Fortune Scrip     

Published: February 15, 2023
Updated: February 15, 2023

Texmaco Rail & Engineering Ltd

Total railway solutions provider : On rail's growth bandwagon

The railways sector has of late emerged as one of the most happening segments of the Indian economy, and has become even more attractive after the Union budget for 2023-24 allocated Rs 2.4 lakh crore as the capital outlay for its development. Viewed in this context, we have selected another rail company, after Titaghar Wagons, as the Fortune Scrip and it is TREL which is one of the largest players in the manufacturing of railway wagons. The company has a diversified product basket comprising railway freight cars, hydro-mechanical equipment, industrial structures, steel castings, loco shells, electrical-mechanical units (EMU), railway bridges and pressure vessels.

railway freight cars, hydro-mechanical equipment, industrial structures, steel castings, loco shells, electrical-mechanical units (EMU), railway bridges and pressure vessels. Texmaco Rail is a multi-discipline, multi-unit engineering and infrastructure company with 5 manufacturing units extending over 170 acres on the outskirts of Kolkata. The company was formed in 2010 after its merger with the heavy engineering and steel foundry divisions of parent company Texmaco Ltd, a textile machinery manufacturing company founded in 1939 by renowned industrialist KK Birla. Texmaco Rail and Engineering became the flagship company of the Adventz group headed by Saroj Kumar Poddar. Subsequently, it acquired Kalindee Rail Nirman Ltd and Bright Projects Ltd, which strengthened its rail EPC offerings. While Kalindee Rail was merged with Texmaco Rail, Bright Power was converted into its subsidiary. An EPC company, Bright Power specializes in overhead electrification solutions for the railways. Thus, Texmaco Rail is a total rail solutions provider and is well-positioned to leverage growth opportunities in railways infrastructure.

AUSSIE J.V.

With a view to growing in size, Texmaco Rail formed a joint venture with UGL Rail Services, Australia, styled Texmaco Hi-Tech Pvt Ltd, which set up a state-of-the-art manufacturing facility to cater to the huge requirements of locomotive wagon and coach components for the Australian market through UGL. However, this development did not work, and, as a result, Texmaco Rail had to develop its own customer base and take steps for getting registered, qualified and credited for acceptance of trial orders, and succeeded in satisfying its customers and getting regular orders. The company also started getting orders from Indian Railways. This success enabled the company to become more broad-based, and currently the JV is targeting long- duration projects which require hi-precision, hi-tech manufacturing capabilities.

The company's second JV was formed with Wabtec Corporation, an American company founded by the merger of Westington Air Brake Company and Motive Power Industries Corporation. Initially, the JV will provide hi-tech freight corridor services and other state-of-the-art railway products to the Indian Railway network. A new manufacturing facility has been set up in the Emelgharia area of Kolkata to produce Wabtec's leading global product lines in freight and locomotive brake shoes, truck mounted brakes, and cushioning systems. Subsequently, Texmaco Rail has formed a joint venture with Touax Rail, a lessor of intermodal freight railcars in Europe and the US. The JV has been formed to enter the business of wagon leasing.

BACK IN BLACK

The company has made steady progress in its financial performance. During the last 12 years, its sales turnover has more than trebled from Rs 767 crore in fiscal 2012 to Rs 2,600 crore in fiscal 2023. Operating profit, which had gone down from Rs 134 crore in fiscal 2012 to Rs 60 crore in fiscal 2018, has picked up again to reach Rs 142 crore in fiscal 2023, and net profit, which had slumped from Rs 93 crore in FY2012 to a loss of Rs. 60 crore in FY2020, will once again reach the Rs 93-crore level this year, indicating that the worst is over and the company is on a growth trajectory. Its future prospects are highly promising. Consider:

• The Indian railway sector has a great future. The Union budget for 2023-24 earmarked a railway capital outlay of an unprecedented Rs 2.4 lakh crore - over 9 times the 2013-14 capital outlay. Wagon manufacturing has been ramping up due to rising demand for freight and passenger wagons. Of late, national transporters have raised a demand for 90,000 wagons, and the industry is expected to manufacture around 30,000 wagons in the next 10-15 years. The government is coming up with global tenders for 50,000 wagons. These are strong industry tailwinds for wagon manufacturers like Texmaco Rail. Again, opportunities in the dedicated freight corridors under the publicprivate partnership (PPP) mode, multi-tracking congested routes and the target of the Indian Railways to complete 100 per cent electrification will benefit Texmaco. The Rail Ministry's initiative to open up to privatization will also be positive to the business of the company.
• A proven track record and well-diversified operations are valuable assets and growth drivers for Texmaco. The company's history goes back to 1939 when it started manufacturing textile machinery. Subsequently, over the years it diversified its operations into engineering products and railway wagons manufacturing. Today, the company manufactures commodity- specific wagons for private customers, coaches, electric locomotive shells and sub-assemblies. This makes Texmaco one of the largest manufacturers in India. After the acquisition of Kalindee Rail Nirman and Bright Power, Texmaco has emerged as a total rail solutions provider, offering wagons, coaches, locomotive shells, track laying and electrification, telecommunications and bridges, and other structures. The company also executes projects in large steel structures and bridges in both the railways and roadways sectors. The company has earned a considerable reputation for the Bhairab bridge built on the river Meghna in Bangladesh.

BENEFITS OF J.V.s

• Texmaco has secured access to state-of-the-art technology and modern business practices through joint ventures with Touax Rail, a French company engaged in leasing finance, and Wabtec, an American company which is a global supplier of highly engineered components and systems for railways and specific industrial markets. These JVs have led to a sizeable increase in the business of Texmaco.
• On account of all these factors, there is a continuous flow of orders and the company today enjoys a robust order book. The order book at the beginning of fiscal 2024 was Rs 9,033 crore, which includes orders from Indian Railways worth Rs 6,031 crore along with orders from private players for wagons. The order book of Kalindee Rail Nirman stood at Rs 790 crore and that of Bright Power at Rs 450 crore. Further, the subsidiaries and JVs had an order book worth Rs 225 crore. The company's EPC order book is around Rs 500 crore. The order book ramp- up during the current fiscal is expected to be around 30 to 35 per cent. The robust order book provides revenue visibility for over three years.
• The company's financial position is sound, with reserves at the end of March 31, 2023 standing at Rs 1,346 crore - over 42 times its equity capital of Rs 32 crore.

SOUND HOLDINGS

• The company's shareholding pattern is very healthy, with promoters holding over 50 per cent stake, zero pledges, and FIIs (9.57 per cent) and DIIs (8.8 per cent) steadily raising their stake. The company's shares are quoted around Rs 197.5 (face value Re 1). Viewed in the context of bright prospects for a strong rail stock, Texmaco is worth including in the portfolio of every discerning investor.