Indian Railway plans to add 90,000 wagons by 2025: ICRA

New Delhi, Oct 21 (KNN) With the commissioning of dedicated freight corridors, along with a target to increase the share of freight transport through the railways, the Indian Railways plans to add 90,000 wagons by 2025, said a report by rating agency ICRA.

This move by the Indian Railways will provide a fillip to the domestic wagon manufacturing industry.

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, which has faced challenges related to the under-utilisation of capacities in the past.

This will provide ample orders for the wagon manufacturers, resulting in an improvement in the overall capacity utilisation to 70-80 per cent in the medium term from a modest sub 40 per cent in the past.

It is expected that the bulk procurement of wagons will provide a cost advantage to the government and better revenue visibility to the wagon manufacturers.

Speaking about the report, Abhishek Gupta, vice president and sector head, Icra said “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.”

“Furthermore, 25,000-40,000 wagons are projected to be manufactured each year over next three years. Along with the large orders from Indian Railways in FY2023, the flow of orders from the private sector has also been better in the recent past (due to challenges faced in transporting coal on account of rake unavailability), giving the wagon industry a much-needed boost,” he said.

Gupta further added that “However, the availability of wheels and axles in proportion to the increased volumes may be a concern.”

During FY23-25, the aggregate operating income (OI) of top wagon manufacturers is expected to witness a CAGR of around 25 per cent on account of strong order inflows from the Indian Railways along with the increase in price per wagon.

With a ramp-up in capacity utilisation and better absorption of fixed costs, the operating margins (OPM) of these players are expected to improve by 200 bps from 9.1 per cent in FY2022.

The report further stated that the total debt/OPBIDTA is expected to reduce from 2.0 times in the coming years compared to ~4 times in the recent past. Overall, the debt coverage metrics are expected to improve with the steady improvement in revenues and profit margins.

“The Indian Railway contract includes a price escalation clause that protects OPBIDTA margins to a large extent. Going forward, the expected increase in capacity utilisation and associated operating leverage benefits should contribute to the improvement of operating margins. The receivable cycle of industry participants is also expected to remain under control. In the absence of any major capex/investment plans, the credit profile of most wagon manufacturers is expected to improve over the medium term," Gupta added.  (KNN Bureau)