Firm 713 (548) (92) (98)
Financing Cash Flow (633) 1,329 (171) (239)
Investing Cash Flow (15) (1,721) 295 (677)
Net change in Cash 261 (190) 781 (264)
Ratio Analysis FY15 FY16E FY17E FY18E
Income Statement Ratios (%) Revenue Growth 44.0 17.7 37.2 40.2
EBITDA Growth NM 28.3 85.2 67.3
PAT Growth 162.2 152.7 69.8 72.3
EBITDA Margin 7.8 8.6 11.6 13.8
Net Margin 2.5 6.2 7.8 9.7
Return & Liquidity Ratios Int/PBIT 16.4 7.8 5.0 3.2
Net Debt/Equity (x) (0.1) (0.2) (0.2) (0.1)
ROE (%) 1.6 4.0 6.0 9.7
ROCE (%) 3.8 4.3 6.2 9.9
Per Share data & Valuation Ratios Diluted EPS (INR/Share) 1.0 2.5 4.2 7.3
EPS Growth (%) 162.2 152.7 69.8 72.3
Book Value 62.8 68.9 72.0 77.5
DPS (INR/Share) 0.8 1.0 1.0 1.5
P/E Ratio (x) 117.2 44.7 26.3 15.3
EV/EBITDA (x) 36.6 30.4 16.0 9.8
Price/Book (x) 1.8 1.6 1.5 1.4
Dividend Yield (%) 0.7 0.9 0.9 1.4
Note: pricing as on 26 October 2015; Source: Company, Elara Securities Estimate
Revenue & margin growth trend
Source: Company, Elara Securities Estimate
Adjusted profit growth trend
Source: Company, Elara Securities Estimate
Return ratios
Source: Company, Elara Securities Estimate
7.8 8.6
11.6
13.8
5
7
9
11
13
15
0
2,000
4,000
6,000
8,000
10,000
FY15 FY16E FY17E FY18E
(%)
(IN
R m
n)
Net Revenues (LHS) EBITDA Margin (RHS)
162.2 152.7
69.8 72.3
0
50
100
150
200
0
200
400
600
800
1,000
FY15 FY16E FY17E FY18E
(%)
(IN
R m
n)
Adjusted PAT (LHS) PAT Growth (RHS)
1.6
4.0
6.0
9.7
3.8 4.3
6.2
9.9
0
2
4
6
8
10
12
FY15 FY16E FY17E FY18E
ROE (%) ROCE (%)
Return rations to improve on volume growth
Earnings CAGR of 104% over FY15-18E
Titagarh Wagons
60 Elara Securities (India) Private Limited
Wagons demand set to improve
Growth opportunities on the back of rail push
The government has recognized the urgency to
accelerate the reforms process in IIR; hence, it
announced aggressive plans in the 2015-16 Union
Budget, which will help accelerate GDP growth. It
announced a five-year capex plan of INR 8.56tn (out of
which INR 1.02tn is in rolling stocks) during FY16-20.
Exhibit 1: Wagon orders from IR remain muted in the
past two years
Source: Ministry of Railways
Macro recovery to push non-IR demand for wagons
Although demand for wagons from the private sector
has been sluggish over the past few years, inquiries have
started again. With industrial demand starting to pick up
from FY17, demand from this segment would further
inflate overall demand for wagons.
Focus on railways, defense and export
TWL, which is one of the largest private sector wagon
manufacturers of India, is set to post earnings CAGR of
104% during FY15-18E on the back of higher capacity
utilization of its underutilized wagon capacity. It is well
established in India and has been manufacturing
wagons for more than 17 years and is set to cater to
increasing demand of railways and defense —
incidentally the two focus areas of the government.
Well placed to meet growing demand of wagons
The company has a total wagons manufacturing
capacity of 6,000 pa. Besides, its 75% subsidiary,
CIMMCO, has wagon manufacturing capacity of 2,400
pa. TWL operated at a 11% capacity utilization in FY14
and 13% in FY15. Although FY16 will remain a sluggish,
with the possibility of higher orders from IR and demand
improvement from private customers, we expect
utilization to improve to 37% in FY17E and 57% in
FY18E. This would lead to a volume CAGR of 58% during
FY15-18E.
