Rail Budget 2016: A non-populist Budget, says Axis Cap

Reacting to the Railway Budget, introduced in the Parliament on Thursday, Sachchidanand Shukla of Axis Capital told CNBC-TV18 that the Budget does not have any significant negatives and Rail Minister, Suresh Prabhu has not deviated from his medium term plan.

In the same interview, Manohar Bidaye, Chairman of Zicom said that the wifi installation plan introduced in the Budget is a good business opportunity for the company and expects lot of business from railways next year.Below is the transcript of Sachchidanand Shukla and Manohar Bidaye’s interview with CNBC-TV18's Latha Venkatesh and Anuj Singhal Latha: Your first thoughts on the Rail Budget. First the performance this year in terms of traffic and the ambitious targets for next year? Shukla: If you look at the operating environment it was really tough to begin with. In fact in our morning interaction I was talking about how the core sector, coal, cement and food grains have compounded problems for railways. If you look at the operating ratio again they were envisaging an 88.5 kind of a number. Even there, there has been a slippage, basically meaning that they have done a lot to bring down their working expenses and with the reality of this seventh pay commission the 92 percent mark that they have for next year will also hinge largely on the ability of railways to bring down their costs. At the same time the core sector i.e. the freight side we have not really seen any moves by the railway minister to raise tariffs and we were expecting that. But what might happen is as the underlying really improves simply on a year-on-year (Y-o-Y) basis slightly you will see some traction over there. I am not so optimistic on the passenger tariff side but the P&L clearly tells you that it is in a difficult spot. Having said that I get two positive takeaways from this. One, the Budget has not really done any harm, there are no negatives. There is no whiff of populism as people would fear. The second and more importantly is that he has not really deviated from his medium term target. So, yes, this can be seen as a tactical pause but on a structural basis he has said the right things. Yes, it will take time, he spoke about it in his Budget. He said we will do it bit by bit and he is talking about augmenting revenues. He will look at freight tariff rationalisation. He will also look at garnering more resources from the non-passengers, non-freight side. And that is a positive from a medium term perspective. Reema: There were lots of statements which seems positive for your company. Installation of CCTVs at tatkal stations, also they are looking to increase the surveillance at various stations. What does all this translates in terms of fresh orders for your company? How much would FY17 be better than FY16 and would you rate this Budget better for your company compared to the last year’s Budget? Bidaye: There is significant announcement as far as this safety and security part is concerning the Railway Budget. I must appreciate that railway minister has put up a good Budget. He has paid a right attention to the operational efficiency as well as safety of the passenger and assets of the railways. One good decision which has been taken is that they have already installed the CCTV system at more than 300 stations. They are also planning to install CCTV system at all major railways station in the country, besides these 400 new stations will be developed under public –private partnership. So, we see this is a good opportunity to place both of our model as far as business is concerned. We have a concept which we are talking to authorities which is under offering the CCTV system under service model where the systems can be installed and connected to the command station. So, I see it is a good opportunity for our company. Latha: Have you all done any orders for the railway so far? Bidaye: We have done previously couple of major railways stations, we have already done it like Churchgate to Mumbai CST station where we have installed the camera earlier. Latha: Did he give any orders this year in the sense FY16? Bidaye: I won’t be able to tell you because it has been sold through our channel partners. So, I won’t be able to give you the exact stations where it has been installed. Latha: I mean, I am just asking you whether they were bids this year, whether tenders were put out this year? Bidaye: Lot of tenders are in process and with this new announcement in the Railway Budget I see the next year lot of business coming from railway authorities.Reema: One of our experts told us that next year\\'s projections also look optimistic. What would your view be on that and secondly how would you rate this Budget on a scale of 1 to 10? Shukla: As we spoke about the operating ratio and some of these underlying assumptions I would believe that the freight revenues do have a case for an upward buy in the sense I am saying the core sector is likely to improve on a Y-o-Y basis. Coal, food grains, definitely if the monsoon is okay and food and fertiliser is roughly about 13 odd percent of the total and this segment can definitely go up. Cement as well, I don't know what comes in the Budget but with the rural focus and things like that and a slight improvement in the underlying growth trajectory will possibly see some traction. However the passenger side the assumptions look a bit rosy, slightly unrealistic but again that hinges on the underlying growth momentum. With the pay commission award another Rs 32,000 crore odd kind of burden on the railway that is the metric to look at. How much are they able to squeeze on the cost side and that will eventually determine the outcome. But again as I said I don't really see a big slip over on to the debt market. If you look at the gross budgetary support it is still Rs 40,000 crore odd. And if you look at the past years they are a proxy for what may happen next year. You have internal accruals as well as debt market borrowing which are roughly 18 percent each and I don't really see a negative spill over besides that. So, that is something that is really manageable and it hinges largely on the cost side.