Railway stocks: Wagon makers slide as order book fades

Security and tech-related companies gain

Shares of most railway-related companies, especially wagon manufacturers, lost ground after the presentation of the Railway Budget on Thursday. While Texmaco Rail & Engineering, Titagarh Wagons and Kalindee Rail Nirman fell around eight per cent each, BEML, Hind Rectifiers, Kernex Microsystems and Stone India slipped four-six per cent.


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Security boost

On the other hand, Zicom Electronic Security Systems ended five per cent higher, after the government proposed to setup CCTV (close-circuit televsion) surveillance at all tatkal counters. The proposal to start Wi-Fi services at 100 stations this year, which is to be extended to 400 stations in the next two years, saw D-Link (India) jump 12 per cent to Rs 140 in intra-day deals.

 

The stock finally settled one per cent higher at Rs 126. Smartlink Network Systems hit the upper circuit of 20 per cent.

The share buyback news also fuelled a rally in the counter.

Despite the varied reaction, analysts say the government is on the right track as regards the proposals. The focus on monetising railways' assets, which will generate cash for use is a welcome move, they say.

I think the minister has done a fairly good job given the circumstances. There is a clear reallocation of priorities. There are no big orders for wagon-makers and anti-collision device makers. Hence, the related stocks lost ground. Cash generation via asset monetisation is a good move and is an innovative way of generating cash without hiking fares,” said U R Bhat, managing director, Dalton Capital Advisors.

While the intention is right, analysts are keeping an eye on how the government will fund its ambitious plans.

The emphasis on (public-private partnership) PPP model, evaluating holding company structure for asset monetisation and creation of a dedicated fund for railway projects are the key positive takeaways, analysts say the real test would be the implementation strategy and commercial framework for executing the plan.

A K Prabhakar, head of research, IDBI Capital, says: “There are a lot of out-of-the-box ideas. For instance, the Railways plans to bid/purchase power directly from companies, instead of state electricity boards (SEBs), which will benefit power utilities. So, the government is trying to cut cost, keep fares unchanged and monetise assets. These are innovative things. Having said that, we also need to keep an eye on how the government will fund its aggressive plans for the railways.”

Bullish on power utilities

“Wagon-makers will not benefit immediately from the Rail Budget. There was nothing much for them this time, and the order inflow will take time. Given the proposals, I am bullish on power utilities PTC India, NTPC and Reliance Infra,” he adds.