titagarh wagons limited (twl)2 anand rathi research titagarh wagons limited (twl) is one of the...
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Anand Rathi Research
Time Horizon – 12 Months
February 1, 2016
Dec-15 Sep-15 Jun-15 Mar-15
Promoter 46.1% 46.0% 53.1% 53.1%
Institutions 29.4% 25.6% 16.8% 13.3%
Non Institutions 24.5% 28.4% 30.2% 33.7%
Total 100% 100% 100% 100%
Source: Company, Anand Rathi Research, Bloomberg
V
A
L
U
E
P
I
C
k
(In ₹ Mn.) FY14 FY15 FY16E FY17E
Net Sales 6,241 7,611 7,955 10,038
EBITDA 35 248 199 778
EBITDA Margin 0.6% 3.3% 2.5% 7.7%
EPS (₹) (0.8) (0.3) 1.6 5.3
EV/Sales 2.7 2.2 2.1 1.7
EV/EBITDA 46.7 25.2 28.6 13.3
P/E (x) - - 92.9 27.4
Price Performance CY13 CY14 CY15 YTD
Absolute -69% 181% 158% -12%
Relative -76% 149% 162% -7%
Analyst: Narendra [email protected]
Relative stock performance (Feb’15=100)
CMP: ₹144
Target: ₹185
Shareholding Pattern (as on Dec’15)
Key Data
Bloomberg Code TWL IN
NSE Code TWL
BSE Code 532966
Sector Capital Goods
Industry Transportation Equipment
Face Value (₹) 2.0
BV per share (₹) 60
Dividend Yield (%) 0.6%
52 Week L/H(₹) 71 / 175
Market Cap. (₹ mn.) 16,615
Titagarh Wagons Limited (TWL)
25
100
175
250
Nifty TWL
2 Anand Rathi Research
Titagarh Wagons Limited (TWL) is one of the leading private sector wagon manufacturers in India. Incorporated in 1997-98TWL is primarily engaged in the business of manufacturing Railway Wagons & EMUs (Coaches), Bailey Bridges, Heavy EarthMoving and Mining Equipment, Steel and SG iron castings of moderate to complex configuration etc.
TWL already manufactures certain products for the Indian defence establishment, such as special wagons, shelters andother engineering equipments and has recently been licensed to manufacture defence platform products.
TWL’s total capacity to manufacture wagons in India stands at 8400 wagons per year. It also has presence in Internationalmarkets with the acquisition of Firema Trasporti SpA giving the company access to new technology and a robustmanufacturing base.
During the latest financial year the company has witnessed a 22% growth in revenues at 7,611 million in FY15 as against₹6,241 million in FY14. Its EBITDA margins stood at 3.3% at ₹248 million in FY15 as against 0.6% at ₹35 million in FY14.
TWL has over time diversified itself from an only Wagon manufacturer into a EMU/MEMU, Metro coaches, Defenceprojects, heavy equipment products. TWL is the only Indian company having acquired key technologies to manufacturemodern metro trains and high speed trains through its acquisition of Firema Transporti. Firema currently has an order bookof ~Euro 285 million (~₹20,000-22,000 million).
With the acquisition of Firema, TWL is likely to enter into metro coaches and high speed train business in India and otheremerging economies in Asia and Africa going forward.
With recent changes in procurement policy for competitive bidding, nearing completion of DFC, increase in demand formetro rail infrastructure in the country, Indian railway infrastructure market is poised to witness a significant turnaround innext few years.
We believe, TWL being the second largest company in terms of manufacturing capacity is on the cusp of turning around ascapacity utilisation improves with operating leverage leading to increase in margins. We initiate our coverage with BUYrating on Titagarh Wagons Limited and a target price of ₹185 per share.
Equipped with capacity, capability & Credible technology in manufacturing both freight and transport vehicles
Titagarh Wagons Limited (TWL)
3 Anand Rathi Research
Strategically placed plants in India with presence in global markets.
Titagarh Wagons Limited (TWL)
Corporate Profile
TitagarhCapital Pvt
Ltd
TitagarhMarine Ltd
Titagarh Wagons Ltd.
