Non-Railway orders, improved Working Capital help Titagarh Wagons

Titagarh Wagons’ revenue rose 60% in March quarter on better execution and contribution from businesses other than those catering to the Indian Railways

Kolkata (KOAA): Titagarh Wagons Ltd reported a 60% jump in revenue for the March quarter on better execution and contribution from businesses other than those catering to the Indian Railways. A favourable base also helped. Due to delays in the release of orders by the Indian Railways, revenue in the year-ago period had fallen 50%. Compared with the December quarter, revenue is up 15%.

Nevertheless, execution was strong. Revenue from wagons and coaches grew by a robust 80% from a year ago as contributions from non-Indian Railways-related businesses increased. But execution of “un-remunerative” railway contracts meant that the margin of 10% and Ebitda (earnings before interest, taxes, depreciation and amortization) of about Rs.11 crore is lower than what the company saw in the December quarter. In the last fiscal year, the company recognized a loss of Rs.17 crore on the railways contract.

Even though the company executed only a part of the “un-remunerative” railway contract, two variables can aid its profitability in coming quarters. One is the expansion of the non-Indian Railways businesses—exports, coaches and defence contracts. The company signed several export contracts which should help it make up for the low-margin railways business. “With the help of our French company, we signed contracts with African countries,” Umesh Chowdhary, Vice-Chairman and Managing Director of Titagarh Wagons said. “Last year, contribution of Indian Railways wagon business to our revenues was very low,” he explained.

The second factor is the easing of working capital requirements. Over the last fiscal year, the company significantly lowered its short-term borrowings. Inventories fell by more than one-third. As a result finance costs fell to a little over Rs.1 crore in the March quarter. “On the balance sheet side, working capital position of the company improved significantly as company got rid of the old inventory and bad debtors,” Religare Capital Markets Ltd said in a note.

The optimism is visible in Titagarh Wagons’ share price. The stock more than doubled in the last six months. At around 21 times the earnings per share estimates for the current fiscal year, valuations are no longer cheap. With the balance sheet cleaned up (low debt and working capital requirement) outperformance of the stock will depend on the sustainability of revenue growth.

Here’s the issue in a nutshell: stand-alone revenue stood at Rs.378 crore for the last fiscal year. Two years ago in 2011-12, the company registered revenue of Rs.671 crore. A revival of railways ordering and a pick up in domestic orders would help investors immensely.

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