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Road (highways) |
| Broad gauge |
45142 | Paved |
1517077 |
| Narrow gauge |
18376 | Unpaved |
1802567 |
| Total* |
63518 | Total |
3319644 |
|
*15009 km electrified |
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| Besides, the railway structure is increasingly becoming ineffective with more than 500 bridges on the sick list and about 16,000 km of tracks in need of renewal.
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| However, freight rates in road transport have been languishing of late and an imminent recovery is ruled out with the monsoon season being traditionally a slack time for road transport. Industry watchers herald a pick-up once the monsoon abates.
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| "Freight rates would see a pick-up post-August and the spend on road transport would be about 1 per cent of the Indian GDP this year," says Madanlal Agarwal, senior vice-president, Transport Corporation of India.
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Roads - peak yet to be scaled
The spend on highway projects is yet to scale its peak. Industry watchers see a likely spike in spend over the next six months estimated at almost Rs 50 crore per day, as the laying of cement/bitumen for 60-65 per cent of the GQ reaches a crescendo.
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| "Overall, the total spend in the road sector is expected to almost double to $13.3 billion during FY04-07 from the FY01-04 levels. The sharp uptick is also aided by a possible improvement in the momentum of projects, including those by state governments," says an analyst.
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Tepid steps
Recognising this phenomenon, and to address the loss in traffic due to the strides made in road infrastructure, especially over the last five years since the launching of the National Highway Development Project (NHDP), the railways initiated the Rail Vikas Yojana last year - an ambitious plan to augment rail services on all high-density routes.
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| Interestingly, all the routes under the project run parallel to the NHDP.
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| In addition, just as the National Highways Authority of India (NHAI) was mandated to implement the NHDP, the railways set up a special purpose vehicle, Rail Vikas Nigam, to implement its new project.
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| While this initiative clearly reflects the concern on account of higher environmental and energy costs arising from greater road traffic, it is a case of too little too late. Total investments on NHDP are estimated to be Rs 5,400 crore compared to Rs 1,500 crore for the Rail Vikas Yojana.
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| There is an additional allocation of Rs 4,000 crore for road projects over and above NHDP. Hence, Rail Vikas Yojana is not expected to significantly impact projects in the road transport sector.
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| The railways today carry 45 per cent of the total freight in the country, including 89 per cent of the eight major bulk commodities - coal, steel, petroleum, fertiliser, cement, food grains, iron ore and raw materials to steel plants - which constitute the core sector of the economy.
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| The GQ carries 65 per cent of the freight traffic and 55 per cent of the passenger traffic. While high volume-low-cost products are using the railways, the low-volume-high cost items are shifting to road transport.
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All's not lost
The Railway Budget 2003-04 revealed that the share of rail in the transport of commodities was either stagnant or declining. A case in point is petrol where a reduction in classification has resulted in a fall in freight by over 10 per cent.
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| Similarly, there was a reduction in the freight costs of LPG by 7.5 per cent. Interestingly, these were commodities where the market share of the railways had stagnated between 18.5 per cent and 20 per cent due to the competition from pipelines and roads. This is reinforced by the provision in the Budget to enable discounts to oil companies on guaranteed long-term traffic.
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| Analysts say the change in freight rates would serve to curb the growth in movement of oil products by road. The government's move seemed to have borne fruit.
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| Freight earnings, which were brought down at the revised estimates stage last year, based on the trend at that time, recovered during the remaining part of last year due to general buoyancy (as a result of which the revised target was surpassed).
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| Enthused by this trend, the Railway Budget 2004-05 proposed to revise freight earnings for the current year, enhancing the loading target by 10 million tonnes to 580 million tonnes. Accordingly, freight earnings have been placed at Rs 28,745 crore, which is Rs 645 crore higher than the Interim Budget level.
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CV financing steps up
"What really translated this demand to purchase of vehicles was the aggressive marketing of inexpensive finance which brought down EMI's," says Seshasayee.