Exhibit 2: Wagons production CAGR of 58% over
FY15-18E
Source: Company, Elara Securities Estimate
Positioned CIMMCO to cater to defense demand
TWL is well placed to cater to increasing demand from
the defense sector. CIMMCO (capacity of 2,400 wagons
pa) recently qualified and got a license to supply
equipment, such as special wagons, shelters, bailey
bridges and other engineering components to defense.
CIMMCO has large infrastructure with 200 acres of land
at Bharatpur, Rajasthan, which is near Mathura and
Bharatpur tank depots. The company is exploring
collaborations with global technology providers to
partner with them to bidding on India defense projects.
Stage set to manufacture Metro coaches
Demand for Metro Rail has increased significantly in
India, especially after the success of the Delhi Metro. TWL
currently has a small order to refurbish Kolkata Metro. As
it will be difficult for it to qualify independently to
manufacture metro coaches, it has been trying to tap this
opportunity and looking for viable options of having JV
with global producers. During July 2015, TWL acquired
Italy-based Firema Trasporti S.p.A. and became the only
company in India to possess the technology to
manufacture metro coaches and high speed trains. The
company is in the process of upgrading its facilities at
Hindmotor in West Bengal to manufacture metro
coaches with capacity of up to 20 metro coaches per
month. It has an existing capital expenditure plan for this
0
4,000
8,000
12,000
16,000
20,000
FY
10
FY
11
FY
12
FY
13
FY
14
FY
15
BE
FY
16
E
FY
17
E
FY
18
E
(no
of
un
its)
Wagons procured / manufactured
2,240 2,500 2,000
250 450 675
1,500 2,000
585 355
362
493 404 400
700
1,400
0
1,000
2,000
3,000
4,000
FY
11
FY
12
FY
13
FY
14
FY
15
FY
16
E
FY
17
E
FY
18
E
(un
its)
IR Non IR
Riding on the rail wave
Wagons demand set to improve; volume to jump 4x in FY18E to 3,400 from 850 in FY15
TWL’s three-pronged strategy: focus on railways, defense and exports
Margin to improve to 14% in FY18E from 8% in FY15; EPS to jump 9x in FY18E
[Type Text]
[Type Text]
Titagarh Wagons
Titagarh Wagons
Ra
ilw
ay
s
61 Elara Securities (India) Private Limited
purpose. The company intends to tap into the metro
coach market once it commences production at its new
facility for metro coaches at Hindmotor, which is
expected by FY17.
Focus on increasing exports, targeting new markets
TWL tries to diversify its business amid slowdown of
orders from IR. It focused on exports and started
targeting new markets, such as Bangladesh, Myanmar
and several Middle East countries. The company thus
bought Arbel Fauvet Rail (AFR), a railway rollings stock
manufacturer based in Douai, France in 2010. It has a
manufacturing capacity of 5,000 wagons pa. Although
this has yet to contribute meaningfully to consolidated
profit, it helps in catering to demand from different
geographies. Management can leverage on the wagon
design capabilities of its French subsidiary, AFR, coupled
with the low-cost Indian manufacturing facilities, and be
able to supply cost-effective wagons with advanced
designs to the Africa markets. Its recent acquisition of
Firema Trasporti not only helps TWL to acquire
technology to manufacture metro coaches but also open
the world market. This acquisition adds EUR 220mn to its
order book.
Play on operating leverage
Exhibit 3: Higher volume leads to high margin
Source: Company, Elara Securities Estimate
Margin to improve to 14% in FY18E
Margin expansion on the back of volume growth
Historically, TWL has posted an 18-19% margin, which
has currently fallen to 8% in FY15. We believe margin is
set to improve from this level in the next three years on
the back of volume growth. However, due to
overcapacity in the system, there is possibility of
increased competition and it may not reach to the
historical level of 18-19%. We expect margin of 11.6% in
FY17E and 13.8% in FY18E.
Better product mix from FY17 may improve margin
Although wagons demand from IR continues to help in
volume growth, incremental demand from the private
and defense sectors would aid in improving margin.
Moreover, higher demand for electric multiple unit
(EMU) in which TWL has a 50% market share will help in
margin expansion too.
