Home / Companies / News /  Titagarh Wagons concludes acquisition of Italy’s Firema Trasporti

Titagarh Wagons Ltd on Thursday announced that it has concluded the acquisition of an Italian passenger and metro coach maker, gaining access to new technology and a robust manufacturing base, but one which isn’t immediately efficient or profitable.

Firema Trasporti SpA has an order book of €220 million, or 1,526 crore at current exchange rates, but these orders, which are to be executed over 18-24 months, will only make a “small positive contribution", Titagarh’s managing director Umesh Chowdhary said.

Titagarh’s board has approved an investment of up to €25 million into Firema through a mix of debt and equity. A special purpose vehicle (SPV) with a capital base of €10 million has been incorporated in Italy to control Firema. Titagarh owns 90% of the SPV, and its Italian partner Adler Plastic SpA, the balance.

Founded in 1993 by the merger of eight companies, Firema was put under Italian bankruptcy administrators in 2010.

Titagarh teamed up with Adler Plastic to acquire the assets of Firema’s metro coach and high-speed train manufacturing business.

No liabilities of the business, except the ones related to the orders under execution (such as advances from customers), are being taken over.

After several failed attempts to forge an alliance with global leaders, Titagarh has finally got access to technology for manufacturing passenger and metro coaches and boosting its low-cost operations in India, chairman J.P. Chowdhary, Umesh’s father, said.

Emerging economies in Asia and Africa could be key markets for the group going forward.

Titagarh, which at the beginning of the current fiscal year had an order book of 875 crore, has the capacity to manufacture so-called EMU (electric multiple unit), or self-propelled trains, at its factory in Uttarpara in West Bengal, but by Umesh Chowdhary’s own admission, “they aren’t good enough to take us to the next level".

Titagarh expects Firema’s technology to make a difference.

Back in 2007, Firema registered an operating profit of €28 million on revenue of €195 million, which translates into a margin of 14.35%. It has been rolling downhill since, and Firema’s true potential hasn’t yet been realized, Umesh Chowdhary said. The company has four factories spread across Italy and manufactures components as well, apart from trains and coaches.

Because of intense competition, wagon manufacturing in India has almost become unviable, and companies such as Titagarh are bending over backward to diversify.

For Titagarh, the focus is passenger coach manufacturing, but it isn’t technology alone that got Titagarh interested in Firema; there’s opportunity to scale up the Italian firm’s output and profitability as well, said J.P. Chowdhary.

“We found out that one of Firema’s key sales executives hardly ever stepped out of its factories, and the only language he spoke was Italian," said J.P. Chowdhary, adding that Firema did not look beyond its domestic market for growth.

To make it more efficient, Titagarh has retrenched 160 people from Firema’s workforce of 500, and concluded a negotiation with trade unions to cut pay of those retained by 6-12%. The net effect on staff cost is “substantial", according to Umesh Chowdhary. Titagarh has also started negotiation with the Italian government for tax breaks, he added.

Back in 2010, Titagarh acquired an ailing freight car manufacturing facility in France. The erstwhile Arbel Fauvet Rail SA (since renamed Titagarh Wagons AFR) has been turned around. In the past five years, its revenue has jumped from €2 million to €49 million, and it has also started making profits, said Umesh Chowdhary.

Titagarh is looking to integrate its Indian and European operations to combine technology with low-cost manufacturing. To refurbish and scale up its domestic operations, it recently concluded the sale of 15 million shares at 99.41 each to raise 150 crore from institutional investors.

Shares of Titagarh rose 2.55% to close at 112.50 in Mumbai trading on Thursday, while the benchmark Sensex rose 0.88% to close at 28,446.12 points.

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