Tiff with Railways resolved; Weak demand Hurting: Titagarh’s Umesh Chowdhary

In an interview, Umesh Chowdhary, VC & MD of Titagarh Wagons said that a new government tender is expected in the near-term with provision for 17,000 wagons

Titagarh Wagons managing director Umesh Chowdhary during a press conference in Kolkata recently
Titagarh Wagons managing director Umesh Chowdhary during a press conference in Kolkata recently

Kolkata (KOAA): Weak demand – both from the Ministry of Railways as well as Private Sector – has impacted growth, Umesh Chowdhary, Vice Chairman (VC) & Managing Director (MD) of Titagarh Wagons  told in an interview. He, however, expects a new tender from the government in coming few days.

Chowdhary said the recent stand-off with Railways on differential pricing has been resolved mostly and the new tender is expected to have provision for 17,000 wagons. In the FY15 cancelled tender, there was provision for 8,000 wagons.

The company’s current order book stands at Rs 2,500 crore, of which domestic orders account for Rs 600 crore. Execution of Railways orders from last year has begun and the revenues will reflect in the December quarter, Chowdhary said, adding that private orders will also be executed in this quarter and the next  Titagarh recently completed acquisition of Italy-based Firema Trasporti. The company has an order book of 220 million Euros, which will be executed over 18 to 20 months, he said. Titagrah will benefit from advanced technological efficiencies of Firema, Chowdhary said. Below is the transcript of Umesh Chowdhary’s interview:

Q: Very recently there was a stand-off between the wagon manufacturers as well as the Indian Railways on the subject of predatory pricing of the wagons. In fact, the allegation was that it was below cost pricing of wagons. Has that been resolved and now what is the current price of wagons?

A: Firstly, I would not call it a stand-off. I do not think that the industry has the capacity or it has been a partnership of the industry with the railways, never has there been a stand-off. There was a situation wherein some people went ahead and quoted prices which were abysmally low, and they were unrealistic. And the railways themselves realised that it is unsustainable, because railways themselves have their own production units, there are public sector undertakings. It was 20 percent lower than even the raw material, direct raw material cost. So, the industry kind of threw their hands up. They said that it is impossible for us to do this and the railways have started understanding that and they formed a committee to revise the procurement procedure, etc. So, while partially I would say that problem has been resolved in the sense of the railways in principle having gone ahead with the differential pricing regime. But, till today, the new tender is still not floated and we hope that with this new tender, which is likely to be floated in the next few days, weeks, whatever, this problem should be a thing of the past.

Q: But, when we spoke last, you were telling us you were expecting orders to come in, you are expected to see some traction in quarter two. Now, quarter two, we are almost at the end of it. So, do you believe now, it will come in quarter three? Also give us an update. What is your order book looking like? Domestic orders, export orders, total order book.

A: The total order book on a consolidated basis including our Italian was going to about Rs 2,500 crore. The domestic – Titagarh standalone – was close to about Rs 600 crore in which about Rs 100 odd crore was from exports. As far as the resolution of the problem is concerned, yes, we were hoping that the tender will be out in Q2. I am an optimist. I still see 15 days left in Q2. I hope that tender should be coming out because it is in a stage that the tender can come out any day. So, I believe that the railways themselves need wagons because they are facing a shortage for wagons. Maybe it will spill over by a few days, weeks in Q3, but then, that is just a number. Whether it happens on September 30 or on October 1, the quarter changes, things do not change.

Q: What has been the total wagon ordering so far in FY16 and secondly, the new tender which is to be floated anytime now, what will be the size of that?

A: There has been no ordering. The FY15 tender, which came out of 8,000 wagons, had to be discharged because most of the people did not accept. Apart from some orders that went on the lower price, the realistic prices were not finalised. Therefore, part of that tender had to be discharged. As far as FY16 is concerned, the tender that is likely to come out in the next few days. We are hearing of course, these are only at best, hear-says, although in the Budget, they had provisioned about 17,000 wagons. We are hearing that this quantity might actually be a slightly more than that. But then, we have got to wait and see what happens.

Q: That is about the government orders that are coming in. But, also are there any private orders that were coming in? Could you just tell us about that also? We are talking about defence orders. There is so much of talk about defence orders after this new government came in. do you expect something to come in on that front as well?

A: We did receive some orders last year which are starting to get executed from this month itself. So, the real benefit for our company will start coming in from, again if we name the quarter, it will be the next quarter, but I do see traction happening in the defence, but not much of finalisations have really happened in the defence. And again, when I was talking to my defence colleagues and complaining about it and they have worked in the defence system for years, they explained that the whole process is so cumbersome and there are so many intricacies involved that one cannot expect overnight decisions in the defence order. But, one has seen a lot of traction. The Expression of Interest (EoI) of the Futuristic Infantry Combat Vehicle (FICV) came out and a lot of requests for information (RFI) and requests for quotation (RFQ) have been coming out. In our sector, no big tender finalisation has taken place, but again, I believe that that is not something that I am expecting this fiscal. I am expecting that the defence tenders, at least as far as we are concerned, should really start contributing to us in the next and the next fiscal after.

Q: Getting a bit specific you all have done an acquisition of an Italian company called Firema Trasporti in July has that been closed? What will be the revenue as well as margin contribution on account of this acquisition to the company’s financials in FY16?

A: The acquisition has been closed. That company is now called Titagarh Firema Adler. Adler being the minority shareholder, holding 10 percent stake in the company. We started the operation, the production in fact I was there in Italy till yesterday and just got back and the work has started off on a good note. The company has an order book of about 220 million euro to start with. That is likely to get executed over the next 18-20 months. We have started participating in tenders all over the world for that of course in Europe but also outside Europe. The big advantage that this company gives us is that we were primarily in the freight wagon segment. This completely changes the ball game. This kind of gives us a technological jump in our existence, in our whole group. Now the company has made trains up to 300 kilometers an hour. This has done all the modern inter-city expresses, regional trains. It has done locomotives. It has done trams for Oslo and Manchester. The Milan Metro system has been done by them. So, all these things really would give us a great edge so I would believe that this segment will offer great deal of excitement to the group?

Q: The last time we spoke as well, you were indicating about double digit margins. Even the last year you were indicating double digit margins. First quarter it didn’t look like that, your revenue guidance of around Rs 700 crore gettable, but double digit, 13-14 percent margins, do you see that coming in the next few quarters?

A: I do see so. I must admit that I would have expected that the wagon orders would have been released much faster and things would have been a little more sane as far as the industry is concerned, the same predatory pricing that we spoke about. That has been a dampener for us in the first quarter and part of the second quarter. Also, as I had mentioned that the railways had asked us to accept the lower price in existing orders also. The prices quoted by one of the bidders which was unrealistic, they had asked us to accept those prices and we kind of again threw our hands up. We said it is impossible. Just last month the railways have come back and said okay you supply it at your previous contracted price. So, the supplies will start from September. So, I believe that things are moving in a positive direction and I see that from the coming quarter onwards things would start getting normalised to a great extent.

Titagarh Wagons stock price

On September 15, 2015, at 14:56 hrs Titagarh Wagons was quoting at Rs 98.60, up Rs 2.45, or 2.55 percent. The 52-week high of the share was Rs 873.00 and the 52-week low was Rs 86.00. The company’s trailing 12-month (TTM) EPS was at Rs 0.89 per share as per the quarter ended June 2015. The stock’s price-to-earnings (P/E) ratio was 110.79. The latest book value of the company is Rs 54.30 per share. At current value, the price-to-book value of the company is 1.82.

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