Other opportunities
The company plans to start wagons repairing at Cimmco,
whenever it is open to the private sector. During the last
budget, the ministry says it may open it to the private
sector. CIMMCO has large infrastructure with 200 acres
of land at Bharatpur in Rajasthan, which can be fully
utilized for this purpose.
Cash rich, with strong balance sheet
TWL has a strong balance sheet with net cash of INR
903mn at FY15-end. Recently, the company raised INR
1.5bn through a QIP of INR 99.4 per share to fund capex
for upgrading India’s coach manufacturing facilities.
Exhibit 4: Remains a net cash company
Source: Company, Elara Securities Estimate
Capex to strengthen position in Metro and defense
TWL plans to spend ~INR 3bn in the next two years to
strengthen its position to meet increasing demand in the
Metro and defense segments.
Order book position
Order book, as on April 30, 2015, stands at INR 9,443mn.
The recent acquisition of Firema Trasporti added EUR
220mn to its order book.
(15)
0
15
30
45
60
(1,000)
0
1,000
2,000
3,000
4,000
FY
11
FY
12
FY
13
FY
14
FY
15
FY
16
E
FY
17
E
FY
18
E
(%)
(un
its)
Volumes Gross margin EBITDA margin
10
4
6
9
15
12
9
0
2
4
6
8
10
12
14
16
FY
12
FY
13
FY
14
FY
15
FY
16
E
FY
17
E
FY
18
E
(IN
R/s
ha
re)
Net cash/share
Titagarh Wagons
62 Elara Securities (India) Private Limited
Investment risks
Uncertainty in timely placement of wagon orders
IR continues to generate the most revenue for the
company. Any delay or not releasing new orders by IR
would adversely affect TWL’s operations. A decline in
revenue in FY15 was due to IR not releasing any new
orders for wagons. Currently, the company benefits from
the wagon procurement policies where ~75% of total
orders for wagons are based on past performance and
track record of the bidder. Hence, new entrants may not
eat away a major portion of the pie by even bidding low.
However, any change in IR’s procurement policy may
further increase competition, implying less orders or
lower margin.
Competitive market may lead to lower margin
IR has a policy to award orders at L1 price. TWL operates
in a competitive environment with ~15 companies. In
the past few years, capacity utilization for all producers
was low. Hence, every other producer may bid
aggressively to take a share in the increasing pie. Hence,
it may adversely affect margin (for example, in the recent
tender, one of the wagon manufacturers bid at a low
price at which it would make losses, and, hence, none of
the other manufacturers went ahead to get an order at
that price).
Delay in demand from private sector may hit margin
Demand from the private sector for special purpose
commodity-specific wagons depends on GDP growth,
which sustains demand for specific commodities, such as
coal, steel, cement & alumina. TWL enjoys a higher
margin in wagon orders coming in from the private
sector than from IR. Although inquiries have increased
from the private sector in the past six months, there is a
possibility of delay in orders from there, which may
adversely affect our FY17 numbers.
Inability to pass on cost of raw materials
The primary inputs used in manufacturing wagons,
bailey bridges & heavy engineering equipment are steel-
based raw materials. The cost of steel plates and beams is
highly dependent on steel prices prevalent in the global
markets, which are highly volatile and cyclical in nature.
Although the company does back-to-back agreement
and books a major portion of raw materials, there is a
possibility of not passing on the entire cost escalation,
thereby negatively affecting margin.
Execution delay may mean longer WC cycle
There exists a possibility that despite receiving orders and
mobilizing main raw materials, execution may be
delayed due to a delay in finalizing design parameters for
the newly developed wagons by ICF and RCF, which
had been assigned the responsibility by Indian Railways.
In that case, the company has to maintain higher
inventory, thereby leading to a higher working capital.
Operations may be affected due to labor issues
As on March 31, 2015 TWL had ~1,750 employees on its
rolls, more than 50% represented by trade unions. In the
past, the company dealt with disputes with some
workers and trade unions with regards to the dismissal
of a few workers at its facility which resulted in a lockout
of two months at this facility. A lengthy strike or other
work stoppage in the future at any of its facilities could
have an adverse effect on the business.
