Titagarh Wagons: High hopes on railway reforms

Titagarh Wagons Ltdटीटाघर Titagarh (TGH): Titagarh Wagons Ltd’s shares gained 6% after the company said it received a contract to rehabilitate 56 coaches of the Kolkata Metro Railway. The contract gives a fillip to sentiment, which is down in the dumps due to delayed orders from Indian Railways. As the economy has slowed, private firms also deferred wagon purchases. As a result, consolidated revenue fell 20% and the company slipped into a loss last fiscal year.

The order helps Titagarh Wagons enter the Metro coach business, demand for which is estimated to grow as new Metro lines are built. The management told that 19 Metro projects are estimated to come up in the country and it is planning to bid for all of them.

Still, it may be too early to rejoice. The business is still at a nascent stage. The Kolkata Metro contract is estimated at Rs.25 crore, or only 4% of last fiscal year’s consolidated revenue.

Also, the company is looking for a technology partner who can help it gain a foothold in the Metro coach business. “While our ultimate objective is to find a suitable technology partner and add to the present portfolio of products and undertake manufacturing of Metro coaches and other modern passenger coaches, this order provides us with a stepping stone into this segment of business,” Umesh Chowdhary, Vice-Chairman and Managing Director of Titagarh Wagons, said in a statement.

The existing wagon and coach manufacturing business remains the core business for the firm, the outlook for which is improving. Business from Indian Railways has resumed and Titagarh Wagons has begun production of electric multiple units (a train consisting of self-propelled carriages, using electricity as the motive power). With an order backlog of more than Rs.600 crore, the firm is hoping to do better than the last fiscal year.

The optimism is visible in the Titagarh share price. The stock more than doubled in the past two months (up 120%). For it to continue the outperformance, the much talked about reforms in the railways infrastructure sector should take place.

Financial constraints have forced Indian Railways to defer investments. Expectations are high that the new government will give priority to modernization and expedite the work on the freight corridor, which can increase orders for companies such as Titagarh.

“The new government has been giving all the right kinds of messages about developing the country’s railway systems to becoming a modern, world-class railways, and it is probably for the first time in my memory that I have seen such a great vision, focus and attention towards development of railways,” said Chowdhary.

The railway budget will show whether these hopes are realized.