Company Name- Titagarh Wagons Ltd
BSE Code- 532966
NSE code – TWL
Titagarh Wagons Ltd (TWL) is a private sector wagon manufacturer in India. It also manufacturers Bailey bridges, Heavy Earth moving and Mining equipments, steel and SG castings of moderate to complex configurations. Besides railways being the single largest customer for wagons manufactured by TWL, many private sector players also on its customer list. It manufactures special purpose wagons, shelters and other engineering equipments for Defence. TWL stands to be the only company registered with the ministry of Defence for manufacture of Bailey bridges and related accessories. TWL operates two manufacturing units at Titagarh and Uttapara in West Bengal. The acquired Uttapara unit helps TWL as second unit for wagon manufacturing besides producing heavy earth moving and mining equipments. It also provides basic infrastructure required for manufacturing EMU's. These facilities for self –propelled railway passenger vehicles are being ramped up. TWL completed fund raising through public issue in March'08 for up grading production facilities, and expanding its operations.
Business-
While the Wagons division contributes major to the revenues for TWL, it has diversified into other divisions also, working towards de-risking its business model. Thus entire business activities can be sub-divided into three divisions.
1.Wagons Division
2.Heavy Earth Moving & Mining Division
3.Special Projects- Steel Bridges
Wagons Division-
This segment contributed about 91 percent to the overall business revenues as well as total operating profits for TWL in FY08.Wagon production saw a growth of 63 percent while units sales jumped up good 67 percent. Indian railways stand to be the single largest customer for Wagons although there are some more customers from the private sector also . Companies as Nalco, NTPC etc procure wagons for in-house usage while companies like CONCOR procures containers plates for container transportation. TWL continues its focus on increasing its market share and expanding the portfolio of products. It looks at both organic as well as inorganic routes for growth. Strategic acquisitions in the past have laid strong foundation for growth . It's acquisition of Heavy Engineering division of Hyderabad Industries included manufacturing unit of Uttarpara in West Bengal. This unit enhanced plant land area from 7 lakh sq. feet to 22-lakh sq. ft. It also gave TWL facilities for second wagon manufacturing plant. It looks at further more opportunities for other strategic acquisitions.
Besides for growth TWL has also been focusing on exports. Up-gradation of production facilities for manufacturing passenger coaches is also underway. Rs 18.74 crores is being utilized for upgrading EMU manufacturing capacities. Acquired steel foundry undergoes modernization and works are on for setting up axle machining and wheel set assembly shop at an investment of Rs 12.93 crores.
Heavy Earth moving and mining divisions-
This division has shown marked improvement in productivity and customer base. In Fy08 production volumes increased 43 percent while sales value grew robust 140 percent. TWL stands to be one of the approved suppliers for coal India Ltd, which also provides it prerequisite to participate in other tenders for such equipments. Uttapara unit provides for manufacture of all these equipments. TWL has an arrangement with Komatsu Mining Germany (Demag) for supply of components and spares for heavy earthmoving and mining equipments.
Modernization and ramping up of facilities for these products is also in progress. Expansions of steel foundry would further help in productions of many components in- house.
Special projects- Steel Bridges
Divisions' performance in FY08 has been satisfactory recording 43 percent growth in sales volume and sales for steel bridges in value terms increased 86 percent.
In this division TWL caters to the niche market for bailey bridges and explores export opportunities for the same. . For growth it proposes to develop double lane modular bridges called Kawada System Truss bridges
TWL enjoys being industry partner for DRDO and specializes in manufacture of equipment for Defence shelter as integrated Field shelter etc.
Besides TWL has become a supplier to Nuclear Power corporation of India. It supplied certain equipment related to nuclear power plants. Looking at opportunities in the segment and specially after signing of nuclear deal capacities are being upgraded and facilities for manufacture of stainless steel equipments are being expanded.
Investment rationale-
Freight traffic has been a major contributor to Railways revenues. The segment that is main contributor to revenues also grows at a brisk pace. Railways have planned investment for Rs 6000 crores each year during the five-year period up to 2012. Thus out of this investment a major portion is for freight carriage. Wagons being directly linked to freight carriage stand to be one of the major beneficiaries from this investment.