Cimco Equity Holdings Pvt
Ltd
TitagarhSingapore Pte
Ltd
TitagarhWagons AFR
CimmcoLimited
CorporatedShipyard Pvt
Ltd
Times Marine Enterprises
Pvt Ltd
TitagarhAgrico Pvt Ltd
96.43%
74.76% 90%
TitagarhFirema Adler
SpA
NOTE: Only TWL holding less than 100% is specifically mentioned.
4 Anand Rathi Research
With well spread Product offerings
Titagarh Wagons Ltd.
Wagons Rail CoachesHeavy
EquipmentsFoundry Special Projects
• Hooper Wagon• Covered Wagon• Opentop Wagon• Container flat
Wagon• Tank Wagon• Flat Wagon• Special Purpose
Wagon
• EMU/MEMU• Metro Coaches
• Excavators• Crawler
mounted cranes
• EOT Cranes
• Various foundry products for captive use and special projects.
• Bailey bridges• Modular steel
bridges• Special
equipment for Defence
• Nuclear power equipment.
Titagarh Wagons Limited (TWL)
5 Anand Rathi Research
During the latest financial year the company has witnessed a 22% growth in revenues at 7,611 million in FY15 asagainst ₹6,241 million in FY14. The growth in revenues during the was mainly attributed to higher contributionfrom EMU (Rail Coaches) orders.
The revenues in past five years remains muted as the company was highly dependent on the orders from Indianrailways.
TWL’s EBITDA margins stood at 3.3% at ₹248 million in FY15 as against 0.6% at ₹35 million in FY14. The erosion inmargins historically are due to negative operating leverage due to lack of new orders and lower realization due tohigher competition in low complex wagon products.
Historical financial performance has been volatile…
Sales (Mn.) & Sales Growth EBITDA & EBITDA margins
0.0%
4.5%
9.0%
13.5%
18.0%
-
400
800
1,200
1,600
Mar-11 Mar-12 Mar-13 Mar-14 Mar-15
EBITDA EBITDA Margins
-25%
-10%
5%
20%
35%
-
2,500
5,000
7,500
10,000
Mar-11 Mar-12 Mar-13 Mar-14 Mar-15
TWL Standalone Other Subs. Sales growth (RHS)
Titagarh Wagons Limited (TWL)
6 Anand Rathi Research
TWL’s new wagon orders have declined sharply and during the latest financial year the companyhas received new orders worth of its 10% capacity only. The decline in orders was mainly due tolower tendering activity from Indian railways and lack of orders from private players due to delaysin DFC project.
…as Wagon orders lost momentum due to delays in tendering
TWL Wagon orders TWL Wagon Sales (Units) & Realization/Unit
0
1000
2000
3000
4000
FY0
3
FY0
4
FY0
5
FY0
6
FY0
7
FY0
8
FY0
9
FY1
0
FY1
1
FY1
2
FY1
3
FY1
4
FY15
Private Indian Railways
0.00
0.50
1.00
1.50
2.00
2.50
3.00
0
750
1500
2250
3000
FY-11 FY-12 FY-13 FY-14 FY-15
Sales (Nos) Avg Realisation ₹ Mn (RHS)
Titagarh Wagons Limited (TWL)
7 Anand Rathi Research
TWL is one of the first private company in India approved by IR for the manufacture of Electrical Multiple Units (EMU)and Main Line Electrical Multiple Units (MEMU). The company has in execution orders for 23 rakes AC EMU/MEMUsecured from IR in FY12.
TWL commands significant market share in the private segment for EMU/MEMU segment with limited competition.The management expects additional orders from the Indian Railways in this segment in future.
With the Kolkata Metro Railway awarding a contract to TWL for the refurbishment of 56 coaches (7 rakes) valued at₹250 million marked TWL’s entry into the metro segment. The company has also acquired a Italy-based FiremaTrasporti S.p.A. and became the only company in India to possess the technology to manufacture metro coaches andhigh speed trains.
TWL is planning to absorb Firema;s technology into India in order to service Indian markets as well as service exportsmarket through its marketing network. TWL’s Italy subsidiary has an outstanding order book of around Euro 285million.
…incentivizing TWL’s diversification into new business segments to help stabilize revenues.
