Rail Budget 2016: Appreciate ambitious targets but funding a concern, say Rail cos

The targets in Railway Budget 2016-17 look very ambitious and there are lingering concerns over project funding, says Vimal Kejriwal, MD and CEO of KEC International.

Backing Kejriwal's views, Sachin Bhanushali, CEO of Gateway Rail Freight, says support from public private partnership (PPP) and external financing has always been underachieved in the past and meeting financial targets is a serious question now. He believes focus on increasing freight transport will be positive for the industry but resources needed to execute this are very limited.

Meanhile, the budget is comprehensive and its vision and intent is commendable,Umesh Chowdhary, VC and MD, Titagarh Wagons, tells CNBC-TV18.

Even P Dwarakanath, CMD of BEML, cheers the announcement of increased capital allocation and electrification targets. He believes suburban rail development and higher broad gauge lining can be a great business opportunity for the company.Below is verbatim transcript of Umesh Chowdhary, P Dwarakanath, Sachin Bhanushali, and Vimal Kejriwal's interview with Latha Venkatesh, Varinder Bansal, and Reema Tendulkar on CNBC-TV18.Latha: What is your initial reaction? Chowdhary: I appreciate what you were saying about the numbers, but two parts of it, one is the journey and second is the destination. So while the destination needs to be achieved and it is very ambitious, I think that the journey that the Railway Minister has set, he has made a very comprehensive Budget. He has tackled every issue that the industry or the economy could have asked the railways to touch upon whether it is restructuring of the railways, whether it is making new dedicated freight corridors, whether it is opening up of various commodities to container, whether it is development of infrastructure for container transport operators. I think it is a very comprehensive Budget. The operating ratio which has been low – I was saying before the Budget was presented that the railways was faced with a lot of headwind this year so therefore the freight did not grow and that is the reason why the operating ratio in spite of the fuel prices being low was not achieved. However, I personally believe that the points that he has touched upon the Budget, the vision, the intent, is absolutely fantastic.Varinder: We understood around that 15,000 wagon orders which was there or announced last Railway Budget, just tell us the on ground reality? How many orders, how many number of units all over were actually announced, it came to the company, a company like yours who is the largest manufacturer of wagons because as I can see from the nine month earnings, you are still reporting a loss. 9 month EBIT is Rs 11 crore. So there is no improvement in financials which is happening but there is a tendency for us to mention about these numbers but it is not converting into earnings for companies like you? Chowdhary: In the beginning of the show itself, Latha mentioned about it that the wagon tender came out January this year. So, against a budgeted tender or procurement of about 16,000 wagons, they did come out with a tender for 14,700 wagons and the normal process of finalisation of that tender takes between 60 to 90 days. So we are expecting it to get finalised in March or in April. So, that way there has been this delay.However, I also mentioned that the wagon procurement per se is the last mile of the entire growth story for the railways. So, the first was according to me the infrastructure and I think that the infrastructure spend which has been increased in-line with our expectation to Rs 1.21 lakh crore would enable capacity enhancement. The second part of it is the policy which I think the opening up of freight and I agree with Sachin Bhanushali that maybe some more roadmap could have been elaborated but then I would give the benefit of doubt to the minister that in a Budget speech he could not have probably given the entire roadmap but the intent has been laid down. Obviously the third part of it would be the wagons because all of this cannot be achieved without having the rolling stock. So, I don’t see that the rolling stock was something which could have come in the first place and then the other two would have followed._PAGEBREAK_Reema: Do you believe the FY17 estimates, 10 percent revenue growth, 92 percent operating ratio and 1.21 lakh crore by way of plan outlay looks ambitious to you considering that he was not able to meet his FY16 projections?Kejriwal: The target looks ambitious but if you come to a company like us which is a project engineering, procurement and construction (EPC) company for railways, we are happy with various announcements on the projects whether it gauge conversion or electrification or the new dedicated freight corridor (DFC) corridors. They sound music to us. If something is implemented and I am not getting how the funding would be arranged, not withstanding about the announcement about LIC, but as a project company we are happy with various announcements on the infrastructure.Latha: Electrification targets have been announced. Do you think that this should mean more orders or it is just more sentiment?Kejriwal: I think it will mean more orders. If you