On track for now, will weak passenger biz derail Titagarh’s growth?

Titagarh is looking to expand its presence in passenger rail systems. Photo: PTI
Titagarh is looking to expand its presence in passenger rail systems. Photo: PTI

Summary

  • The freight rail systems segment performed well in Q3, leading to overall revenue growth of 25%, but revenue from the passenger rail systems segment dropped 35%, owing to the completion of the Pune Metro contract

Titagarh Rail Systems Ltd stands out as a key beneficiary of the government's focus on boosting rail infrastructure. In the interim budget, capital expenditure for railways was set at 2.5 trillion (lakh crore). The government plans to implement three major economic railway corridor programmes, and aims to upgrade 40,000 standard rail bogies to Vande Bharat standards. Titagarh is expected to benefit from this, given its 25-30% market share in wagon manufacturing.

In December the company clocked a record-high monthly production of 1,021 wagons. The Kolkata-based firm reported robust numbers for the December quarter (Q3FY24). The total order book stood at 27,466 crore, which offers medium-to-long-term revenue visibility. Total unexecuted orders stood at 19,259 wagons. “With Indian Railways likely to award tenders for about 23,000 wagons over the next quarter, we believe Titagarh’s order book should improve going ahead," said analysts at Nuvama Institutional Equities.

Titagarh is also looking to expand its presence in passenger rail systems. Ongoing projects here include the Pune Metro, Bangalore Metro, Vande Bharat, Surat Metro, Ahmedabad Metro and development orders for propulsion. This segment comprised 50% of the company’s order book as of the end of December, with freight rail system orders making up the rest.

 

The freight rail systems segment performed well in Q3, leading to overall revenue growth of 25% for Titagarh. However, revenue from the passenger rail systems segment dropped 35% in Q3, owing to the completion of the Pune Metro contract. The next contract doesn’t start until April – hence the fall in revenue.

While Titagarh believes it has the capacity to produce 15-20 coaches a month by the third quarter of FY25, it delivered just three to four a month last quarter. Although this segment’s performance has not been up to the mark, the potential for growth is huge, thanks to a robust order book of 13,650 crore, said Sunny Agrawal, head of fundamental equity research, SBI Securities.

Moreover, partnerships with ABB India Ltd and a wholly owned subsidiary of Amber Enterprises India Ltd will help Titagarh increase its wallet share in the passenger rail systems segment and reduce its dependence on external vendors.

Investors in the company are sitting on handsome gains. In the past six months the stock has gained as much as 58%. The stock trades at 40.5 times the company’s estimated FY25 earnings, which appears pricey. Apart from the ramp-up of the passenger rail systems business, investors should keep an eye on overall order inflows and project execution.

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