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The change
The capex of Indian Railways has been pegged at ₹1,48,528 crore, an increase of nearly 14 per cent from the previous year.
A significant portion of this allocation will be used to enhance the carrying capacity of the Railways.
This Railway Budget has emphasised the maintenance of track infrastructure and renewal of over 3,600 kilometres of tracks this year. It expects to take up 600 major railway stations for redevelopment. In a major push to Mumbai’s transportation, ₹11,000 crore has been allotted to expand the city’s rail network. In addition, development of 150 km of suburban network has been planned, at a cost of ₹40,000 crore.
The background
The Railways’ revenue for fiscal FY-18 was revised to ₹1,87,425 crore, a marginal reduction of one per cent compared with what was budgeted. major portion of the revenue was derived from freight traffic, which contributed almost 63 per cent to the total revenue. Coal constitutes a significant portion of freight revenue, with a 42 per cent share, followed by iron ore and cement. In terms of revenue from passengers, the Budget has not announced any fare hikes but it did reduce the fare for premium class in the last year so as to compete with airlines and luxury buses.
Its operating ratio, the ratio of working expenditure to revenue, has been revised for FY-18 to 96 per cent, against the projected 94.6 per cent in the earlier Budget. This implies that to generate ₹100 of revenue, it has spent ₹96.
The verdict
The fortunes of the Indian Railways impact many listed players that supply equipment, technology and services to this sector. BEML, for instance, which supplies equipment such as integral railway coaches and overhead electric inspection cars, has gained by about 20 percent in the past year. ABB India, which makes rolling stock and provides the Railways life-time service support, including maintenance and retrofitting, also rallied more than 50 per cent in the last year.
In the case of listed wagon manufacturing companies, while Titagarh Wagons has registered a decent return of about 38 per cent in the last year, Texmaco Rail and Engineering has shown a lacklustre performance. BEML, ABB and the other wagon companies will benefit from increased allocation to the railways and the government’s thrust to improved rail infrastructure.
The Government’s focus on strengthening rail safety may benefit Kernex Microsystems and Siemens, which supply signalling and telecommunication equipment to the railways. While Kernex gained by about 40 per cent, Siemens moved up about 15 per cent over the last year.
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