TEAM ITICB TECHNICAL VIEW FOR RAILWAY BUDGET
Saturday, June 27, 2009 Labels: VIEW FOR RAILWAY BUDGET 0 commentsTEAM ITICB TECHNICAL VIEW FOR RAILWAY BUDGET
Countdown to Railway Budget 2009-10
As per the latest media reports, the Railway Budget for 2009-10 will likely to be presented on July 3, by the Railway
Minister Ms. Mamata Bannerjee before the parliament. The budget session of the parliament will commence from
July 2, and the General Budget for 2009-10 will be presented to the Lok Sabha on July 6. After winning a thumping
majority in the recently concluded Lok Sabha Elections, this will be the first rail budget for the Manmohan Singh
government and quite naturally the expectations from the budget will be high. Whether the government can fulfill
the expectations will be determined by how deftly it can handle the balancing act it has to do by the way of a
populist budget (targeted at Aam Aadmi) and a reformist budget (focused mainly on revenue generation and
improving the health of the railways).
The Indian railways have one of the largest networks of trains in the world and since the first rail from Bombay to
Thane stated in 1853, Indian railways has come a long way. Every year the ministry of railways presents the railway
budget in the parliament. The Budget is presented two days before the general budget. It has to be passed by the
Lok Sabha before it is accepted. Though the railway budget is presented separately, figures of income and
expenditure is shown in the general budget. The rail budget deals with passenger fares and tariffs to be levied. It
also tells about the income generated from the previous year and the expectations from the coming year. It talks
about new stations, passenger amenities, tariffs on parcel and goods and many more. Of late, as the government is
facing stiff competition from the low cost airlines, so one of the main focus areas of the budget is how it can aim to
draw more number of passengers to increase its revenues.
Beneficiaries of Railway Budget
There are handful of stocks to watch out for, which derive a large part of their business from the railways. These
companies are gearing up to grab opportunities thrown up by the Indian Railways’ Plan entailing an outlay of Rs
2,30,000 crore during the 11th Five-Year Plan. These stocks are likely to be beneficiaries of the Railway Budget.
• BEML : To meet the growing demand of wagons and new-gen suburban rail (EMU) coaches, the railways have
already farmed out orders to various coach manufacturers, prominent among them is BEML. Thus the
company will likely to benefit from the additional demand for wagons and rail coaches.
• Titagarh Wagons : Indian Railways has decided to step up its share of procurements from private sector
players for new-gen suburban rail (EMU) coaches. As part of the move which comes under its public-private
partnership initiative, the Railway Board is shortly expected to invite fresh tenders for supplying 21 rakes
from a clutch of companies, among which Titagarh Wagons is one. Moreover, as per railway officials, in the
immediate future, the share of private players is only likely to go up, thus benefiting the company from the
additional demand for wagons and rail coaches. Titagarh Wagons, which supplied the first coaches within six
months of getting the final order and design, claims to be the first private sector player to supply EMU
coaches to Indian Railways. The company has set up a new facility at its existing factory at Hind Motor to
meet the Railways order.
• Stone India : Stone India is engaged in manufacturing equipment for railways like alternators, air brakes and brake regulators. The company would get business from replacement of old wagons
• Kalindee Rail Nirman : Kalindee Rail specialises in railway tracks, signaling and telecommunications. It has
order book of over Rs 450 crore, including about Rs 150 crore from the Delhi Metro Rail Corporation. The
huge investment earmarked by railways for freight corridor project will benefit this company. Kalindee Rail
is expected to get orders worth Rs 500 crores from the Indian Railways in next few years.
• Texmaco : It is widely expected that in the railway budget, government will add more capital assets and
revise the Liberalised Wagon Investment Scheme, which could generate more demand for wagons. This will
boost the prospects of wagon manufacturers like Texmaco. The company has decided to raise upto Rs 200
crore of fresh resources from the market to finance future growth plans, including the setting up of a
greenfield metro coach manufacturing facility. The company turned out to be the largest winner of rolling
stock orders from the Indian Railways in 2008-09. It bagged orders for 3,455 wagons courtesy belated release
of orders. The current order book of Texmaco stands at around Rs 1,300 crore.
