Titagarh Rail Systems: The Indian government has made significant efforts in ‘Make in India’ ever since it was launched in September 2014. One of the most important achievements in this regard is the Vande Bharat Express. It was launched by Indian Railways as the first indigenous Semi High-Speed train. The first Vande Bharat Express train hit the track on February 15, 2019, on the New Delhi-Kanpur-Allahabad-Varanasi route.

It is also pertinent to mention that the most prominent manufacturer of wagons and coaches has played an important role in this growth as well. We are talking about Titagarh Rail System Limited. Its business got traction ever since there was an improved focus on the railways in India by the government.

Not only that, the company’s share has surged a whopping 400 percent! over the last year. Over three years, the stock has given a humongous return of 1824.58 percent. To put it in other words, it was almost a 20-bagger over three years! So the important question to ask is does the company have more upside ahead? Let’s explore.

Note: the figure above shows the price movement of the three years.

Titagarh Rail Systems

Corporate Overview

Established as a rolling stock foundry in the 1980s, it is the leading railway rolling stock manufacturer in India. Initially, it contributed to the Indian railways by producing railway castings such as bogies and couplers. In 1997, the company achieved a significant milestone by manufacturing its first railway freight wagon.

In 2015, Titagarh entered into the manufacturing of passenger rolling stock by acquiring a 100 percent stake in Titagarh Firema SpA, an Italian company. Later in 2022, there was a significant transaction between Titagarh and the Italian government, whereby the latter invested in the equity of TFA and hence TFA thereon became an associate company of Titagarh Rail Systems Limited.

The company has a specialization in providing cutting-edge transportation solutions, including passenger coaches, propulsion equipment, urban metros, semi-high-speed trains, and a wide array of wagons, including specialized on

Segment Review

The company has two main segments: Freight Rail Systems and Passenger Rail Systems.

Freight Rail Systems

This segment involves manufacturing components of the freight rolling stock. Freight rolling stocks are designed to transport goods and cargo. This category includes freight trains that carry a variety of commodities, including raw materials, finished products, and other types of freight.

The company manufactures wagons, bogies, loco shells, bogies, couplers, and their components. During the financial year 2023, the revenue from the Freight Rail Systems segment increased by 76 percent to Rs 2,251 crore, contributing almost 81 percent to the total revenue.

Passenger Rail Systems

This segment involves manufacturing components for the Passenger rolling stock. The passenger rolling stocks are designed to carry passengers from one location to another. This category includes various types of passenger trains such as commuter trains, high-speed trains, and intercity trains.

The company designs and manufactures EMUs, Train sets, Mono Rail, Metro, Passenger Coaches, Propulsion equipment, Traction Motors, and their components. During the financial year 2023, the revenue from the Passenger Rail Systems segment increased by 171 percent to Rs 526 crore, contributing almost 19 percent to the total revenue.

Financial Walkthrough

Source: annual report

In the financial year 2023, Titagarh witnessed a significant rise in revenue, increasing by 89.3 percent to reach Rs 2,780 crore, compared to Rs 1,468 crore in FY2023. Over four years from FY2020 to FY2023, the company demonstrated a Compound Annual Growth Rate (CAGR) of 16 percent in revenue.

The company turned profit only in FY2023 and the company was making losses continuously for five years from FY2018 to FY2022. However, it is important to note that the losses have been reducing consistently over the period and turned profitable in the financial year 2023. 

The reason for this improved financial performance was due to the company’s various operational measures such as consolidation of different products in line with the plant capacities. The company also increased capital expenditure of around Rs 100 crore for plant upgradation in the last two years.

In FY23, Titagarh maintained positive financial indicators, boasting a strong Return on Equity (ROE) of 13.51 percent and a Return on Capital Employed (ROCE) of 24.49 percent. The company debt to equity ratio for the same financial year was 0.26 compared to 0.15 in FY22, indicating a strong balance sheet. The slight increase in the ratio was due to an increase in borrowing.

Titagarh Rail Systems – Future Plans

Scenario of Indian Railway Industry

The railway infrastructure in India spans an extensive 126,366 km with 7,335 stations. The Union Budget for 2023 has allocated a significant $29 billion for Indian Railways, aiming to revolutionize the system by constructing new trains, and railway tracks, improving passenger facilities, and elevating the overall infrastructure to a global standard.

Moreover, the National Rail Plan (NRP) implementation is poised to bring a significant transformation to Indian Railways’ freight operations. The NRP focuses on augmenting capacity and efficiency, projecting a substantial four to six-fold increase in freight traffic in the upcoming years.

The government’s annual freight target anticipates a surge from 1400 million tonnes to 3000 million tonnes by 2027, implying a need to increase the wagon fleet from the current approximately 336,900 to around 500,000 by the same year. 

Furthermore, Indian Railways is set to procure a historic high of 90,000 wagons by 2025, nearly five times the typical annual procurement. This monumental effort, considering its historical significance, is expected to significantly benefit Titagar, whose revenue is predominantly contributed by the freight rolling stock.

Even the passenger segment of the company is set to benefit from the government’s ambition to transform the train transport ecosystem by launching Vande Bharrat sleeper coaches, and metro, suburban, and freight services throughout the country.

Over the upcoming years, the government has planned to manufacture 8,000 Vande Bharat coaches, to significantly revolutionize the Indian Railways fleet and the semi-high-speed train sets.

Order Book

As of 30^th September 2023, the order book of the company stands at Rs 28,212 crore showing revenue visibility for the upcoming years. Out of which 49 percent corresponds to Passenger rolling stocks and 51 percent corresponds to Freight rolling stocks. 

(Source: Company Investor presentation Q2FY24)

In Q2 FY24, the company signed a contract with Gujarat Metro Rail Corporation Limited (GMRCL) for the Design, Manufacture, Supply, Testing, Commissioning & Training of 72 numbers of Standard Gauge Cars for the Surat Metro Rail Phase-I Project with an order value of approximately Rs. 866 Cr.

It has also finalized significant wagon orders from private customers in the past few months (~Rs 1200 crores), thereby taking the wagon order book from private players to ~26% of the overall FTRS order book. 

Titagarh also plans to capture the opportunity to manufacture 200 Vande Bharat trains worth Rs 58,000 crores and maintain them for the next 35 years. Not only that, the passenger demand for IR is expected to increase by almost 2.5x by 2051 requiring significant capacity expansion on the passenger handling as well as technological improvement fronts.

So the ambitious plans combined with the significant growth in Indian railways suggests a potential for significant growth beyond its already impressive performance. The extent of this growth and its impact on the company’s valuation remains a topic for discussion and speculation. Share your thoughts in the comments below!

Written by Nalin Suriya S

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