Umesh Choudhary, Vice Chairman, Titagarh Wagons says there have been news reports on earnings of railways having dropped for the first time. He says it is a vicious cycle, if they do not make new capital investment it would hit their earnings.
“We are trying to de-risk ourselves from the wagon business of the Railways” he said.
The Railways has not finalised any tender for wagons in the past 2.5 years, which has caused a lot of pain for wagon makers like Titagarh Wagons . So much so that its net sales fell 80 percent and the company recorded a loss on an EBIT level. He expects a tender to get finalised in the next few weeks.
Titagarh Wagons posted a net loss at Rs 3.4 crore against a profit of Rs 8.97 crore on sales of 31.09 crore against Rs 153.63 crore year-on-year for the December quarter.
Umesh Choudhary, Vice Chairman, Titagarh Wagons says there have been reports of a drop in railways’ earnings for the first time. He says it is a vicious cycle, if they do not make new capital investment it would hit their earnings. He refrained from giving any forward looking projections at this point of time.
Q: Can you just tell us what happened which was so exceptional this quarter that your net sales fell 80 percent and you recorded a loss on an EBIT level in every segment that you operate in?
A: The primary segment if you see our historical numbers is our wagon business and it has been a very exceptional circumstance for the last 2.5 years, the railways have not finalised any tenders for wagons whatsoever. They did float a tender, I was on your channel about three months ago and I mentioned that the tender had been floated and we are hoping that the same would be finalised, but it is still not finalised yet, as a result of which the industry has absolutely no orders left with it at all.
We are hoping that the tender should get finalised in the next few weeks which will bring us some workload. On the private side the capital investment of all the container crane operators and special crane operators has also been completely stopped because of various reasons. They have not been themselves making capital investment.
Q: What is the hope for this quarter? We are already four weeks down or one third of the quarter down and we hear that there will be a big axe on plan expenses. Will that result in this order becoming a casualty or are you pretty sure of at least this tender coming in?
A: I am overseas right now, but I was just seeing some news articles about railways earnings having dropped for the first time. There has been less growth, but this is the first time that they have actually dropped. This is a complete vicious circle that the railways would get into, if they do not make new capital investment it would hit their earnings. I presume that railways must invest in wagons and even if the plan expenditure has to be cut, it cannot be cut in the earning commodity, wagon is the highest earning commodity as far as any rolling stock is concerned.
Q: How much business will it give you even if this order came by? What is the amount of the order?
A: I cannot second guess the amount of the order, because that is something which goes through a process, the railways would be placing an order. What I can also share with you is that the coach division of the company was absolutely non-functional for almost a year and half because of the technical issues with the railways. The railways were not issuing the designs, primary specifications; atleast that got resolved last month. As a result of which that revenue will start coming in from the coming quarter. The company is executing some export orders for wagons from Bangladesh which also would get reflected in the current and the coming quarters. So we are trying to de-risk ourselves from the wagon business of the railways but obviously it takes a little bit of time.
Q: That is the reason why you are also foraying into the manufacturing of tractors as well as agri equipments. Can you just tell us what your plans are there? What the capex line up will be and what sort of potential do you see from the agri space?
A: The capex is not going to be very large, because most of the facility in the infrastructure that we already have is going to be utilised, so it is going to be the balancing investment that is going to be required to be put in. We have created a subsidiary and the subsidiary has already been manned. We have some very good people who have already joined, who are experts in the field. We are intending the rollout of tractors from the coming financial year and I think this market has got a great potential because agri spend is going to continue on the rise and if you see the tractor business there has been a 20 percent growth in this year as well. So we are pinning a lot of hope in this business and taking this business quite seriously. This is one of the de-risking plans from the Indian Railways wagon orders.
Q: Are you likely to report a loss this quarter as well? In that case will there be any threat to your payment of interest to banks. I notice that your finance costs run at about Rs 1-1.5 crore a quarter. Will you be able to maintain those payments as well as salaries?
A: I would not be able to give any numbers as far as the current quarters are concerned, because that would be forward looking, but our financial costs are not at all high. If you see the financial costs that we have are primarily on account of bank charges for bank guarantees that have been issued and some interest on working capital, so we are completely debt free. I do not expect that the financial cost is going to be of any burden to us and as far as the results for current quarters are concerned, as I mentioned we are executing some export orders for this quarter, so we hope that the quarter should be better, but I would not really give any forward looking projections at this point of time.