After achieving the turnaround of the behemoth called Indian Railways in the hands of erstwhile rail minister Lalu
Prasad Yadav, of late the railways has been increasingly focusing on revenue generation and improving its
profitability. The railways have done this fine balancing act of increasing their revenues by way of reducing
passenger fares (to woo the Aam Aaadmi) and at the same time more than compensating from the increased freight
rates. Contrary to popular expectation, there was no revision in the freight rates for transporting cargo by the
railways in the recently announced Interim Railway Budget by the Railway minister Lalu Yadav. This has dealt a very
hard blow to the Indian industries which had been reeling under the impact of slowing trade and were hoping for a
rates revision.
This has impacted the steel and its allied industries. Steel, coal, iron ore and cement are some of the main
commodities that are transported through the railways and any change in their transportation cost could have
lowered cost of production. This was of immense importance to the already sagging sector. The railways had hiked
freight rates during the price boom last year, but had rolled it back to a certain extent in view of the downturn. The
Indian railways moves 68 percent of coal, 64 percent of iron ore, 50 percent of cement and 40 percent of steel and
more than 80 percent of traffic movement in the country is carried out through railway lines. However keeping in
mind the global economic slowdown, and since now the Congress government has renewed its focus on Bharat
Nirman by improving the industries and infrastructure for the country, one cannot rule out a possibility of
rationalizing the rate structure to help the core sectors (steel, cement, oil) of the economy to face the economic
downturn. Rationalisation of rate structure (if it comes in the rail budget) will benefit steel, cement and oil sectors.
Lower freight charges for petroleum products, iron, steel and cement and reduced surcharges on coal and other
commodities will woo traffic from the road. If there is a cut in the freight rates, the companies operating in key
commodity sectors like steel, cement and chemicals will be the passive beneficiaries of the move.
• Steel companies – SAIL, JSW Steel, Tata Steel : If the freight rates are reduced, then the biggest
beneficiary of the rationalisation of the freight structure will be the steel industry. For Steel Authority of
India Ltd. (SAIL), the country’s large steel producer, it could result in savings in its inward and outward
freight costs. Also, rationalisation of the freight of other inputs (if done), would lower the overall cost of
production and will boost the profitability of the steel companies like SAIL, JSW Steel and Tata Steel.
Moreover, the last interim railway budget has made no change in the classification of iron ore for domestic
movement. This has been another disappointment for non-integrated steel producers. Iron-ore comes under
classification 180, which was changed from 170 to 180 in October 2008, which in turn increased the rail
freight by about 6 percent for steel producers. Thus a much sought after classification for iron ore for
domestic movement will reduce costs for the non-integrated steel producers.
• Cement companies : If there is a reduction in freight costs in the upcoming railway budget, it will increase
the transportation of cement through the railways. At present, only 50 per cent of the total cement
produced in the country is transported by rail. Over the years, cement producers had shown a preference to
transport their produce to markets from the production unit by road or through ports. However, if the
railways offer more concession to the cement traffic the trend might get reversed. Moreover, in the rail
budget, priority may be given to port-rail connectivity projects, which will also facilitate the cement
transportation.
• Petroleum Sector : Almost all petroleum products – crude, petrol, diesel, liquefied petroleum gas (LPG),
naphtha, furnace oil and lubricating oils are transported through railways. Once the freight rates for these
products are lowered, it will have a positive impact on profitability of the refineries. Thus if the rail budget
proposes a reduction in freight, the oil companies might enter into long-term agreements and commit
guaranteed additional traffic for the railways.
• Construction companies – L&T : The rail budget is expected to come with initiatives to boost construction
related works, like bridges and flyovers. L&T which caters to this segment will be the beneficiary from these projects.
ANALYSIS BY TEAM ITICB TECHNICAL VIEW FOR RAILWAY BUDGET
