The Narendra Modi-led government is taking quick steps to give necessary boost to the Railways and has recently released rail wagon orders. Speaking to CNBC-TV18, AK Vijay, CFO, Texmaco says the company expects business to improve in Q3 and Q4.
The wagon maker company is working at 60-70 percent capacity and expects improvement in demand from American market going ahead.
The government had allocated 2,400 wagons to the company in April 2014, of which close to 1,200 wagons were released the same month. The remaining 50 percent wagons will be issued now and the process will be completed by April 2015, adds Vijay. Below is verbatim transcript of the interview:
Q: What exactly is the order position? The second tranche of 1200 wagon order has been released, was that Rs 300 crore qualified institutional placement (QIP) raised for this?
A: Yes it is the second tranche of order which is a very standard practice in railway that once the particular number of wagons in the first tranche gets completed thereafter they release the order for the second tranche. The second tranche first order has been released to us and that is 50 percent of the second tranche, about 600 wagons. Rest 600 wagons will be subsequently released to us as per the standard railway practice.
It is not a new order, it is an order which was already finalised in April which was made operational from June. Against that order we have now received the second tranche quantity.
Q: How much of the order have you already executed and what would be the timeline of the execution of the next number of wagons, 600 that you have received in the second tranche already?
A: This entire order of 2400 wagon has to be executed within March 2015 which is as per our railway practice. This is the one which we have started executing for the month of August and from August onwards we have now gradually picked up and are delivering at the rate of 300 wagons per month to the railways.
Q: How is the order book otherwise for all your divisions put together, the foundry, engineering and other divisions put together?
A: It is close to Rs 1,200 crore at this point of time.
Q: What is the capacity utilisation?
A: The capacity is very flexible. Texmaco has huge infrastructure which can be flexible to the need of the hour. Right now we are working to almost 60-70 percent of our capacity and we will gradually build capacity further to reach up to the level of 80-90 percent.Q: When will it actually start contributing to your numbers because in Q2 your revenue was up only around 2.5-3 percent? When will the incremental gains come in terms of the execution of the wagons that you are talking about?
A: Our Q1 last year was for the reason that railway released the order in April and made it operational only in June. As a result of that the effect of the order which railway released has been felt only in the second quarter.
In Q3 we will be doing better than Q2 and naturally Q4 for our kind of industry is always better. So this is how we are planning for and we expect that we will have a growth between 30-40 percent compared to the last year.
Q: Your foundry division has been floundering a bit right. The revenue was down when you last reported numbers. Is there an improvement that we should expect, it is a negative EBIT?
A: Yes foundry because that is dependent on our wagon business and we are using the foundry for our captive requirement accepting for about 15 percent for exports. We got our approvals from Association of American Railroads and are entitled to export our castings to American market which is huge.
The American market has recently picked up, the quantum which was there about three-four years ago, 15,000 number of wagon a year has jumped to 65,000-75,000 numbers and we are targeting a plan for 1,000 wagons next year. So this is a big demand and the existing foundries cannot beat this requirement.
They will be looking for one of the source in third world countries and we are eyeing that market in a big way because we have already partnered. Out partner Wabtec is an important player in this steel custom business in American market.
They are one of the two important firms that own the designs and will be willing to buy more and more castings from us. So from next year onwards we are looking to be in a very stable position in our steel foundry business and that certainly we look forward to.
Q: You were Rs 800 crore company during 2011-2013 and then all the way it halved to Rs 450 crore last year. This year if you go by the pro rata first half, your revenues are actually less than Rs 170 crore. What will this year look like and when do you expect to get back to the Rs 800 crore level?
A: Next year onwards we are looking forward to get to the normal levels which we have been doing for last so many years. For this year our topline last year was about Rs 500 crore on cost basis and we expect to be something close to Rs 700 crore this year itself.
Q: Does that mean the second half will have to generate a good Rs 500 crore or more?
A: Yes that is what we are working on.
Q: Why did you raise the money in QIP?
A: As railway sector is opening FDI and new government is giving impetus to the sector, we are very hopeful that this segment is bound to do well and will be the main booster for the economy in the present government form in the next planned year.
Now the situation is that in rail with the proposed merger of Kalindee Rail we are becoming a total rail solution provider company. To augment our resources in that aspect, we have gone for raising through QIP route and have raised about Rs 300 crore and that is what the shareholders approved from the market.
Fortunately, even in this market, we have an oversubscription of 2.83 times and that too from the top mutual funds, insurance funds and also the FIIs.
Q: Would the diamond quadrilateral be a big game changer for your company, would you be bidding for that or would there be any opportunity for the company as a whole from that project?
A: It would be for the simple reason that we are a total rail solution provider company now and a lot of opportunities are emerging for the company in this segment.
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