Rail Budget: Tall targets, execution holds the key

With no increase in fares, railways needs to find innovative methods to meet its FY17 revenue target of Rs 1,84,820 cr

Even as the market was bracing for a lukewarm railway budget, the 8.5 per cent downward revision in revenue estimates for FY16 dampened the mood. The railway minister is now targeting for five per cent revenue growth in FY16 (revised estimates) and 10 per cent in FY17. That said, subdued passenger traffic and restricted growth in freight (due to increasing competition from road transport on lower fuel prices) have curbed the minister's ability to implement a fare hike.

Therefore, with no increase in fares, the railways need to find ways to meet their FY17 revenue target of Rs 1,84,820 crore. Among measures, it plans to increase the share of non-fare revenues to Rs 4,000 crore next year, by monetising land along railway tracks and soft assets such as its website and passenger data bank.
Read our full coverage on Union Budget 2016

 

 

Read more from our special coverage on "RAIL BUDGET 2016"

• Some steps for falling freight traffic in Rail Budget 2016
• Indian Railways still coping with Lalu Prasads myth of cash surplus
• Rail Budget 2016: Patnaik lauds enhanced allocation for Odisha
• Rail Budget 2016: Optional travel insurance may offer personal accident cover, theft cover
• Rail Budget 2016: Operating surplus to fall 26% in FY17

Revenue from this stream is only about four per cent of its total revenues. Hence, much hinges on the freight segment. While the minister is projecting an incremental traffic of 50 million tonnes, it needs to be seen if this is doable, as there is no significant improvement in domestic and foreign trade.

Further, the operating ratio (expenses as a percentage of revenue) pegged at 90 per cent in FY16 is an improvement over FY15's ratio, but is still short of the target of 88.5 per cent. Hence, doubts linger on whether the target of 92 per cent (including seventh central pay commission impact) for FY17 will be achieved without a fare hike.

What is encouraging is that amid tough operating conditions, the railways have raised their capital expenditure by 21 per cent (Rs 1,21,000 crore) in FY17 over a year. Here again, a bulk of capital expenditure has been channelised towards freight operations. This is a positive as the segment subsidises the passenger business. The capital expenditure will include setting up three coastal freight corridors, a railway-automobile hub in Chennai, and improving connectivity to ports; all this holds positive for stocks such as Navkar Corporation and Container Corporation (up 2.5 to three per cent in Thursday's trade). Likewise, plans to increase close-circuit cameras augur well for Zicom Electronic. But one needs to see the success of the ministry's fund-raising plans as well as the ability to achieve revenue and expenditure targets amid a benign economic environment.

Sandeep Upadhyay, managing director and chief executive, Centrum Infrastructure Advisory, says, "The huge investments in technology and railway infrastructure are moves with positive intent, despite the disappointing overall revenue growth. However, the real test would be the implementation strategy and the commercial framework for executing the announced plan."

In the immediate term though, allocation for 14,777 wagons which came for bidding in January will also be tracked closely since the budget had no mention of wagon addition in FY17. Finalisation of this bid could provide support to stock prices of Texmaco, Kalindee Rail and Titagarh Wagon which have fallen by 20-30% year-to-date.