Rail, defence orders picking up; see 40% growth: Texmaco

Furthermore, the company has proposed a merger with another mega rail player Kalindee Rail to make itself a complete rail solutions provider. If the amalgamation goes through, it may prove to be a game changer for the organisation.

Below is the edited transcript of the interview:

Q: There is still an underperformance in your steel foundry division. Overall income was also up by just 2.5 percent year-on-year (Y-o-Y) even if the quarter-on-quarter (Q-o-Q) performance is better. Do you think the second half will bring in better revenue performance?

A: We have suffered in the last two quarters. It was because orders from the railway which is the mainstay for the company till now had not flowed in and on April 1st 2013, April 1st 2014 we earned a lot from railways. The company was virtually working on orders other than railways. Now the railway orders have been released so the production activities have picked up from the month of September and automatically this effect is going to get into the second, third and fourth quarter in a major way.

Moreover with outlook on economy changing if you see the company’s result compared to the first quarter it has improved substantially wherein we had only Rs 60 crore turnover in the first quarter this quarter our turnover is close to Rs 159 crore. The profitability has improved dramatically. The loss of Rs 6.5 crore has got converted into a gross profit of Rs 5.5 crore.

So the changes are there and it is visible. Moreover, the company during the lean period has changed the league now. We are in kind of products which are hi-tech and where the global companies are joining hands with us. For recent example, we have recently developed an auto car rake for American President Lines-Vascor. India is in dire need of these rakes. The railways never buy these rakes; they are left to the private sector to be procured.

Now private sector is coming up in a big way on this because logistic companies are looking into this possibility that auto cars cant be transported through road transport, it has to go through rail transport and more and more export picking up for the country, how would you transport to the ports. Therefore, things are picking up and we have done very well on these.

Second thing which we have developed, we have supplied our first electric multiple unit (EMU) rake which is a passenger coach to Indian Railways. Now with this and with the grave scarcity of passenger coaches on the rail network and a large demand being kept unmet by the railway because they can’t produce themselves this again opens a new venue for us.

Third thing that is important for the company is defence, which is a major sector. Now we have received our largest ever order for wagons from defence. Now defence is opening up and they are coming into the possibility that yes, they should have self-reliance. With this self-reliance, the first order that has come is almost close to a thousand wagons, which is almost a railway size. So with these kind of things coming up and the company now joining hands with companies like Wabtec, the company has joined hands with companies like even KHI, companies joining hands with other companies also as well whereby new opportunities are emerging.

Q: You spoke about this largest wagon order from the defence sector, what is the quantum of that order?

A: It is about 1,000 numbers. Apart from Wabtec, the company has joined hands with other large multinationals also. As we had earlier announced, the proposed merger with Kalindee will be the game changer for the company. Merger with Kalindee will bring in much needed infrastructure segment into the company and this was specialised segment, which is the rail infrastructure, and today we are able to participate in tenders after acquisition of Kalindee, after taking over the control of Kalindee by the management.

Tenders are valuing about Rs 1,000 crore, which is the first ever for us. So, accordingly, the outlook seems to be bright and I am particularly hopeful that yes, third and fourth quarter will be much better for the company and next year should be far better compared to what we have done till now in this year.

Q: What is the company’s cash holding position as of now compared to the Rs 300 crore that you had in the previous year?

A: Last year also we had close to Rs 200 crore and we also have Rs 200 crore now. The other things are in the share investments which are in JV companies and other companies, which we have started in last couple of years. Once a JV company that we had started was to encash on the leasing opportunity that is emerging in the rail segment and this leasing opportunity has now opened up in the country. Globally if you see the scenario, if you take the case of US, Europe - the railway freight cars are owned only by the leasing companies and they are being leased to the industry. In India, the railways own it and railways buy only limited numbers of wagons required only for their specific purposes and not for purposes that are for commodities specific.

So these kinds of requirement are there for which we have identified in advance that what we should do for the future and we are investing over there.

Q: What do you expect FY16 to look like in terms of revenue growth?

A: This year we are looking for a revenue growth of around 40-50 percent and next year we are looking further growth over there to around same number. But it is too early to say this thing because the market we are in is infrastructure.

Q: 40-50 percent this year?

A: In this year compared to last year.

Q: But your first half is not much to write home about, in the second quarter you have done only 2 percent rise in revenues. Will you manage that much in the full year?

A: If you see the revenues that we did last year was about Rs 500 crore on gross basis and a 40 percent is Rs 700 crore which is much lower than what we were doing earlier. So there is no issue on that that we will not be able to achieve that.

Q: September you have done about Rs 170 crore in terms of total revenues. So by the end of full year both in revenues and in profits what are your expectations? You have to do Rs 500 crore by your estimates.

A: We are talking on different numbers. You are talking on net revenues, we are talking on gross revenues. Gross revenue wise we have done about Rs 215 crore and against Rs 215 crore what we want to do in the next quarters is close to about Rs 500 crore.

Q: And on the profits?

A: That is a derivative. If your turn over is picking up profits automatically picks up but then that is market driven, it will depend upon what the market situation remains but we are hopeful of improving on profitability as well.

Q: Will your margins be better than 4 percent?

A: Yes, it will be better than the first two quarters, certainly.