Railways has agreed to revisit tender conditions whereby chances of predatory pricing are curtailed. We are hopeful of an early solution,” said J.P.Chowdhury, Executive Chairman of Titagarh Industries, and one of the industry representatives who attended the meeting
New Delhi: The crisis in the wagon industry that has forced most of the manufacturers to refuse the recent Railway order given out at price below cost of production is set to get resolved soon.
In a meeting between the representatives of the industry and the Ministry of Railways at New Delhi on Monday, the latter has decided to look into the charges of predatory pricing and examine reworking the clauses of tenders to reduce chances of any bidder quoting unrealistic prices that could hurt the economic health of the entire industry.
“In this year’s budget, the rail ministry had set a target to procure 16,800 wagons for this fiscal.”
The deadlock is over the tender floated by the rail ministry that closed on April 20. The lowest bid received by the ministry prompted several wagon makers to seek a review of the tender. They alleged that the lowest quote was unviable as it did not take into account the rise in production cost and was a clear case of predatory pricing.
“Railways has agreed to revisit tender conditions whereby chances of predatory pricing are curtailed. We are hopeful of an early solution,” JP Chowdhury, Executive Chairman of Titagarh Industries, and one of the industry representatives who attended the meeting told.
In June, the Railways had come out with a much-awaited industry wide order for 8,509 wagons. But, almost all the major wagon makers refused to produce those wagons for a price quoted as ‘L1’ (lowest) by one of the manufacturers. The industry had described ‘L1’ as predatory, as reported earlier.
The price quoted by the ‘L1’ bidder and accepted by the Railways with respect to the order for wagons of type BOXNHL was Rs 10.80 lakhs a piece, lower than previous year’s price of Rs 11.74 lakhs. The realistic price should have been not less than Rs 13 lakhs, the industry had told the ministry.
“Private wagon manufacturers fear their bottomlines could take a hit in the first half of 2015-16 unless the railways settle the impasse over its tender to buy 8,509 wagons”
Following this, the industry started making representation to the ministry through the Association of Rolling Stock Manufacturers of India.
The situation turned difficult for the industry as the companies had to explain to their idle workforce why the orders have been refused, for the first time ever, industry sources said.
Texmaco Rail and Engineering, the largest manufacturer of wagons, disclosed on Wednesday its predicament due to this crisis. In fact Texmaco, which announced its first-quarter (April-June) results yesterday, blamed the tender impasse for its dismal performance. The company suffered a net loss of Rs 4.1 crore against a loss of Rs 7.84 crore a year ago.
“The performance of the quarter was severely impacted due to abrupt downward revision of prices of wagons by the Railways against existing orders due to predatory prices quoted by a party against tender for wagons resulting in zero despatches of wagons on account of the Railways from May 2015 onwards,” Texmaco said in notes to its accounts on Wednesday when it reported a loss of Rs 4.10 crore on a topline of 127.60 crore.
In a filing with the BSE, the company said its performance for the quarter was “severely affected because of abrupt downward revision of price by the railways against existing wagon orders because of predatory prices” in the tender for 2015-16. Texmaco said it had resulted in zero despatches for the railways from May onwards.
Another city-based company, Titagarh Wagons, is yet to come up with its first-quarter result.
“Wagon makers are already struggling on account of delayed placement of order in the past. In the last tender, prices quoted were even below the material cost of making the wagons. So let alone keeping a margin, it does not even cover the cost. Unless the railways sort out the matter, many wagon makers will take a hit in the first half of the year,” said a source, adding that companies are estimating a loss of around Rs 3 lakh per wagon on account of lower prices. On an order size of 1,000 wagons, the loss will be Rs 30 crore.
“Representation has been made by the industry at various levels in the ministry of railways, which has taken cognisance of the same and is likely to revisit the tender conditions to enable wagon industry to be able to recover from the difficult conditions,” Texmaco said in its filing.
Industry observers said many private rolling stock makers were looking to diversify and execute orders from other sectors and even participate in foreign tenders to maintain a steady order book.