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| "Margin requirements have also been coming down. What this did was to improve the viability of new vehicles. Add to it the improvement in road network and better commercial speeds. Suddenly, higher productivity vehicles (their higher label price notwithstanding) have become attractive business propositions," he adds.
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| Analysts expect railway freight charges (which are burdened by cross-subsidisation of passenger fares) to remain at current levels and road transport to make significant dents in traditional railway domains like cement. The CV financing market has traditionally been a forte of NBFCs with banks having limited presence in the segment.
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| However, some new private players and MNC banks have entered this segment as a logical extension of their car-financing operations. A larger number of lenders means greater competition and hence better deals for borrowers.
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| Besides, small towns and villages that were hitherto not covered by lenders are now getting access to organised financing.
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Heavy trucks are in demand
As far as capacity is concerned, the trend seems to be moving in favour of higher capacity tonnage vehicles like the 16-25 tonne multi-axle trucks and trailers from rigid 8-9 tonne trucks.
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| This, say analysts, is because of the increased capacity and cost efficiency that arises from the extra capacity, leading to efficiency in the tonnage cost per km of road travelled.
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| Given that freight rates have been rather depressed in the last six months, this is definitely one of the options truck operators consider to maintain efficiencies.
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| However, industry sources say that 25-tonne trucks have been facing supply constraint for some time and have a lead waiting period of 20 days, whereas 16-tonne trucks are having marginal discounts. Not surprisingly, 16 tonnes led the volume momentum for FY04 as they recorded a 38 per cent growth, accounting for 38.2 per cent of Tata Motors' domestic goods CV sales volume.
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| The pick-up in the construction industry, the boom in commodities and the steady progress made by the GQ led to a 23.9 per cent growth for Tata Motor's high capacity 25-tonne trucks which accounted for 24 per cent of its total domestic CV sales volume in FY04.
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Stalwarts will benefit
Analysts bet on the stalwarts in the field - Tata Motors and Ashok Leyland - to come up tops while giving a fringe-benefit chance to Eicher Motors. Tata Motors has a dominant position in the domestic market with a 67 per cent marketshare in the medium and heavy commercial vehicle (M&HCV) market.
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| Analysts understandably give the leader the edge in cornering most of the benefits that would arise from any pick-up in CV demand. They are also kicked about the company's sterling performance in improving its operating margins in the face of the increase in raw material prices.
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| The company says its cost-reduction programme helped it contain costs, despite big increases in the prices of inputs, especially steel.
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| "It is because of this that Tata Motors was able to pass on only a fraction of the increase in costs to customers - which helped the company maintain robust volumes for the entire year," says Kant of Tata Motors.
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| Analysts feel that the company's acquisition of Daewoo Commercial Vehicle Co., Korea, underlines its aggressive efforts to tap export markets for CVs in the last 12 months.
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| The move also offers an advantage in the form of significantly de-risking any swings in domestic volumes by increasing its presence in the overseas markets. Analysts peg a FY05 EPS target of Rs 34 for the company.
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| Another significant beneficiary of HCV demand has been Ashok Leyland which saw growth of 39.27 per cent and 115.67 per cent in topline and bottomline respectively.
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| Analysts point to the fact that the company has improved operating margins to 13.7 per cent in Q4 compared to levels of around 10 per cent in the first three quarters of FY04. This was achieved by a 2 per cent hike in vehicle prices during the November-December period.
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| Analysts say yet another price hike (which took place in the first week of April) would augur well for the year ahead.
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| They feel that the worst is over for the company and point to the improvement in the order-book position as a major advantage, pegging FY05 EPS at Rs 24. Though Eicher Motors is not a significant player in the HCV market, it is expected to be among the fringe beneficiaries of increasing demand.
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| The company announced a 100 per cent rise in net profit in Q4 FY04 while its topline grew by 56 per cent in the same period. Analysts say Eicher's profitability and niche positioning in the segment augur well for the company.
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| In addition to HCVs, light commercial vehicles (LCVs) would also see a spike in sales on account of smaller link roads that would be part of the GQ network. |
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