Operational overview
TWL has combined capacity of 8,400 wagons per year. It
manufactures wagons in West Bengal and Rajasthan. Its
business is primarily divided into two verticals: the
railways and the defense division. The railways division
primarily comprises wagon & coach manufacturing and
steel casting operations. The defense division develops &
supplies bailey bridges, nuclear shelters, canisters, rail
wagons and other engineering equipment to cater to
India’s defense forces.
Exhibit 5: Organizational structure
Source: Company, Elara Securities Research
Standalone business
TWL’s primary business consists of manufacturing
wagons and it caters to IR and the private sector. It is
backward integrated and produces steel foundry. The
company also produces heavy earth-moving and mining
equipment. It has a manufacturing facility at Titagarh
and Uttarpara in West Bengal.
Titagarh Wagons
CIMMCO Titagarh
Wagons AFR, France
Titagarh Firema Adler,
Italy
75% 100% 90%
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Business segments
Wagons
Exhibit 6: Wagons ferrying coal
Source: Company, Elara Securities Research
TWL has capacity to produce 6,000 wagons per year at
its facilities at Titagarh and Hindmotor in West Bengal. It
also produces special purpose wagons to suit varying
needs of customers. The wagons segment accounted for
~97% and ~100% of total revenue & operating profit
respectively, in FY15.
Rail coaches (EMUs)
Exhibit 7: Coaches for exports
Source: Company, Elara Securities Research
Demand for Metro Rail and intracity railway passenger
vehicles, such as EMUs, is increasing. It produces coaches
for Indian Railways. The company set up an EMU
manufacturing facility at its Uttarpara unit at total capital
outlay of about INR 187mn in FY09. It has capacity to
manufacture 36 rakes every year of EMU, MEMU &
DEMU and 500 coaches per year.
Cast in steel
The company has two steel foundries: Titagarh and at
Hindmotor, West Bengal. It has manufacturing capacity
of 30,000 tpa. Around 75% of production, primarily
consisting of bogies & couplers, is consumed internally to
manufacture wagons. Demand for castings is correlated
with demand for wagons.
Heavy earth moving machinery (HEMM)
Exhibit 8: Crawler cranes
Source: Company, Elara Securities Research
This division manufactures crawler cranes and
excavators. TWL produced 13 HEMM machines in FY12.
However, with declining demand in infrastructure, it
produced just three in FY14. With fresh impetus on
infrastructure, there exists a possibility of revamping this
segment.
CIMMCO to cater to defense demand
TWL currently holds a ~75% stake in CIMMCO through a
100% subsidiary, CIMMCO Equity (CEHPL). It currently
has wagons manufacturing capacity of 2,400 wagons
per year at Bharatpur in Rajasthan. It recently received an
industrial license to manufacture defense equipment.
The firm has ~200 acres of land, a major part of which
may be dedicated to the defense division’s operations as
it has an existing industrial license to manufacture ML6
ground vehicle and components, including armored
vehicles.
CIMMCO earlier was a SK Birla company and was set up
in 1957. It was one of the premier wagons
manufacturing companies until 2000 when its Bharatpur
plant in Rajasthan locked out due to labor unrest, and,
eventually, was declared sick in FY02. TWL and sponsor
group of Cimmco set up a JV with a 50% stake each in
FY08. TWL acquired CIMMCO in FY10 and infused INR
485mn to revive it successfully. During FY15, TWL
acquired the remaining 50% stake in CEHPL at INR
645mn; thus, it became a 100% subsidiary. CEHPL holds
a 75% stake in CIMMCO.
Exhibit 9: Financials of CIMMCO
(INR mn) FY14 FY15 FY16E FY17E FY18E
Wagons (no.) 652 141 400 500 800
Revenue 1,281 321 643 778 1,224
Realization (INR mn/wagons)
1.6 1.7 1.4 1.4 1.5
EBITDA 129 (70) 88 106 178
PBT 45 (147) 19 36 108
Adjusted PAT 1 (151) 15 30 88
Source: Company, Elara Securities Estimate
Titagarh Wagons
64 Elara Securities (India) Private Limited
AFR, France, a100% subsidiary
Arbel Fauvet Rail (AFR) is a railway rolling stocks
manufacturer based at Douai, France. During the
Eurozone crisis, it went into receivership in FY10. TWL
seized the opportunity and bought it at EUR 1.92mn
(INR 111.4mn) and has invested another EUR 13mn
since then towards working capital and capex. Total
investment stood at INR 286.4mn until FY14-end. It has
manufacturing capacity of 2,000 special & conventional
types of wagons per year at its facilities spread over 17
hectares of land. Although it does not contribute
meaningfully to consolidated profit as on yet, it will help
in catering demand from different geographies.