TWL’s EMU/MEMU and Metro Business: Domestic & Export opportunity
TWL has in recent past has got a licence to manufacture defence products in India. The company is planning to useCIMMCO’s strategically located manufacturing facilities into its defence equipment and wagon maintenance hubbusiness.
The company has already supplying some products like special purpose wagons, sheltersto the defence forces.
Defence Business:
Titagarh Wagons Limited (TWL)
8 Anand Rathi Research
Rail Freight traffic growth lagging than GDP…
India GDP growth rate (7.7% CAGR)
Railway freight traffic (Mn. Tons)
0
400
800
1200
FY-04 FY-05 FY-06 FY-07 FY-08 FY-09 FY-10 FY-11 FY-12 FY-13 FY-14
0%
3%
6%
9%
12%
FY-04 FY-05 FY-06 FY-07 FY-08 FY-09 FY-10 FY-11 FY-12 FY-13 FY-14
Titagarh Wagons Limited (TWL)
Source: Indian Railways, Anand Rathi Research
9 Anand Rathi Research
… implying capacity constraints in railways, resulting in traffic shifting to roads…
Line Capacity Utilization on IR
0%
25%
50%
75%
100%
1951 1961 1971 1981 1991 2001 2008
Road Rail
Traffic share between Rail & Road
0 50 100 150 200 250 300 350 400
Central
Eastern
Northern
Western
Southern
< 80% 80-100% 100-120% 120-150% > 150%
NOTE: 16 Zones
Consolidated on
basis of Origin into 5
Zones
Titagarh Wagons Limited (TWL)
Source: Indian Railways, Anand Rathi Research
10 Anand Rathi Research
…Was result of lack of adequate numbers of rolling stock infrastructure despite increase in wagon capacity.
Current Freight, Passenger Wagon and EMU rolling stock (in ‘1000)
Freight Wagons (in ‘1000) Vs. Freight Capacity (Mn. Tons)
130
210
290
370
450
1951 1961 1971 1981 1991 2001 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Wagons in Numbers Passenger Carriages EMU/DMU/DHMU
0
4
8
12
16
0
100
200
300
400
1951 1961 1971 1981 1991 2001 2011 2012 2013 2014
Wagons Capacity (Mn ton) (RHS)
Titagarh Wagons Limited (TWL)
Source: Indian Railways, Anand Rathi Research
11 Anand Rathi Research
The DFC project was originally scheduled to be completed by FY17 but is currently running behindthe schedule and is expected to be fully completed by FY20.
Freight via the DFC is expected to increase from 140 MMT in 2016–17 to 182 MMT in 2021–22 at aCAGR of 5.4 percent. Container traffic, which is likely to be an important constituent of total trafficon the Western DFC, is expected to grow from 3.8 million TEUs in 2016–17 to 5.3 million TEUs in2021–22.*
With Dedicated freight corridor nearing completion, traffic is expected to increase
Traffic projections on DFC (MMT)
0
50
100
150
200
2017 2022
WDFC EDFC
EDFC
BHAUPUR-KHURJA: 342 km Mar-18
BHAUPUR-MUGHALSARAI: 402 km. Dec-18
DADRI-KHURJA-LUDHIANA: 450 km. Dec-19
MUGHALSARAI-SONNAGAR: 123 km Dec-17
WDFC
REWARI-IQBALGARH (625 km) Jun-18
IQBALGARH-VADODARA (325 km) Mar-19
VADODARA-JNPT (425 km) Oct-19
REWARI-DADRI (127 km) Sep-19
DFC tentative project phasing timelines
Source: KPMG, DFCCIL Anand Rathi Research
* Source: KPMG
Titagarh Wagons Limited (TWL)
12 Anand Rathi Research
Proposed investment in rolling stock during the period 2015-2019 is expected to be around ₹1,020 billionimplying an annual tendering of around ₹200 billion. However year 2015 has witnessed lower tendering thus theremaining tendering ticket size is expected to be higher.
…increasing requirement for procurement of additional rolling stock ahead of full DFC modal execution.
Proposed Investment Plan (2015-2019)
Particulars Cost (₹ Bn.)
