Faster, secure and timely. The Indian Railway is moving towards its goal. The Railway Minister has proposed the largest ever annual plan of Rs 31,000 crore (Rs 310 billion) for FY08, dedicated to modernisation, development and investment in new railway lines.
But besides benefiting commuters and corporates, what does it holds for investors? Are there any benefits that come in the form of better prospects for companies and better returns for shareholders? Let us find out, what the Railway Budget 2007-08 brings for investors.
"High speed rails, new lines, higher number of coaches, focus on containerisation and electrification are measures which would benefit the economy as well as companies associated in the space," says Prateek Agrawal, head-equities, ABN AMRO Mutual Fund.
Increasing capex
The Indian Railway is targeting a freight loading of 1100 million tonne and passenger traffic of 840 crore by the terminal year of the Eleventh Five Year Plan, which is FY12.
In order to make this unprecedented growth a reality, the government will expand and double the railway transport capacity over the next five years.
It will invest about Rs 1,600 crore (Rs 16 billion) on construction of new lines and another Rs 2,400 crore (Rs 24 billion) in gauge conversion. Of these 26 outstanding projects, 16 projects will be completed in 2008-09 rest in 2009-10, which is good news for the companies like Kalindee Rail Nirman, as it generates about 70 per cent of its revenues from construction of tracks, gauge conversion and remaining from signaling and communication products.
Metro rail
Kalindee is also optimistic about the development of Metro rails. According to the Railway Budget announcement, about Rs 700 crore (Rs 7 billion) has been allocated for metropolitan transport.
And an additional Rs 5,000 crore (Rs 50 billion) will be invested for the Mumbai local trains. However, Kalindee will face competition due to the entry of other players like Larsen & Toubro and Punj Loyd.
Nevertheless, Kalindee's other business segments will benefit from the investment of Rs 3,400 crore (Rs 34 billion) for the renewal of the existing lines and Rs 1,600 crore (Rs 16 billion) for signal and telecommunication. However, Kalindee is not the only player in this segment.
Companies like Siemens and Integra Hindustan Control are the leading players. Siemens, a diversified conglomerate, is a pioneer of the railway signaling systems, offers installation of the railway signaling and safety systems, traffic control and automation, electrification, traction equipment etc.
Safe journey
Along with expansion of tracks and wagons, safety of these tracks and management of trains is equally important.
The Budget has allocated Rs 17,000 crore (Rs 170 billion) as Special Railway Safety Fund, out of this fund, most of the works of renewal of over-aged tracks, bridges, track circuiting and rolling stock will be undertaken.
The testing of the anti-collision device on North East Frontier Railway is in its last phase and is likely to be completed by March 2007.
Companies like Kernex Microsystems, which of manufactures, installs and maintains anti-collision systems as well as conceptualises, designs and develops certain railway safety and signal systems for Konkan Railway will be the key beneficiary of the increased allocation for safety devices and systems.
The company is also a technology partner for the development and implementation of auto driving devices for metro sky-bus, urban transportation system and advanced railway signal systems. Others like Siemens also generate revenue from safety devices.
Freight corridor
The government is determined to make all efforts to increase container traffic to 100 million tonne by 2011-12, from the present 20 million tonne.
Consequently, it has announced an investment of Rs 30,000 crore (Rs 300 billion) for the construction of the eastern and western dedicated freight corridors, which will start in the year 2007-08.
The Railway Ministry has already issued 15 licenses to companies including Mukesh Ambani's Reliance Infrastructure.
Other companies that have been allowed in the freight movement business include Adani Logistics, P&O Ports and Gateway Distriparks.
Wagon bonanza
Over the next five years, investments worth several thousand crores of rupees will flow in for the development of container wagons, terminals and other related rail infrastructure.
New wagons will be produced to replace the aging fleet of Indian Railways. About 20,000 km of high-density network will witness new investment, which is expected to raise demand for 11,000 new wagons and 200 diesel and 200 electric engines.
During the Eleventh Five Year Plan, production of railway vehicles, also known as rolling stock will be doubled as compared with the previous Plan. For FY08, the spending on rolling stocks is estimated at Rs 5,500 crore (Rs 55 billion).
Considering this, companies like Bhel one of the largest players in all range of rolling stocks, and BEML, which produce products such integral rail coaches, electric multiple units, rail buses, track laying equipment and overhead equipment inspection cars will be benefited in the long-run.
Further, an increase in demand for railway wagons, especially container wagon will benefit Texmaco. Texmaco is a leading player in building of flat wagons for carrying containers.
Wagon component
The move will simultaneously propel higher demand for the different equipment used in rolling stocks and wagons.
Stone India, one of the major players in this segment, deals in different kinds of brake systems used for carriage and freight, diesel locomotive and electric locomotives.
The company also deals with electro-mechanical products used in Indian Railways. With these developments, the company is expecting an order book of Rs 91 crore in FY07 and plans to increase it to Rs 140 crore (Rs 1.4 billion) in FY08.
Outlook
It seems like a good beginning towards modernisation, expansion and development of Indian Railways.
The dominant players for the different requirements for railway supply, such as Kalindee Rail, BEML, Stone India, Kernex Micro and Texamco will be the major beneficiaries.
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