Titagarh Firema Adler (a 90% stake)
During July 2015, TWL has done its second overseas
acquisition and acquired the business of Firema Trasporti
in Italy. The business has been acquired through a SPV
Titagarh Firema Adler S.p.A., Italy, in which TWL holds a
90% stake and the rest by Adler Plastics S.p.A. Total cost
of acquisition is EUR 20-25mn. This adds EUR 220mn to
TWL’s order book. This acquisition makes TWL the first
company in India to possess this technology to
manufacture of all three types of rolling stocks: carbon
steel, stainless steel and aluminium.
Firema manufactures metro coaches, semi & high speed
trains, propulsion systems for trains, such as traction
motors & convertors in Italy. During its peak in 2007, it
achieved sales of EUR 195mn and an EBITDA of EUR
28mn. It has manufactured rolling stocks for Italian state
railways and Metro Campania, Milan’s underground
railway system. However, due to global economic
slowdown, the company was under pressure.
Financial analysis
Net sales CAGR of 31% over FY15-18E
We expect a net sales CAGR of 31% during FY15-18E,
driven by wagons volume growth CAGR of 58%, partly
offset by subdued pricing.
Exhibit 10: Wagons volume to drive revenue
Source: Company, Elara Securities Estimate
Exhibit 11: Wagons, realization and revenue trend
FY12 FY13 FY14 FY15 FY16E FY17E FY18E
Wagons (no.) 2,855 2,362 743 854 1,075 2,200 3,400
Realization (INR mn/wagon)
1.9 1.9 2.7 2.4 1.7 1.7 1.9
Revenue (INR mn)
5,553 4,124 1,603 3,185 2,850 4,823 7,593
Source: Company, Elara Securities Estimate
Exhibit 12: Revenue breakdown
(INR mn) FY12 FY13 FY14 FY15 FY16E FY17E FY18E
Wagons & coaches
5,553 4,124 1,603 3,185 2,850 4,823 7,593
Others 1,124 1,076 1,201 608 1,860 1,637 1,466
Total 6,677 5,201 2,804 3,793 4,709 6,460 9,059
Source: Company, Elara Securities Estimate
EBITDA CAGR of 58% during FY15-18E
We expect an EBITDA CAGR of 58% during FY15-18E,
driven by volume growth, which will lead to higher
absorption of fixed cost and margin improvement too.
We expect EBITDA margins to expand, from the lows of
7.8% in FY15 to 13.8% in FY18E, which is still lower than
the historical average of 15-17% during FY11-12.
Exhibit 13: EBITDA margin to improve from the lows
Source: Company, Elara Securities Estimate
PAT to be 9x in FY18E
We expect net profit to be 9x in FY18E to INR 838mn
from the FY15 level of INR 99mn, driven by higher
operating profit.
Exhibit 14: PAT to be 9x in the next three years
Source: Company, Elara Securities Estimate
(60)
(40)
(20)
0
20
40
60
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
FY
12
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
(%) (I
NR
mn
)
Net revenues growth (%)
(5)
0
5
10
15
20
25
(300)
0
300
600
900
1,200
1,500
FY
12
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
(%) (I
NR
mn
)
EBITDA EBITDA margins (%)
(100)
(50)
0
50
100
150
200
250
0
200
400
600
800
1,000
FY
12
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
(%) (I
NR
mn
)
APAT growth (%)
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Strong balance sheet with net cash
TWL has a strong balance sheet with net cash of INR
900mn at FY15-end. Post that, it has raised INR 1.5bn in
FY16 by issuing 15.1mn shares at INR 99.41 per share.
We expect net cash of INR 1.7bn by FY16E-end, which
will be used to expand its CIMMCO plant and overseas
subsidiaries.
Equity history
During FY12, share capital increased by ~6.5% to INR
201mn (with a face value of INR 10) as it raised ~INR
500mn from promoters by issuing 1.25mn in warrants
into shares. During FY16, the company raised ~INR
1.5bn through a QIP by issuing 15.1mn shares at INR
99.4 per share.
