Titagarh develops new products to ease rail biz slowdown

Titagarh Wagons, which has been facing severe slowdown in orders from key client Indian Railways is now focusing on developing new products to mitigate risk of sluggish railway business, Vice Chairman Umesh Choudhary told CNBC-TV18 in an interview.

Railway had not issued wagon tenders in last financial year due to overall slowdown in economy. It was expected to issue combined tender for FY13 and FY14 in the last month. "Now we are told it will be floated in July. Budget sanctioned for last year was 16000 wagons, again this year it is 16000. We were expecting that tender should be for 20,000-22000 wagons," Choudhary said.

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He explained that slow economy growth, fund crunch faced by Railway and delay in decision making are some of the key reasons for rail orders postponement.

But Titagarh Wagons has been continuously trying to get in new areas for mitigating slowdown in rail business. The Kolkata based heavy engineering company has registered several new products with Defense Research and Development Organization (DRDO) and Ministry of Defense.    

The company recently developed specialised wagons for carrying automobiles and has also received an order from Maruti Suzuki. Choudhary is confident that these new products will start contributing to the company's bottom-line at the end of current financial year. It is also well equipped to start supplying rail orders within a month of receiving it, Choudhary stressed.

Below is the verbatim transcript of Choudhary's interview

Q: We understand that wagon ordering for FY13 was not done and for FY14 it has still not come in. Can you update us on the wagon ordering status from the Indian government, is it much worse then it was a couple of years ago?

A: It is. The tenders for FY13 have not yet been issued. We heard that FY13 and FY14 it is going to be combined and the revised tender was supposed to be floated last month. Now we are told that it will be floated in July, we are hoping. Unfortunately the decision making process has gone into a bit of a tailspin on account of various events that has taken place in the railways. As a result of which we are still hoping that the tender should come out this month and get finalised in a couple of months but as of now there is no certainty.

Q: What is going to be the quantum of bunched up tenders, orders that you are expecting perhaps if it comes through in July?

A: The budget that was sanctioned last year was 16000 wagons; again this year has seen 16000 wagons sanctioned, so it should be 32000 wagons in all. There was some carry forward load so we were expecting that the tender should be for about 20000-22000 wagons. But then till the tender is actually floated one doesn't know what is going to happen.

Q: What is your sense of the reason for the delay? We are given to understand that a case regarding allocation of wagons to Simco, the Birla Company is the reason for this delay. Is this the reason or is it a fund excuse that is keeping the wagon ordering at bay? Therefore what is your estimate that the orders will come at all?

A: Simco is not at all the case. Simco is part of our group as well. This case was filed in Board for Industrial and Financial Reconstruction (BIFR) and the scheme as sanctioned by BIFR for Simco was not placed. We went to BIFR in January 2012, got the order in March 2012 from BIFR. We have won in every successive forums like AIFR, Delhi high court and Supreme Court finally and have now got the order in Simco in terms of that. So we have got an addition 550 wagons in Simco just very recently. However that never really stopped the railways from placing the order.

So it is a mixture of two things, one is that the railway growth has not really happened. The economy growth has not really happened in a manner that the railways had envisaged it. There has been a fund crunch that the railways have been facing. Third is that to an extent which is very common phenomena with the overall system right now that the decisions are not being taken at the right time and due to some reason or the other they are delayed. So that is cumulative effect but there is nothing to do with the Supreme Court case because the SC verdict also came some six months ago.

Q: So since there were no orders issued for FY13, are you likely to see significant pressure in FY14 because of that, there are no new orders? Even if it comes through it is going to be in the second half of this fiscal year. So for FY14 what could be your revenue expectations?

A: We are already facing the pressure for the last several quarters, three-four quarters we have been under a lot of pressure. So we have been trying continuously to get into other areas which can really mitigate our risks. However unfortunately we are in the heavy engineering industry where things have a gestation period. We have overcome that period to quite an extent. We have got into some products with the defense, we are having some orders to come our way in the next few weeks, months. Lot of other products we have got registered both with Defense Research and Development Organisation (DRDO), with Ministry of Defense. We got an order from EMU’s and MEMU's from the railways. The railways have not issued us the drawings till now, we are continuously pursuing with the railways because that is an order worth about Rs 200 crore. We are all ready for executing that but the drawings have not been issued.

As far as private wagons are concerned we developed for the first time in the country we developed wagons to carry automobiles. So we are actually going into these new sectors and trying to develop product specific wagons and get into newer areas. So Maruti Suzuki has placed an order with us for wagons which we are now executing. And if this trend starts off then we would be to a great extent mitigate risk of delay in rail ordering which we have seen over the last few years. But the gestation is there, we cannot really do much about it.

As far as railway orders coming for 2014, we are ready to start supplying the next month from the month we get the order. So if I get an order today I can deliver probably the first wagon on July 31, we have kept ourselves so well equipped. We have some base inventory lying with us, we have everything ready with us so the delay is only to get the order. But I am hopeful that the other products that we are working on should also start coming in from either end of this financial year or beginning of the next financial year, they should also start contributing to our top and bottom-line.