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Mitali Wagle Mumbai
Last Updated : Feb 06 2013 | 5:34 AM IST
The increased spend by Indian Railways on replacement and modernisation holds promise for a number of smaller companies.
 
The serial bomb blasts that rocked Mumbai have brought the Indian Railways into the limelight yet again. One can hear regular commuters debate on lesser number of trains, poor safety mechanisms coupled with outdated technology.
 
The Indian Railways (IR) for years was plagued by vote bank politics and highly subsidised tariff structures, and is struggling with dwindling finances and insufficient infrastructure.
 
But this scenario is going to change for the better as the ministry of railways seems to have realised its folly and a couple of years back promised huge investments to improve safety, technology and connectivity of its track network for passenger and freight trains.
 
The ministry has also earmarked substantial funds for replacement and modernisation of the present infrastructure. These initiatives will translate into orders for companies such as Stone India, Kernex Microsystems, Texmaco and Kalindee Rail Nirmaan.
 
Safety first
 
Kernex Microsystems and Stone India are the two key players in the safety devices segment, which will reap benefits from the railways plan to spend Rs 17,000 crore as part of the Special Railway Safety Fund (SRSF). In addition, the Rs 24,000 crore Integrated Railway Modernisation Plan (IRMP) till 2010 promises a comfortable revenue stream for these companies in the next five to six years.
 
Installation of better safety devices and replacement of older equipment will help eliminate rail collisions, reduce level-crossing accidents and improve signalling facilities.
 
Stone India
The company manufactures train lighting alternators, brake systems, pantographs and brake regulators for railways and holds a market share ranging from 27 per cent to 55 per cent in the domestic market for various products. While the company is moving up the value chain by producing advanced air disc brake systems, it is collaborating with foreign players to get easy access to foreign markets.
 
Sensing the opportunity in the air brake systems segment, the company is setting-up a Rs 20 crore greenfield unit in Baddi, Himachal Pradesh in collaboration with Wabtec Corporation of the US for production of air dryers.
 
Given the fact that 40 per cent of the Indian rail wagons are yet to be migrated to air brake systems and IR will soon come up with high-speed passenger trains which will need disc brakes, Stone India is likely to see a comfortable revenue inflow in the future.
 
In FY06, sales have increased by 31.5 per cent to Rs 53.01 crore. As per Motilal Oswal Securities, the company's sales are expected to grow at CAGR of 30 per cent through fiscal FY08 with FY07E and FY08E sales at Rs 78 crore and Rs 100 crore respectively.
 
Kernex Microsystems
Hyderabad-based Kernex Microsystems, primarily into manufacture of anti-collision devices (ACDs) and development of signalling systems, has forayed into production of auto driving devices (ADDs) for metro sky bus systems.
 
Being the sole license holder for supply of ACDs and ADDs to the Konkan Railways ensures a steady revenue stream for the company. In FY06, the company's operating and net margins were 33 per cent and 21 per cent respectively. As per Edelweiss Securities, the company's operating margins will be around 39 per cent by FY08.
 
Considering the annual requirement of ACDs estimated to be around 7,000 to 8,000 units in the domestic markets, the company plans to expand its production capacity from the existing 4,200 to 9,000 units by the end of fiscal 2008 with a capex of Rs 64 crore.
 
As most of the metros and mini-metros will start sky bus systems, Kernex is setting up infrastructure to manufacture 100 ADDs in order to be well prepared to pocket a major chunk of the business. At present it is in talks with various cities for supplying ADDs for sky bus metro systems worth Rs 26,500 crore.
 
Improving connectivity
 
The Rail Vikas Nigam (RVNL) plans to spend Rs 12,000 crore till 2008 on projects for strengthening the Golden Quadrilateral and port connectivity. Over the next seven years, the government will develop a rail freight corridor across the four metros which will need a network of 9,000 kms and an investment of Rs 65,000 crore.
 
These initiatives by railways will lead to a surge in demand for wagons, rail track, electrification, power and signalling systems and augur well for Texmaco and Kalindee Rail Nirmaan.
 
Texmaco
The Rs 300 crore Texmaco with diverse business interests supplies wagons and steel castings to the railways. It derives 50-55 per cent revenues from the railways and boasts of an order book worth Rs 600 crore.
 
The rail freight corridor project, higher volume movement and opening up of container freight business to private players will generate Rs 10,000 crore business opportunity for wagon makers in the next five years.
 
A leading player in the domestic rail wagon segment, Texmaco is designing special purpose wagons that are likely to dominate freight movement in future.
 
The company aims to grab a substantial portion of the huge domestic and outsourcing orders for steel castings and has also started taking signalling jobs and EPC contracts from railways.
 
In FY06, sales have jumped 37 per cent to Rs 311.53 crore. While operating profits increased by 36 per cent to Rs 32.04 crore, net profits registered a rise of 12 per cent to Rs 19.46 crore.
 
Kalindee Rail Nirmaan
Delhi-based Kalindee Rail Nirmaan, a major player in the rail construction projects like track laying, gauge conversion, signalling and telecommunication systems, derives 90 per cent of its revenues from the Indian Railways. The company has orders worth Rs 280 crore in its kitty and is confident of pocketing orders of Rs 250 crore from RVNL.
 
"Our past performance and expertise will ensure that we corner a large number of orders from the railways despite stiff competition from peers and larger engineering players, which are entering the segment to capitalise on this opportunity. We expect exponential growth in revenues for the next five years," says Arvind Gemini, director, Kalindee Rail Nirmaan.
 
While the FY06 sales increased by 67 per cent to Rs 90.14 crore from Rs 54.08 crore in FY05, the operating and net profit registered a rise of 51 per cent and 81 per cent respectively.
 
The company is likely to bag orders worth Rs 200 crore from DMRC in its second phase of laying out 53 kms of tracks by 2010 at a cost of Rs 11,000 crore.
 
Mass rail systems in other cities like Bangalore, Mumbai, Chennai and Hyderabad worth around Rs 16,900 crore will open huge domestic market for the company.

 

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First Published: Jul 31 2006 | 12:00 AM IST

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