Exhibit 16: A net cash company
Source: Company, Elara Securities Estimate
10
4
6
9
15
12
9
0
2
4
6
8
10
12
14
16
FY
12
FY
13
FY
14
FY
15
FY
16
E
FY
17
E
FY
18
E
(IN
R/s
ha
re)
Net cash/share
Exhibit 15: Equity history: dilution of 41% in the past seven years
Date Share cap
(post dilution) No of shares issued (mn)
Issue price (INR/share)
Dilution (%)
Reason
Feb'08 163.7 1.67 524 10 Conversion of preference shares into equity
Apr'08 184.4 2.06 540 11 Allotment through IPO
Jan'10 188.1 0.36
2 Allotted to shareholders of erstwhile Titagarh Steels pursuant to the scheme of amalgamation
Mar'12 200.6 1.25 387 6 Conversion of warrants
Apr'15 200.6 NA
NA Sub-division of face value from INR 10 to INR 2
July'15 230.8 15.08 99.4 13 Issued to QIBs
Source: Company, Elara Securities Research
Titagarh Wagons
66 Elara Securities (India) Private Limited
Initiate Buy with a TP of INR 133
We initiate coverage of TWL with a Buy rating. We arrive
at a fair value of INR 133 on 17x FY18E P/E. We have
assigned a 15% lower multiple than the industry leader
due to lower growth and absence in areas of signaling,
telecommunications and track laying, which were the
primary focus of IR in the initial years. The stock may not
provide good returns in the near term; however, it can
be a good investment for a three-year period once the
full impact of the recovery led by railways, including DFC-
related investment, starts to kick in.
Recent France deal not factored in
TWL’s acquisition of firms in Europe will provide an edge
to peers, particularly in the Metro segment, demand of
which is increasing significantly. We have not factored in
any benefits that may accrue from its recent acquisition
in France, which provides technical knowhow for metro
coaches.
Earnings boost on higher volume
We have factored in lower-than-historical margin in
wagons, assuming continued competitive pressures, due
to overcapacity in the industry. If the company manages
to restore its historical margin along with higher demand
from the upcoming DFCs, there could be upside risks to
our FY18 earnings. TWL is set to post an earnings CAGR
of 104% during FY15-18E on the back of higher volume
amid improved demand of wagons. We believe growth
will start coming in from FY17 with higher orders from IR.
Exhibit 17: Valuation
FY18E
TWL’s standalone EPS (INR) 7
Multiple (x) 17
TP (INR) 124
CIMMCO
EPS (INR) 4.4
Multiple (x) 17
TP (INR) 74
No of shares (mn) 20.1
Derived market cap (INR mn) 1493
TWL's share (%) 75.7
TWL's share (market cap) INR mn 1,131
No of shares of TWL (mn) 115.4
Per share of TWL (INR) 10
Total arrived TP (INR) 133
Source: Elara Securities Estimate
Exhibit 18: Trading above average (Apr10-12) one-
year forward P/E of 14.2x
Source: Bloomberg, Company, Elara Securities Estimate
0
20
40
60
80
100
Ap
r09
Oct0
9
Ap
r10
Oct1
0
Ap
r11
Oct1
1
Ap
r12
Oct1
2
Ap
r13
Oct1
3
Ap
r14
Oct1
4
Ap
r15
Oct'
15
(x)
Rolling 1yr fwd P/E Avg
+ 1 Std dev - 1 Std dev
Valuation & Recommendation
Initiate with a Buy rating and a TP of INR 133 on 17x FY18E P/E
Focus on exports, defense sector to aid in lifting operating performance
Earnings CAGR of 104% during FY15-18E
Exhibit 19: Peer valuation
Company Rating
Mcap (INR mn)
CMP (INR)
TP (INR)
PAT CAGR (%)
EBITDA margin (%)
P/E (x) ROE (%) ROCE (%)
FY15-18E FY17E FY18E FY17E FY18E FY17E FY18E FY17E FY18E
Titagarh Wagons Buy 12,790 111 133 104.1 11.6 13.8 26.3 15.3 6.0 9.7 6.2 9.9
Texmaco Rail Accumulate 27,046 129 141 111.2 10.5 14.2 38.4 20.9 7.6 12.8 7.5 12.6
Note: pricing as on 26 October 2015; Source: Elara Securities Estimate
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67 Elara Securities (India) Private Limited
Board of Directors & Management
JP Chowdhary, Promoter, Executive Chairman
JP Chowdhary has 52 years of experience in the
manufacturing sector. He joined the company in 2005 as
Chairman, and, subsequently, he was appointed as the
Executive Chairman in 2008. He jointly oversees
operations with Umesh Chowdhary.
