Budget 2021

Railways: Wrong side of the track

Satya Sontanam | Updated on February 01, 2020

The Change

Stock prices of most companies in the rail sector fell sharply post the FY21 Budget session. Market players seem to have been disappointed with the Centre’s capex outlook for Indian Railways (IR). For FY20-21, the Union Budget has announced a capex of ₹1.61-lakh crore. This is much lower than the projections of ₹2.62-lakh crore, as per the National Infrastructure Pipeline (NIP) report.

However, with the proposal to introduce more Tejas-like trains, the stock price of IRCTC jumped 5 per cent, due to the likely chances of the company obtaining the award to operate such trains.

The Budget also announced the setting up of ‘Kisan Rail’, through public-private partnerships (PPP), to provide supply chains for perishables including milk, meat and fish.


For FY20, the revised estimate for capital spending of IR was ₹1.56-lakh crore against the 1.6-lakh crore capex outlay announced in the Budget presented in July 2019.

Despite decent capital investments by IR this fiscal, order inflow to rail companies have been muted. This appears to be due to impending changes in the policy concerning awarding of contracts that aim to make the process more competitive.

Mostly, awarding of just metro projects seem to have occurred in the current fiscal. Wagon and coach manufacturers such as BEML and Titagarh Wagons obtained awards related to Delhi, Mumbai and Pune metro stations. In H1FY20, revenues of these companies went up by 7 per cent and 52 per cent, respectively, but they continued to be loss-making. Competitive bidding for rail projects could have exerted pressure on the margins.

Despite no new order inflows, the operational performance of rail PSUs such as Ircon International, RVNL and Rites, has been decent due to strong order books towards the end of March 2019. Backed by good revenue and profit growth, share prices of these companies rallied 10 per cent, 30 per cent and 48 per cent, respectively, since the beginning of this fiscal.

Revenue growth of IRCTC (Indian Railway Catering and Tourism Corporation), a relatively new player in the public market, was modest at 4 per cent, which could have been on account of lower-than-estimated passenger and traffic growth of IR this fiscal.


A higher allocation of about ₹15,000 crore (up 37 per cent over FY20’s revised expenditure) towards construction of new lines, doubling of lines, and gauge conversion, is expected to help rail PSUs, which undertake turnkey projects for IR.

Meanwhile, investors need to watch out for private players who will be participating in IR PPPs, for which enough nudge has been given in the Budget.

Published on February 01, 2020

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