Mumbai: Shares of Indian railway wagon makers tumbled after the rail budget announcement on Wednesday as investors were unconvinced about the government’s ability to fund projects laid out, a view mirrored by the companies themselves.
Railway minister Mamata Banerjee in her budget presentation said the government has set an annual spending target of Rs41,426 crore and proposed to spend Rs13,140 crore on wagons and other locomotives in 2010-11.
“Railway stocks see few near-term benefits, possibly given the financial constraints of railways and have shed any gains made in recent weeks,” said Amar Ambani, vice president of research at India Infoline Ltd.
Although investments are necessary to boost infrastructure and enhance connectivity in the railways, which transports more than 18 million passengers and over 2 million tonnes of freight daily, a widening fiscal deficit may mean that the funds for such investment may not be easily available.
With nearly two-thirds of the country’s cargo still transported over roads, the railways recently opened the sector to private players to carry containerised cargo to regain share.
“At the end of the day you need massive amount of funds for these projects and funds are currently not available,” said Sajal Mitra, chief executive of Arshiya Rail, a unit of logistics firm Arshiya International.
“Last year also, a lot of projects were announced and nothing really took off,” he said.
Banerjee ruled out disinvestment in the sector in FY11 though there were several projects under public-private partnership route in the offing.
She also announced setting up of five new wagon plants, which may be a concern for private wagon makers, as the railways will then have its own capacity, instead of buying wagons from private players every year, analysts said.
However, officials sought more clarity on this proposal.
“She’s announced a proposal for five wagon plants but we need to see what exactly is she talking about,” Umesh Choudhary, vice chairman of Titagarh Wagons, one of the biggest wagon makers in the country, said.
“My understanding is it would be for repair and maintenance. There is no clarity on it yet.”
Last year, Banerjee announced orders to get 18,000 new wagons but companies said these orders have not been finalised yet. For FY11, Banerjee has announced another 18,000 wagons.
“I dont see any immediate flow of orders. The 18,000 wagons ordered last fiscal will hopefully start flowing out in April,” Sameer Ranade, analyst at brokerage Asit C Mehta, said.
Shares in Titagarh Wagons, Kalindee Rail Nirman and Texmaco fell 5-8% after a budget amid a broader market that was a tad lower.