Umesh Chowdhary, Promoter, VC and MD
Umesh Chowdhary has 24 years of experience in the
manufacturing sector. He is son of JP Chowdhary. He
has been on the company board since incorporation and
was appointed as MD in 2002. He is actively involved in
the day-to-day operations and management.
Sudipta Mukherjee, Director (Wagons Operations)
Sudipta Mukherjee joined the company in 1998 as a
Management Trainee. He has a post graduate from
Calcutta University in industrial law and gained
experience in wagons operations. He was appointed as
additional director and designated as Director (Wagons
Operations) in May 2014. He has been overseeing the
production facilities at all three plants.
Anil Kumar Agarwal, CFO
Anil Agarwal is a qualified CA and CWA. He has around
16 years of experience and joined the company in
September 2006.
Company Description
Titagarh Wagons (TWL IN) set up in 1997 is one of the largest private sector wagons manufacturers in India with its
manufacturing facilities in West Bengal and Rajasthan. It manufactures wagons through its ~75% subsidiary,
CIMMCO too, which it acquired in 2010. The total (TWL+ CIMMCO) wagon manufacturing capacity currently stands
at 8,400 wagons. It also manufactures Bailey bridges, heavy earth moving & mining equipment and steel castings.
Around 88% of revenue and 100% of operating profit was from the wagons & coaches division in FY14. TWL caters
to wagons demand from Indian Railways & the private sector and it recently started exporting. It plans to enter into
manufacturing Metro coaches soon.
Titagarh Wagons
68 Elara Securities (India) Private Limited
Coverage History
Date Rating Target Price Closing Price
1
26-Oct-2015 Buy INR 133 INR 111
Guide to Research Rating
BUY Absolute Return >+20%
ACCUMULATE Absolute Return +5% to +20%
REDUCE Absolute Return -5% to +5%
SELL Absolute Return < -5%
1
0
20
40
60
80
100
120
140
160
180
Oct-
14
No
v-1
4
De
c-1
4
Jan
-15
Fe
b-1
5
Ma
r-1
5
Ap
r-1
5
Ma
y-1
5
Jun
-15
Jul-1
5
Au
g-1
5
Se
p-1
5
Oct-
15
Not Covered Covered
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Disclosures & Confidentiality for non U.S. Investors
The Note is based on our estimates and is being provided to you (herein referred to as the “Recipient”) only for information
purposes. The sole purpose of this Note is to provide preliminary information on the business activities of the company and
the projected financial statements in order to assist the recipient in understanding / evaluating the Proposal. Nothing in this
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this document. Each recipient of this document should make such investigations as it deems necessary to arrive at an
independent evaluation of an investment in the securities of companies referred to in this document (including the merits and
risks involved) and should consult its own advisors to determine the merits and risks of such an investment. Nevertheless, Elara
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disclosures of interest statements incorporated in this document are provided solely to enhance the transparency and should
not be treated as endorsement of the views expressed in the report. Elara Securities (India) Private Limited generally prohibits
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Any clarifications / queries on the proposal as well as any future communication regarding the proposal should be addressed
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of National Stock Exchange of India Limited (NSE) and in the Capital Market Segment of BSE Limited (BSE).
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The activities of Elara Securities (India) Private Limited were neither suspended nor has it defaulted with any stock exchange
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Elara Securities (India) Private Limited offers research services primarily to institutional investors and their employees, directors,
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Elara Securities (India) Private Limited
70
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Elara Securities (India) Private Limited is maintaining arms-length relationship with its associate entities.
