Railway wagon industry to grow multi-fold in next few years, will eye 30% of market share: Umesh Chowdhary, MD and CEO, Titagarh Wagons

If we look at the industry dynamics, Indian Railways used to carry about 700-800 million tonnes of traffic till about five years ago. And they were looking at incremental growth of say 3-5 percent every year.

That was one of the biggest reasons why the wagon industry was not able to reach its complete potential.

What the current government has done is that they have invested in capacity creation. They first invested in improving track capacity, signalling capacity, prioritised completion of the dedicated freight corridors and have also come up with new policies to attract more freight traffic.

And because of the investment in infrastructure creation, there is now demand for more wagons from the sector.

Indian Railways has come out with a tender to procure 90,000 wagons in the next three years, which is the highest ever procurement target by IR. So the wagon industry is expected to grow much faster in the coming year and going forward than before.

What portion of the railways' 90,000-wagon tenders are you targeting for your company?

Historically, Titagarh Wagons has had a market share of 20-25 percent, our highest market share has gone up to around 30 percent. So we will look to maintain our market share and out of the 90,000 tenders, will we target to supply 20,000–25,000 wagons in the next three years.

What is your current yearly wagon-building capacity? Have you planned any capacity expansion to cater to the rising demand from IR?

We are not looking at any large investment to grow our wagon production capacity at the moment. We will look to improve our production efficiencies and maximise our current capacity first.

We currently have a capacity to produce around 8,400 wagons annually... Our target is to be able to produce to our maximum capacity consistently and then look at expanding our production capacity.

We will target producing wagons to our maximum capacity in 2023-24 as the tenders for 90,000 wagons by IR will likely be finalised in the second quarter of 2022-23.

What is the situation of your order book, and going forward, what kind of order inflow is expected?

As of December 31, 2021 our Indian order book stands at around Rs 2,500 crore and our Italian order book stands at around Rs 4,000 crore.  We are looking to double our order book from India operations in 2022-23.

What is the status of your contracts with Indian Railways and by when are they expected to be completed?

Most of our earlier contracts with the IR have already been completed and some of them are in the final phase of completion. By May, we will look to complete all our existing orders.

You had last year said that Titagarh Wagons will look to expand its freight wagon business both in Africa and Australia. What has been the progress?

We are looking to expand our freight wagon business in Africa and Europe. We had started supply of some wagons in Africa. But we've not been able to consistently work to expand our international operations in the last two years because of the COVID-19 pandemic.

But now we have restarted expanding our international presence and have opened a small branch office in America. We are also negotiating with some European clients to start exporting wagons and wagon components to Europe.

While over the next three-four years we are looking to focus on the Indian market and supplying locally, as a long-term strategy, we would like expand internationally to mitigate our risk from one market.

Have you been negotiating with any private party that is looking to get into private train operations in India for the supply of wagons?

We are in talks with a leasing company called GATX Corp, Adani Logistics, Rungta Mines and several other companies for the operation of private freight trains in India. For passenger train operations, we are waiting for the government to come out with a new tender and we were in touch with potential operators and we will continue to do so.

Titagarh Wagons has been the only company that has shown interest in leasing trains for Chennai Metro Rail’s Phase II project, and you had submitted a bid to lease out 126 coaches. How are those discussions coming along?

So we had expressed our desire to participate in this project but we are not a leasing company. If we win the contract, we will tie-up with a bank, or financial institution or leasing company to implement the project. We haven’t heard something concrete till now. But I believe that this is also an exploratory project for Chennai Metro because till now there is no leasing of metro coaches that is happening. I don't think that this has happened anywhere in the world as a matter of fact. This is because passenger mobility follows a heavily subsidised model.

Which upcoming metro projects are you targeting and what is the value you are looking to unlock from your metro operations in the next few years?

We will look to participate in all the metro projects that are coming up in the country from here on. The metro segment is a new segment for us and we have won the contract to supply coaches for the Pune Metro project. We will execute the majority of the Pune project in 2022-23. And then as part of our first phase planning for this segment, we are building a capacity to produce 250 coaches annually, which we will look to expand to around 450 coaches annually in the next three-four years.

Your company has also bid to supply driverless trains for Chennai metro. How confident are you of winning that project and by when is the result expected? Are you also discussing supplying driverless trains to other metro projects?

We have quoted our best price for the tender and will use this opportunity to learn for the future as well. We don’t have a schedule for when the results will be announced but I presume that in April they should open the bids received for the tender. We have also participated in the tender to supply driverless trains in the Delhi Metro project as well, and we are going to (bid) in every metro project which will look for driverless trains.

The metro segment in India has a number of international players and multinational companies. How are you planning to compete with these players? Are you also looking to tie up with any international companies in the metro segment?

We have been a late entrant in the metro segment and many international players like Bombardier and Alstom are already present in the segment. We are slowly trying to garner market share in the segment and we aim to be a market leader in the segment in the next few years. We have already won the contract for the supply of coaches for the Pune Metro and we will use that as a base to grow in the next few years. In terms of tie-ups with international players, we are in a very unique spot.

When we first looked at the metro segment, we were considering tying up with an international partner through a joint venture. But we realised that most international companies who were looking at the Indian market were just looking at Indian companies as screwdrivers, and were just looking to partner with Indian companies to improve their supply chains in India. This meant that there was no value addition for Indian companies.

Further, we realised that there was no major Indian player with an international presence in the market. That is when we decided to acquire (Italian company) Firema Trasporti. This acquisition now enables us to manufacture metro coaches and high-speed trains for the global as well as the domestic market, and aggressively participate in tenders for metro coaches in both markets.

We are also the only Indian company that owns its own intellectual property and technology for modern trains.

So in order to become a player in the modern train segment we really don't need to go and tie up with anybody, as we are self-sufficient to make a name for ourselves on a global scale.

In terms of competition, yes it is a challenge to compete with large companies, but we have the advantage of being nimbler in the Indian market. We can be more cost-effective; we can be much more agile. When larger players may find it difficult, to supply for niche contracts because the quantity is not large or the timing required is quicker, we are able to jump into those much more effectively.

Titagarh Wagons recently acquired Precision Shipyard. What are the company’s plans for this segment and what portion of your revenues are you targeting from these operations in the next two-three years? Are you planning to merge your two facilities at Titagarh and in Falta as well? How are you looking to unlock value in this segment?

Yes, the whole idea is to combine both the facilities in Titagarh and Falta, because these facilities are of strategic importance to us. We will look to combine the two facilities into one ship-building facility to improve operational efficiencies.

We have started work on the Falta facility and will look to restart the facility with a new floor plan and revised layout in the next year. We will look to be a very niche player in the shipbuilding industry, our intention is not to go into the manufacture and repair of large cargo ships. We would like to remain a niche player industry and make specialised vessels for the navy or other purposes.

We are also open to building luxury ships. Our ship-building segment will not become a very significant part of the company’s revenue in the next two-three years. We have an order book of around Rs. 400-450 crore at the moment, and the target would be to grow this order book to about three times of this in the next three-four years.

Commodity prices, especially the likes of steel and crude, have been on the rise for the last year and are expected to remain high. How much do you see this impacting your margins?

Commodity prices have definitely been a bit of a challenge, although in most of our contracts we have a pass-through clause to account for price variation. However, the entire rise in commodity prices has not been passed through to our customers because the increase in commodity prices has been very sudden and sporadic. While commodity prices have affected our margins in some quarters, we expect our EBITDA (earnings before interest, tax, depreciation and amortisation) margins to be in the range of 8-10 percent going forward.