French subsidiary to aid wagon exports to Africa: Titagarh

Titagarh Wagons strategy to de-risk business and diversify customer base has started to pay off and was the prime reason for good fourth quarter performance said Umesh Chowdhary, VC & MD, Titagarh Wagons in an interview to CNBC-TV18.The revenues in fourth quater (Q4FY15) have gone up 60% to Rs 118 crores on back of pick up in wagon dispatches, while margins have come in at 10 percent. Profit after tax (PAT) was up 400 percent at Rs 8.8 crore versus Rs 1.7 crore reported a year back (Q4FY14).According to Chowdhary synergy with the French company has helped them do away with its dependence of wagon orders from Indian railways alone. The company now also caters to African countries through its hundred percent French subsidiary. The wagons are designed by the French company and are manufactured in India, he added. Titagarh has signed several export contracts for the African market through this subsidiary, Chowdhary said.However, with Suresh Prabhu as Railway Minister, Chowdhary  is hopeful of seeing Indian railways transformed, which in turn is likely to benefit the company.

Below is the transcript of Umesh Chowdhary’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Sonia: You have completed FY15 with revenues of close to Rs 400 crore which is a growth of almost 45 percent in the fiscal gone by. Can you give us a sense of what FY16 is looking like; will you be able to repeat this performance? Also in terms of wagon dispatches as a whole how much have things improved? A: The good part of it is if you look at FY15 numbers, it is the last two quarters that have actually picked up. This has been primarily a result of our strategy to not depend upon the India Railway wagon orders alone. As you are aware, we have had to take a provision of Rs 17 crore on account of non-remunerative wagon contracts and part of the execution of the last two quarters is also of those wagons. So, those add up to the topline but do not give us any EBITDA at all - if at all, they eat into some part of our EBITDA. In spite of that we have been able to keep our heads above the water. Our whole strategy has been to de-risk ourselves, to mitigate the risk of being dependent upon Indian Railways for wagons which suffered an extreme unhealthy competition due to low demand last year. The synergy between our French company has started working out. We have signed many export contracts. I had spoken to your channel about six to eight months ago saying that we will be able to grow our exports and I am happy to report that we have actually gone ahead and signed several contracts with the help of our French company for wagons and components to manufacture in India and to be sold in different countries in Africa. We were able to start full fledged production last year for the passenger coach business and the electrical multiple units (EMUs), We have started getting orders from defence also. All these strategies have been put into place over the last 12-18 months and the results have started trickling in now. So, we hope that things would get better from here. On the railway side, we are hoping that Suresh Prabhu is likely to transform the railways because the growth targets that he has set from 1 billion tonne to 1.5 billion tonne and the capex of Rs 8.5 lakh crore and now with the Budget being passed will start showing results. We are hoping that that numbers will start coming in. So, overall I am keeping my fingers crossed but things should look better.

Latha: I have a bunch of minor questions for you. One, Is your provisioning over and done with, that Rs 17 crore? Two, you have got an other income of Rs 13.5 crore, is that a one-off? If you remove that again you are like Rs 103-105 crore like you did in the third quarter?A: Coming to the provision, we had a provision of Rs 17.5 crore. The entire contract has not been executed as yet. As and when the contract gets executed, the provision is drawn up upon. So, about 30-40 percent of the contract is already executed but that will not impact the EBITDA numbers.As far as the other income is concerned, if you see our balance sheet over the last five years, the other income has been very consistent. There is no extraordinary income. Whenever, if at all we have an extraordinary income or extraordinary losses, we always show it separately in order to maintain transparency and clear reporting.

Latha: Your finance cost has come down a bit, will it come down further?A: If you would have studied the balance sheet, our short term borrowings are almost at zero in Titagarh, which was about Rs 70-100 crore in the last balance sheet. We have about Rs 100 crore lying in fixed deposit.Our current assets have come down and balance sheet quality has improved tremendously. We have been focusing over the last one year on de-risking the business and on cleaning up and strengthening our balance sheet.Our inventory has come down, our debtors are under control and the profile of the debtors have improved. Our current liabilities have come down. We finalised our French subsidiaries results and achieved a revenue of 49 million euro and an EBITDA of almost 4 million euro in the last year. Sonia: You mentioned a while back that the quantum of exports through your French subsidiary has gone up. What exactly is the export contracts that you have managed to get in through the Africa region and are the margins for these contracts better than your domestic margins?A: I will not be able to speak about contract by contract margins but on a blended basis our strategy has been to maintain an EBITDA between 12-15 percent. As far as the kind of contracts we have received, it basically is the French designed wagons. The designing is done by France and the manufacturing is done in India. The synergy between France and India has proved to be advantageous to our growth.Latha: For the moment should we assume that your run rate for quarterly revenues will be around Rs 110-115 crore?A: I do not want to talk about any forward looking numbers right now. However, at the peak in 2007-2008 on a standalone basis, we achieved about Rs 750 crore and I have always maintained that the last two or three years have been aberrations. If the economy picks up then there is no reason why we have added facilities since then.We have Cimmco,France and our Kochin business. So, I will not remain content with the run rate which we achieved because of our large facilities. It was only the economic cycle that was pulling us down which on turning around, would bring us back to our normal operations. Sonia: All the analysts are interested in what the pricing is of the latest tender that has been given out by the Indian Railways. What could the pricing structure look like? Will it be un-remunerative pricing for players as we have seen in the past?A: The tender floated this time by the railways is actually the tender which was slotted for the previous financial year. However, due to the delay in floating the tender has come out now and the total quantity is just about 8500.So, I am not losing sleep over what is going to happen over that contract or over that tender as the results will be out very soon.As far as the pricing is concerned, we will only see them when the tenders are opened this week.