Research Analyst or his/her relative(s) may have financial interest in the subject company. Elara Securities (India) Private
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Research analyst or Elara Securities (India) Private Limited or its associate entities have not received any compensation from
the subject company in the past twelve months. Research analyst or Elara Securities (India) Private Limited or its associate
entities have not managed or co-managed public offering of securities for the subject company in the past twelve months.
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Disclaimer for non U.S. Investors
The information contained in this note is of a general nature and is not intended to address the circumstances of any
particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no
guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future.
No one should act on such information without appropriate professional advice after a thorough examination of the
particular situation.
Elara Securities (India) Private Limited
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Disclosures for U.S. Investors
The research analyst did not receive compensation from Texmaco Rail & Engineering Limited and Titagarh Wagons Limited.
Elara Capital Inc.’s affiliate did not manage an offering for Texmaco Rail & Engineering Limited and Titagarh Wagons Limited.
Elara Capital Inc.’s affiliate did not receive compensation from Texmaco Rail & Engineering Limited and Titagarh Wagons
Limited in the last 12 months.
Elara Capital Inc.’s affiliate does not expect to receive compensation from Texmaco Rail & Engineering Limited and Titagarh
Wagons Limited in the next 3 months.
Disclaimer for U.S. Investors
This material is based upon information that we consider to be reliable, but Elara Capital Inc. does not warrant its
completeness, accuracy or adequacy and it should not be relied upon as such.
This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument.
Securities, financial instruments or strategies mentioned herein may not be suitable for all investors. Any opinions expressed
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Elara Securities (India) Private Limited
72
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Aashish Upganlawar Analyst FMCG, Media aashish.upganlawar@elaracapital.com +91 22 6164 8546
Abhishek Karande Analyst Technical & Alternate Strategy abhishek.karande@elaracapital.com +91 22 6164 8562
Adhidev Chattopadhyay Analyst Infrastructure, Real Estate adhidev.chattopadhyay@elaracapital.com +91 22 6164 8526
Aliasgar Shakir Analyst Mid caps, Telecom aliasgar.shakir@elaracapital.com +91 22 6164 8516
Ashish Kejriwal Analyst Metals & Mining ashish.kejriwal@elaracapital.com +91 22 6164 8505
Ashish Kumar Economist
ashish.kumar@elaracapital.com +91 22 6164 8536
Deepak Agrawala Analyst Power, Capital Goods deepak.agrawala@elaracapital.com +91 22 6164 8523
Jay Kale, CFA Analyst Auto & Auto Ancillaries jay.kale@elaracapital.com +91 22 6164 8507
Rakesh Kumar Analyst Banking & Financials rakesh.kumar@elaracapital.com +91 22 6164 8559
Ravi Menon Analyst IT Services ravi.menon@elaracapital.com +91 22 6164 8502
Ravi Sodah Analyst Cement ravi.sodah@elaracapital.com +91 22 6164 8517
Sumant Kumar Analyst Agri, Travel & Hospitality, Paper sumant.kumar@elaracapital.com +91 22 6164 8503
Swarnendu Bhushan Analyst Oil and gas swarnendu.bhushan@elaracapital.com +91 22 6164 8504
Bhawana Chhabra Sr. Associate Strategy bhawana.chhabra@elaracapital.com +91 22 6164 8511
Durgesh Poyekar Sr. Associate Oil and gas durgesh.poyekar@elaracapital.com +91 22 6164 8541
Manuj Oberoi Sr. Associate Banking & Financials manuj.oberoi@elaracapital.com +91 22 6164 8535
Harshit Kapadia Associate Power, Capital Goods harshit.kapadia@elaracapital.com +91 22 6164 8542
Hemanshu Srivastava Associate Pharmaceuticals hemanshu.srivastava@elaracapital.com +91 22 6164 8525
Parin Vora Associate Metals & Mining parin.vora@elaracapital.com +91 22 6164 8519
Saiprasad Prabhu Associate FMCG, Media saiprasad.prabhu@elaracapital.com +91 22 6164 8518
Priyanka Sheth Editor
priyanka.sheth@elaracapital.com +91 22 6164 8568
Gurunath Parab Production
gurunath.parab@elaracapital.com +91 22 6164 8515
Jinesh Bhansali Production
jinesh.bhansali@elaracapital.com +91 22 6164 8537
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