TWL continues its pursuit for expanding its market share in wagons as well as expanding product portfolio. It is thereby focusing on producing special purpose wagons. Its MOU with Freight Car US is in the same direction. Joint venture is intended for newer and modern designs of Aluminium Wagons. TWL has always been on lookout for strategic external growth opportunities. Its MOU with Miners Inc. USA is for supply of electro pneumatic door operating equipment for hopper wagons.
Strategic sourcing arrangements for components remain crucial for sustainability. Wheelsets are generally in short supply globally and sourcing them from RDSO approved global vendors always remains a challenge. TWL thereby intends setting up an axle machining and wheel set assembly shop for achieving operational comfort besides gaining cost advantage and saving on freight costs. It also acquired RDSO approval for in-house manufacture of airbrake pipes and continues its efforts for increasing production of bogies and couplers through in-house foundry. Expansion and modernization of in-house foundry is in progress
Uttapara Unit has basic requirements for manufacture of EMU"S. TWL forays into manufacture of passenger coaches. With up-gradation of production facilities, it will achieve production capacity of Two EMU racks of nine coaches each per month. It has participated in tenders floated by Government of India.
TWL's focus on Exports has initiated supplies of wagon parts to Africa. Besides it also procured repeat orders from existing customers.
Looking at de-risking its business model., TWL is concentrating on growth in other divisions also . Heavy Earth moving and mining equipments manufacturing facilities are undergoing expansion and modernization. The expansions in steel foundry will help upscale productions. It also imported Fata Aluminium Make Automatic Molding Line from BFM Bari, which will also be utilized for manufacturing automotive and mining castings, the new market segment. For ramping up sales of heavy earth moving and mining equipments TWL intends setting up sales and service centers directly or through dealers across the country.
In special projects, while it caters to niche market for Bailey bridges, developing Kawada System Truss bridges will add further impetus to the segments growth.
TWL supply of certain equipments for nuclear power plants will have immense growth opportunities in coming days. With signing of nuclear deal the thrust on nuclear power generation will receive immense boost which in-turn will boost the prospects for TWL
Concern-
Entire business model of TWL is heavily dependant on Wagon manufacturing and Railway orders dominate the order book. Thus any change in wagon procurement policy or delays in releasing of orders may adversely affect the revenues for TWL.
Track record of promoters group has not been up to mark and group companies' continental Valves Ltd and Titagarh steels Ltd had failed to issue any dividends. Poor corporate governance had also led to de-listing of Continental Valves Ltd from BSE during 1999-2003.
Valuations-
FY08 saw TWL achieve Rs 556.91 crores topline as compared to Rs280.41 crores in FY07.With major plans for expansion and growth TWL moves ahead eyeing good upside in FY09E. However margins during the first half of current fiscal year have been under stress. Volatility in prices of basic raw materials has pulled down the margins. Steel based raw materials are principal inputs in manufacturing wagons, bailey bridges and engineering equipments. Second quarter result show operating margins at 12.06 percent as compared to 15.03 percent during FY08. Profit margins also have shown compressions. This is a cause of concern as basic raw material and specialized components will still remain exposed to volatility in prices and availability. With margins under pressure, Global slowdown is also expected to exert pressure on demand of equipments. While Impact on freight revenues still remains to be seen, the impact on demands for equipment will definitely be there. Hence growth being looked at previously will remain under pressure while Margins under pressure will affect the growth in bottomline. Thus concerns remain there for times to come. However long term growth story remains intact and investors with long-term investment horizons may invest in the stock.
Q2 | Annual | Annual E | |
FY09 | FY08 | FY09 | |
Net sales | 194.97 | 556.91 | 848.40 |
OP | 23.51 | 83.75 | 102.30 |
PAT | 17.84 | 60.57 | 77.20 |
Capital | 18.44 | 16.37 | 18.44 |
EPS | 9.65 | 40.46 | 41.86 |
Margin | |||
OP | 12.06 | 15.03 | 12.05 |
PAT | 9.15 | 10.87 | 9.1 |
Price | 398.7 | Date | 31/10/08 |
PE | 9.85 | P/BV | 3.22 |
Book Value | 123.85 | EV | 570.39 |
EV/EBIDTA | 24.26 | Mcap | 735.29 |
(rs.crore) |
Shareholding | 30-Sep-08 |
Promoter | 49.25 |
FII | 8.9 |
Public | 4.48 |
Others | 37.37 |
Total | 100 |
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