Network Decongestion (including DFC, Electrification, Doubling including electrification and traffic facilities)
1,993
Network Expansion (including electrification) 1,930
National Projects (North Eastern & Kashmir connectivity projects) 390
Safety (Track renewal, bridge works, ROB, RUB and Signalling & Telecom) 1,270
Information Technology / Research 50
Rolling Stock (Locomotives, coaches, wagons – production & maintenance) 1,020
Passenger Amenities 125
High Speed Rail & Elevated corridor 650
Station redevelopment and logistic parks 1,000
Others 132
Total 8,560
Titagarh Wagons Limited (TWL)
Source: Indian Railways, Anand Rathi Research
13 Anand Rathi Research
Indian wagon manufacturing market has become non remunerative in past few years as new players have undercut the margins to garner some orders. This can be explained by the fact that in one of recent floated tenders forprocurement of 8,509 wagons, of which only 3,146 could be purchased through competitive bidding, as allcompanies except the winning (L1) bidder refused to supply wagons at the L1 price.
Following this the Railways resorted to dual pricing and the L2 agreed to only supply another 1,871 wagons at amark up of 21% from L1 while other companies still refused.
Currently India’s wagon market is in a peculiar situation where railway is not able to procure wagons despiteample capacity in the industry and the manufacturers not willing to supply at non remunerative prices.
As expectations build up, competition intensity is already high
Past four years Wagon tendering market share and realization per unit
Company Capacity Market Share (Value) Market Share (Volume)Avg. Realisation/Unit (Rs.
Mn.)
Texmaco Rail & Engineering Ltd. 10,000 25.6% 16.5% 2.2
Jupiter Wagons Ltd. 2,500 14.9% 17.0% 1.2
Besco Ltd. 5,000 12.6% 14.0% 1.3
Titagarh Wagons Ltd. (Including CIMMCO) 8,400 12.1% 13.6% 1.3
Hindustan Engineering & Industries Ltd. 3,900 9.4% 11.1% 1.2
Modern Industries 4,500 7.0% 7.3% 1.4
Jindal Rail Infrastructure Ltd. 3,000 5.8% 7.5% 1.1
Titagarh Wagons Limited (TWL)
Source: Indian Railways, Anand Rathi Research
14 Anand Rathi Research
Owing to the current logjam in the wagon procurement process, Railways recently has revamped its policy ofreleasing tenders and has scrapped its old policy of releasing the wagon contract in two tranches and will releasethe full wagon contract at oncein order to ensure that there is no break in production.
Under competitive bidding also it has changed rules on how to distribute the total orders among the successfulbidders. Earlier a successful L1 bidder got 50% of order while L2 and L3 got 30% & 20% respectively.
With the new policy in place, the L1 bidder will get to supply 22% of the total tendered amount while L2, L3, L4,L5 and L6 will be given a share of 20%, 18%, 16%, 13% and 11%.
It appears that the new policy could end the logjam and may help in de incentivizing aggressive bidders. Howeverits effects are yet to be seen.
However recent changes in procurement policy could promote healthy competition among players
45%60%
55%40%
0%
25%
50%
75%
100%
Current Policy New Policy
Competitive Bidding Regular Sources
22% 20% 18% 16%13% 11%
50%
30%
20%
L1 L2 L3 L4 L5 L6
New Policy Current Policy
Titagarh Wagons Limited (TWL)
Source: Media reports, Anand Rathi Research Source: Media reports, Anand Rathi Research
15 Anand Rathi Research
TWL being second largest player armed with latest technology know how promises better prospect in near term
We expect TWL revenues to grow at a CAGR of 15% in next two years to ₹10,238 million in FY17E on back of
increase in domestic orders.
We expect TWL’s margins to improve on the back of higher capacity utilisation and improvement in realisation on
the new orders.
Source: Company, Anand Rathi Research
Sales (Rs. Mn.) & EBITDA Estimates
0%
3%
5%
8%
10%
-
3,000
6,000
9,000
12,000
FY-13 FY-14 FY-15 FY-16E FY-17E
Sales EBITDA Margin
Titagarh Wagons Limited (TWL)
16 Anand Rathi Research
Expectation of tendering activity for railways
increasing in order to tackle capacity constraints,
preparing for completion of DFC and general
improvement in economic activities.
Increase in metro coaches demand due to increased
urbanisation needs, expansion into exports markets of
emerging countries in Asia and Africa.
