Indian Railway's orders for coaches to boost credit profile of wagon makers: ICRA

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Coach and wagon manufacturing companies in India are expected to see higher capacity utilisation and therefore better revenues for the next few years on the back of Indian Railway's plans to add 90,000 wagons by 2025, rating agency ICRA said in a press release on October 20 (Thursday).

The increased order inflow for wagon makers coupled with moderate competitive intensity in the sector is expected to boost the credit profile of these manufacturers, the rating agency said.

Wagon makers including Titagarh Wagons, BEML, Bharat Wagon and Engineering, Braithwaite & Co, Texmaco Rail and Engineering and Jupiter Wagons have in the past experienced capacity utilisation of around 40 percent which is likely to rise to around 70-80 percent.

“Indian Railways had never come out with more than ~10,000 wagons orders in any financial year in the recent past. With such a high order of 90,000 wagons, the industry prospects have improved sharply," said Abhishek Gupta, vice president and sector head, Icra.

Gupta added that the wagon industry in India is also expecting higher orders from the private sector in order to address coal shortage orders at power plants.

According to an Icra study on the rail infrastructure sector, the combined manufacturing capacity of rail wagons in India is estimated at 35,000–40,000 units per annum.

Until 2024-25, the aggregate operating income of top wagon manufacturers is expected to witness a compound annual growth rate (CAGR) of around 25 percent on account of strong order inflows from the Indian Railways along with the increase in price per wagon.

However, ICRA warned that the availability of wheels and axles in proportion to the increased volumes of wagons may be a concern for the industry.

The Indian Railways intends to procure 90,000 wagons over the next three years as part of its strategy to move closer to its goal of ferrying a much higher share of cargo in the country, to about 40-45 percent by 2030, from 26-27 percent, according to the National Rail Plan it has chalked out.

A probable wagon wheel supply crunch is expected by most wagon manufacturers in India in the next few years as India has very limited manufacturers of wheels.

Wagon makers in India have been scouting for wheel suppliers globally, after the Ukraine-Russia war earlier this year, as Ukraine is a large supplier of wheels for coaches and locomotives.