Mumbai: Essar Group, a diversified conglomerate with interests in steel, shipping, power and oil, has expressed interest in partnering with or buying a controlling stake in Gurgaon-based railway infrastructure company Kalindee Rail Nirman Engineers Ltd in an attempt to benefit from the significant expenditure planned by Indian Railways.
Kalindee, which has won orders worth Rs450 crore for railway projects, is looking at various options, including a stake sale, to raise money to execute these projects. It has appointed advisory firm Enam Securities Pvt. Ltd to help it in this process.
Essar Group, which makes more money from selling steel, refining crude, ferrying cargo and producing power, is one of the companies interested in Kalindee, said a person familiar with the development who did not wish to be identified.
R.D. Sharma, Kalindee’s chairman and managing director, did not name any companies but said that his company “is looking at raising capital up to Rs600 crore”.
“We are exploring all options, including issue of preference shares, selling shares to private equity investors and joint ventures,” he said, adding: “Nothing has been finalized.”
The promoters, including Sharma, own 24.7% of the company, and the remainder is held by retail investors and financial institutions. Sharma said the promoters would like the current shareholding pattern to continue.
Sharma, 70, the founder of the company, said that though his company has made profits in the past 32 years, it would still prefer a joint venture to bid for rail infrastructure ventures because of the significant investment required.
“Though there are several companies in track construction or implementation of signalling devices, Kalindee’s strength lies in offering turnkey solutions,” Sharma added.
Its main competitor is the state-run Ircon International Ltd.
A New Delhi-based equity analyst, who tracks the transportation sector, said Kalindee would be the right partner for any big corporate house interested in investing in turnkey solutions for railway projects.
“Kalindee would require more funds to tap the upcoming railway projects. It would also need domestic and international joint venture partners to pre-qualify for various bidding opportunities coming up in India and overseas,” added this analyst who did not want to be identified.
The railways plans to spend Rs2.5 trillion to expand its network and adopt modern technology in the next five years.
“As a group, we look at growth opportunities in sectors that we are in and we do not wish to comment on any specific proposal,” a spokesperson for the Essar Group said in an email response.
S.D. Sharma, Kalindee’s executive director (and R.D. Sharma’s son), said profit margins for companies executing railway infrastructure projects are 20-25%.
“The profitability of such projects will be mainly dependent on the nature, time and geographic area of the contract,” he added. “(But) the price increase in steel and cement will have an adverse impact on the business.”
Railway minister Lalu Prasad, credited with the turnaround of the railways, has proposed to build a 2,700km-long dedicated rail freight network to connect the country’s main business centres—from Ludhiana in Punjab to Dankuni near Kolkata, and from New Delhi to Nhava Sheva near Mumbai.
This corridor will cost Rs28,000 crore and will be built through a partnership with private sector firms.
In April, railway wagon maker Titagarh Wagons Ltd listed its shares at Rs550 on the Bombay Stock Exchange—a premium of Rs10 to the issue price in a volatile market where several firms have deferred their share sales. A unit of General Electric Co., GE Equipment Services Ltd, picked up 15% stake in the Kolkata-based company before its public offer.