TWL’s is on a cusp of a turnaround eyeing
opportunities from these segment helping it to
increase utilisation and improving margins.
At CMP the stock is trading at 27x FY-17E earnings.
We initiate our coverage on Titagarh Wagons Limited
with a BUY rating on the stock and a target price of
₹185 per share.
Relative stock performance (Feb’15=100)
Valuation and Recommendation:
Source: Bloomberg, Anand Rathi Research
Source: Company, Anand Rathi Research
(In ₹ mn) FY-14 FY-15 FY-16E FY-17E
EPS (₹) -0.8 -0.3 1.6 5.3
P/E (x) - - 92.9 27.4
P/B (x) 2.5 2.4 2.4 2.2
ROE -1.3% -0.5% 2.5% 7.9%
ROCE 0.7% 1.8% 4.7% 12.0%
EV/EBIDTA (x) 46.7 25.2 28.6 13.3
Titagarh Wagons Limited (TWL)
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17 Anand Rathi Research
Margins FY-14 FY-15 FY-16E FY-17E
Sales Growth % -20.2% 22.0% 4.5% 26.2%
Operating Margin % 0.6% 3.3% 2.5% 7.7%
Net Margin % -1.4% -0.4% 2.2% 6.0%
Consolidated Financials:
Source: Company, Anand Rathi Research
(In ₹ Mn.) FY-14 FY-15 FY-16E FY-17E
Liabilities
Equity Share Capital 201 202 202 202
Reserves & Surplus 6,425 6,684 6,863 7,470
Totat Shareholder's Funds 6,625 6,885 7,064 7,671
Minority Interest 215 364 364 364
Long-Term Liabilities 232 427 427 427
Other Long-term Liabilities 51 76 76 76
Deferred Tax Liability 18 (20) (20) (20)
Short-term Liabilities 3,655 2,842 1,436 1,812
Total 10,796 10,574 9,347 10,330
Assets
Net Fixed Assets 3,342 4,417 1,294 1,629
Long-Term L&A 291 224 224 224
Non Current Investments 332 12 12 12
Other Non-Current Assets 19 20 20 20
Current Asset 6,811 5,901 7,797 8,445
Total 10,796 10,574 9,347 10,330
(In ₹ Mn.) FY-14 FY-15 FY-16E FY-17E
Net Sales 6,241 7,611 7,955 10,038
Operating Expense 6,207 7,363 7,756 9,260
EBITDA 35 248 199 778
Other Income 331 428 398 502
Depreciation 183 257 222 256
EBIT 183 419 375 1,024
Interest 136 177 108 118
Misc. items (113) (278) - -
PBT (66) (35) 267 906
Tax 39 63 88 299
Minority Interest 16 65 - -
PAT (89) (33) 179 607
Titagarh Wagons Limited (TWL)
18 Anand Rathi Research
The company’s primary business is highly dependent on Indian Railways tendering process. Any delay or
cancellation of these may result in lower than expected performance.
Company is exposed to currency exchange risk.
Key Risks:
Titagarh Wagons Limited (TWL)
19 Anand Rathi Research
Rating and Target Price history:
Date Rating Target Price (₹) Share Price (₹)
01-Feb-16 BUY 185 144
NILK rating detailsTWL rating history & price chart
Source: Bloomberg, Anand Rathi Research Source: Bloomberg, Anand Rathi Research
NOTE: Prices are as on 01st Feb 2016 close.
Titagarh Wagons Limited (TWL)
25
100
175
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Feb-15 Jul-15 Dec-15
Nifty TWL
20 Anand Rathi Research
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Continued…
Titagarh Wagons Limited (TWL)
21 Anand Rathi Research
Disclaimer:
Contd…
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Contd…
Titagarh Wagons Limited (TWL)
22 Anand Rathi Research
Disclaimer:
Contd.
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Statement
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1ARSSBL/its Associates/ Research Analyst/ his Relative have any financial interest in the subject company? Nature of Interest (if applicable), is givenagainst the company’s name?. NO
2
ARSSBL/its Associates/ Research Analyst/ his Relative have actual/beneficial ownership of one per cent or more securities of the subject company, at theend of the month immediately preceding the date of publication of the research report or date of the public appearance?. NO
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7
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Titagarh Wagons Limited (TWL)