Rail infra focus leaves some stocks in a sweet spot

Mumbai: The rail budget generated mixed reaction from the stock market, with stocks of railway-linked companies and service providers benefitting from a 52 per cent higher plan outlay, which has risen to Rs 1 lakh crore for this financial year.

The freight rate hike has had a negative im­pact on producers as well as consumers of commodities such as coal, steel, cement, urea and foodgrain.

“The 52 per cent hike in plan allocation for railways should result in more order flow for companies in the rail infrastructure space, ranging from manufacturers of rails, signaling, wagons and rolling stock, among others,” said R Sreesankar, head of insitutional equities at Prabhudas Lilladher.

“We also understand from channel checks that orders for wagons budgeted for FY2015 are yet to be released and it can turn out to be a better year for the wagon manufacturers as FY2016 has seen a 60 per cent higher allocation than in FY2015 for investment in wagons,” Sreesankar said.

Vinod Nair, head of fundamental research at Geojit BNP Paribas, in a report said the increase in annual freight capacity to 1.5 billion tonnes from 1.05 billion tones augurs well for the logistics service providers. The railway minister also said that Indian Railways would partner with PSUs to ensure critical commodities like coal are transported on a priority basis.

“The announcement is positive for Gati, Container Corporation and Gateway Distriparks on account of higher freight capacity,” the Geojit BNP Paribas analyst said.

In the railway EPC space, the proposal to increase track capacity by 10 per cent to 1.38 lakh km and construct road over bridges (ROB) for unmanned level crossings is a positive for Kalindee Rail Nirman.

The budget sanctioned 6,608 km electrification in FY16, which is a positive for Simplex, Transformers and Rectifiers India and Hind Rectifiers.

The proposal for additional wagons and coaches would be positive for Titagarh Wagons, Texmaco Rail and BEML. The railway minister also announced 1000 mw solar power projects on railway land or rooftops, which will be a positive for solar power developers like Indosolar and others.

“The 10 per cent freight hike for fertiliser will be neutral for companies like RCF, GSFC, Madras Fertilizers, as freight cost will be borne by the government,” Geojit BNP Paribas said.

The 2.7 per cent freight hike for cement will be marginally negative for the sector but the higher freight rates for coal, iron and steel, cement and fertiliser will have mixed and varied response from the companies.

The freight rate for coal, which was hiked by 6.3 per cent from Rs 723 per tonne to Rs 767, will be negative for merchant power companies such as Adani Power and Jindal Steel and Power (JSPL), as the rise in cost will impact margins.

However, it will be neutral for Coal India, as it passes on a major chunk of the freight cost to the consumer.

The freight rate on domestic iron ore has gone up by 0.8 per cent from Rs 1,379 per tonne to Rs 1,390, but it will be neutral for the steel companies as the rate hike is not material.

Emkay Global Financial Services analysts Dhananjay Sinha, Nitin Arora and Kushan Parikh said, “For cement, the 2.7 per cent freight increase will lead to average price increase by Rs 8 a tonne while the 6.3 per cent increase in coal freight will lead to an average increase of Rs 5 per tonne in operating cost of the industry. This is not very significant and a price increase of Rs 16 per tonne (Rs 0.8/bag) can neutralise this impact.”

The ‘swachh railway’ mission, bio-toilet scheme and waste-to-energy conversion plants would be positive for A2Z Infra, Sintex Industries, VA Tech Wabag. The thrust on rail safety and introduction of surveillance camera will be positive for Zicom, Nelco, as they focus on integrated security and surveillance. More focus on the signaling systems for safety measures will be a positive for Kernex Micro and Kalindee Rail.

The steps towards modernisation by introducing automatic ticket vending machines and smart cards are positive for CMC, which is engaged in high-speed reservation, ticketing and distribution services. Air-conditioned local trains in Mumbai will be positive for Hitachi, Voltas and Blue Star.

Angel Broking in a report on the rail budget said, “Track doubling/tripling/quadrupling works along with electrification of 9,400 km, covering almost all states at a cost of Rs 96,182 crore, which is over 2,700 per cent higher in terms of amount sanctioned, will be positive for BEML, Texmaco, Titagarh Wagon, Kernex Microsystem and Kalindee Rail.”