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Home / Market / Mark-to-market /  Texmaco, Titagarh broaden product offering, rail orders should follow now

As the government tries to revive Indian Railways, wagon manufacturers are broadening their product portfolios. Texmaco Rail and Engineering Ltd is merging Kalindee Rail Nirman (Engineers) Ltd with itself. The latter does signalling, telecommunications and railway track works. Titagarh Wagons Ltd has received regulatory approval to acquire a rolling stock manufacturing company in Europe.

The merger will help Texmaco climb the rail business value chain. Sporadic ordering and intense pricing pressure have rendered wagon manufacturing no longer lucrative. From around 17 lakh three years ago, the price of a wagon has come down to about 11 lakh, Dolat Capital Market Pvt. Ltd says. As a result, both revenue and profit of Texmaco fell in the last fiscal year. “Besides, what is more worrisome is the predatory pricing in the recent tender for 2015-16," Texmaco said in May.

Compared with this, Kalindee registered a healthy double-digit growth in revenues. Last fiscal year, it posted a loss due to high interest costs and provision for bad debts. But Kalindee’s margins are better than Texmaco’s. A merger can help Kalindee overcome liquidity constraints. Texmaco will get a chance to offer an array of services and products, based on which it can bid for large-value turnkey projects in rail infrastructure, be it in the private sector or for Indian Railways.

Like Texmaco, Titagarh also aims to broaden its railway product portfolio. It has started manufacturing electric multiple units and metro coaches. The bid for the European company, if it succeeds, will increase Titagarh’s capabilities in the rolling stock business. Through the acquisition, Titagarh plans to cater to the both state and private sector customers.

These steps should help take Texmaco and Titagarh a long way. With the Indian Railways looking to overhaul its networks, analysts see greater business emerging in infrastructure segments like communications and rolling stock. “The big business and investment opportunities will come from segments like infrastructure, safety and rolling stock. The wagon business is a very minuscule portion of overall business in Indian Railways," Dolat Capital Market Pvt. Ltd said in a note.

Tracking these prospects, these stocks rose sharply in the last year. Though companies are yet to see strong order inflows, it is critical that the government plans translate into business for these companies in the next few months.

The writer does not own shares in the above-mentioned companies.

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