Kutch Railway may float shares next year

The 314km project cost Rs 463 crore

ICRA has conducted due diligence of Kutch Railway Company (KRC), which is exploring a possibility of going public somewhere in the next year.

Talking to Business Standard, Yogendra Sharma, managing director, Kutch Railway Company, said, "IPO is still in the pipeline but once we complete our project on hand by March 2006 we will obviously think of something on that line".

ICRA conducted the due diligence and the report would be submitted soon.

KRC was set up as a special purpose vehicle (SPV) for the gauge conversion work of the 314km Kandla port-Gandhidham"�Palanpur section in Kutch district.

Kutch Railway Company was set up with Rs 200 crore equity contribution from Rail Vikas Nigam Limited (50 per cent), Kandla Port Trust (26 per cent), Gujarat Adani Port Limited (20 per cent) and government of Gujarat (4 per cent).

Kutch Railway Company (KRC) was incorporated under the Companies Act to finance, construct, operate, maintain and manage the broad gauge line with estimated cost of Rs 500 crore.

In addition to equity funds of Rs 200 crore received from shareholders, Kutch Railway has raised Rs 300 crore as debt from banks to execute the project.

KRC appointed Western Railway as EPC contractor through a construction agreement for executing this project on a turnkey basis and expenditure incurred by the railway was capitalised towards Railway Vikas Nigam Limited equity.

The construction cost of the project had increased from earlier estimate of Rs 344.64 crore in April 2002 to Rs 463.14 crore.

This pushed up the landed project cost to Rs 550.75 crore.

Cost escalation had also put pressure on the shareholders for infusing additional equity funds in addition to debt component raised from Rs 250 crore to Rs 350 crore.

However, KRC managed to reduce the cost of the project after reviewing it with banks and financial institutions.

With savings in construction cost and reduced rate of funds from banks, KRC reviewed the landed cost of the project and it is now possible to implement the project well with Rs 500 cr as against the earlier estimate of Rs 550.75 crore, said Sharma.

In order to handle incremental freight traffic which Gandhidham area is likely to generate for northern India, KRC has also taken up gauge conversion of 223 kilometer section of Bhildi "� Samdari as the existing section of Palanpur "� Ajmer - Marwar was already saturated.

This will serve as a bypass route to north, which shall be shorter by more than 400 km.

This will bring huge savings on the transportation cost of EXIM cargo.

Mundra and Kandla ports are expected to have more than 25 per cent CAGR in EXIM cargo.

According to Sharma, the new rail corridor shall also open new vistas for state of Rajasthan, particularly Bikaner "� Jodhpur area, which is likely to attract huge investment in manufacturing and mineral exploration sector.

Kutch Railway is likely to handle more than seven million freight cargo in the first year of operation and break even the operating cost, said Sharma.