look at the way they have announced it, they have talked about 50 percent increase in the outlay for electrification and if you look at the tender pipeline today, we are quoting almost Rs 3,000 crore of tenders today in this quarter for the railways. So to me electrification as well as the gauge conversion both will mean more orders. How quickly they can convert them into tenders and orders, which is where he also talked about decentralisation of procurement processes and cutting down the time from two years to six-eight months. This is something which we have to wait and watch as to how it gets implemented.Reema: Take us through how you think the math is going to add up. He has outlined a planned outlay of Rs 1.2 lakh crore. We know that the gross budgetary support next year is going to stand at Rs 40,000 crore. He is looking at borrowings of Rs 20,000 crore. Where will the rest of the money come in?Bhanushali: Let us say even if you keep aside the social cosmetics and mumbo jumbo which has been said I think the key focus of the Budget has to be the financial numbers and unless you get the financial numbers right it only remains a scheme which is been explained to the population of India. Getting a support from public-private partnership (PPP) projects, external financing have always been under achieved in the past. I don’t think the current year is an exception. As far as the growth of receipts in spite of an unprecedented hike in the freight rates has remained at 5 percent for both passenger as well as public receipts. So, whether it will be possible for the Railway Budget even to get the internal generation of resources from the point of view of meeting the financial target is a serious question.The basic shift which I saw this time was when the minister said that there is need to expand freight basket that is a very key take away; Rationalisation of freight structure whatever it means we don’t know the details yet and the time tabled freight trains services, I think these are the three key issues which will help in increasing the freight footprint of Indian railways, if it is done in the right manner. It will require a large amount of resources to be invested in developing infrastructure. It will also require a large amount of operating innovations to ensure that the service levels which are assured are actually delivered. The transportation of freight product particularly this small pastel size product is carried in intermodal way. In order to carry it not only on the rail network but also on the road network to ensure an end-to-end delivery. Latha: You are talking about one the time tabled freight, increasing the freight basket to more commodities and the improvement in terminals, right?Bhanushali: That is right. Latha: So you expect that good intentions but you doubt whether he will have the money?Bhanushali: Absolutely, in fact even if the good intentions were supported by some kind of a blue print in terms of how this road is going to be navigated it would have been a great help in understanding as to how the next year or the year after that is going to unfold for the investors in this sector. The intention is only to understand this aspect by having instituting another committee. Latha: Immediately you don’t see business for yourself unless you see the money?Bhanushali: Unless there is an infrastructure on the domestic side there is no possibility of carrying the domestic product in container trains over a longer distance on a time tabled manner at a lower cost. If all the three things have to happen we will have to have an increase in capacity as far as rail transportation is concerned that doesn’t seem to be visible as of now.Latha: There is a lot of tie up with state governments for expansion of suburban train services. So, he has promised a tie up with Gujarat, Tamil Nadu, Telangana, Karnataka, that is for Bengaluru suburban services and Tiruvananthapuram suburban services. Does this mean more business for you?Dwarakanath: If you look at it, there were four points which we are very much interested in. Number one, there is a capital investment to the tune of Rs 1.21 lakh crore which is a very positive point for us. Second thing is the broadcast lining is going to be much more, so it is going to be a larger demand for rural stock, especially coaches part of it. Third is a electrification. They are going to really go quite strong. With that it opens up a big market for us, more in special cars, which are quite strong, and BEML is very strong on that.And the fourth one which is very interesting both from the point of BEML and from the point of all cities, is the suburban sector. The suburban sector, especially, Mumbai is going to take a big leap forward and literally for Bengaluru, which we are also expecting for a pretty long time, that is going a long way. And Delhi also, honourable minister talked about where suburban network is going to increase which will translate into big demand for main line Electric multiple unit (EMU) or AC EMUs or stainless steel EMUs or diesel EMUs which we are very strong player in.So, we think we got three business opportunities for us. Number one is suburban sector, a lot of trains will definitely be moved in and we expect big things to roll in for BEML.