Long haul for rolling stock firms
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The talk about a massive capex by Indian Railways is yet to materialize in order inflows for the companies making rolling stock. Texmaco Rail and Engineering Ltd and Titagarh Wagons Ltd depend on the railways for a substantial part of their business and are saying they are getting sporadic orders from the national carrier.
“The rolling stock division of the company faces tough challenge due to irregular ordering by the Indian Railways,” said Texmaco in its June quarter results statement.
Titagarh said wagon orders were finalized only in May. Consequently, the company began executing orders only in June-end, implying a weak fiscal first quarter for the wagons and coaches division. This division’s revenues fell by 20% from a year ago. Still, both Titagarh and Texmaco managed to grow their revenues by a handsome 20% and 93%, respectively, but this was chiefly due to new accounting rules which boosted other income. Expectedly, investors attached little importance to this.
Titagarh shares fell sharply after the results announcement, while Texmaco gave up post-results gains in subsequent trades. While the stocks regained positive momentum this week, they are still far lower from their January levels. A mix of factors is weighing on them.
One is the quantum of orders. Wagon tenders from the railways remain limited, reconfirming the Street view that the railways’ decongestion plan is seeing higher spends on construction of new lines in the initial phase. “Against the requirement for 2016-17, the railways after several rounds of negotiation over the pricing of wagons tendered, finally placed orders for 1,338 wagons only on the company in May 2016,” adds Texmaco. Titagarh managed more orders at 2,118. But limited tenders and high competition means concerns on profitability of such tenders remain.
Through organic and inorganic routes, the companies have broadened their service offerings. Texmaco, for instance, gained exposure to rail electrification and track laying services, and prospects for these businesses are looking up. But in the same breath, its management remained non-committal about sustainability or improvement of margins from the June quarter due to “difficult” market conditions, in an interview to CNBC-TV18.
This sums up the rolling stock manufacturers’ situation. Wagon tenders remain few and intense competition can put undue pressure on margins. While the stocks are reflecting these concerns—both lost a quarter of their value so far this year—the June quarter results show the rail business is yet to gather steam.