Key highlights from Titagarh Rail Systems Ltd (TITAGARH) Q4 FY24 Earnings Concall
- Operations Highlights
- The company achieved its highest ever turnover in FY ’24, driven by strong performance in the freight rail systems division.
- In Q4 FY ’24, the company crossed the 1000 wagon per quarter mark for the first time.
- Produced around 8400 wagons for the year, which is close to their weighted capacity of 700 wagons per month.
- Expect to achieve a run rate of 950-1000 wagons consistently in the coming year.
- Q4 was muted for passenger rail systems due to completion of Pune metro contract and delays in Bangalore metro production.
- Surat and Ahmedabad metro production is also likely to begin from Q2 FY ’25.
- The Vande Bharat contract is progressing well, and the company is on schedule to meet delivery commitments.
- Freight rail systems will continue growing, the real inflection point for revenue growth is expected from FY ’26 and FY ’27
- Margins
- With increased volumes and in-house component development, the company expects margin improvement of 50-100 basis points in the freight rail business.
- Previously indicated an EBITDA margin target of around 12% for the rail business.
- Export Opportunities
- The company has already secured some export orders for components like propulsion traction converters and other electrical components for coaches in Europe.
- The company plans to explore export opportunities for metro coaches once they establish a strong presence in the Indian market, leveraging India’s cost advantage.
- Capex Plans
- The company has earmarked a total capex of INR 1000 crores over the next couple of years.
- Some amount has already been spent on capacity building, upgradation of foundry, backward integration efforts, and special projects like the wheel project.
- Metro Coach Execution
- For the Bangalore Metro order, the first train is expected to be delivered by the beginning of July or Q2 FY ’25.
- The stainless steel production line for the order will start in a few days.
- The company aims to reach a run rate of two trains (six cars) per month within this financial year.
- For the Surat and Ahmedabad metro orders, production is expected to start in the current financial year.
- Metro Capacity Expansion
- The company is setting up a new stainless steel production line for metro coaches, which will gradually enable a capacity of 36 cars per month.
- Initially, aims to achieve 15-20 cars per month capacity within this financial year.
- Several metro projects across cities like Chennai, Mumbai, Bhubaneswar, Patna, and Delhi are in the pipeline, indicating potential demand.
- Propulsion System Development
- The company has started in-house production of propulsion systems, leveraging technology from partners like ABB and Italian investments.
- For the Ahmedabad metro, the company is using ABB propulsion and in-house TCMS.
- Over the next three years, the plan is to in-house a substantial portion of propulsion equipment, barring some strategic components.
- Pune Metro Completion
- The production for the Pune Metro order was substantially completed in March 2024, with over 90% of contractual trains dispatched.
- Some minor revenue may be booked in FY25 for remaining work, but it would be minuscule.
- Strategic Partnerships and Orders
- The company is evaluating options, including induction of a strategic partner, to grow its defense and shipbuilding business.
- The company is excited about the railway’s transformation and the opportunity for Vande Bharat trains.
- Potential opportunities include intercity transport, MRVC (Mumbai Rail Vikas Corporation), and sleeper variants of Vande Bharat trains.
- Freight Demand Outlook
- The company does not foresee challenges in demand for additional trade corridors, despite reports of low capacity utilization on certain dedicated freight corridors (DFCs).
- The company attributes low utilization to incomplete stretches and believe rail is the most efficient mode for logistics, driving demand.
- Factors like high logistics costs and the need to shift from road to rail for cost competitiveness support the demand outlook.
- Propulsion System Costs
- The cost of the propulsion system in a metro coach ranges between 20-30% of the total cost.
- Once the company achieves certain volumes in metro coaches, it expects an EBITDA margin of around 10%.
- Further integration with in-house propulsion could lead to a 4-5% expansion in EBITDA margins over time as capacities are fully utilized.
- The company is pursuing different strategies and partnerships (ABB, Italian JV) for various propulsion technologies to have a complete product bouquet.
- Material Procurement
- Earlier, the company used to receive free supply of materials from the railways for wagon production.
- Now, the company has the liberty to procure materials from various sources, enabling better cost efficiency.
- This has already led to margin expansion and EBITDA improvement, which is an ongoing process.
- Private Wagon Demand
- Historically, the private sector accounts for 10-20% of the overall wagon demand, with the balance coming from Indian Railways.
- While there may be temporary fluctuations, the company expects this demand pattern to continue in the long run.
- The company maintains a healthy mix between private and government supplies to sustain capacity utilization over a longer period.