CRISIL Ratings stated that the ratings upgrade factor in the improved business and financial risk profiles. The business risk profile improvement takes into account better operating efficiency as reflected in higher profitability, healthy execution in the freight wagon segment during fiscal 2024 and presence of diversified order book providing medium term revenue visibility.

In fiscal 2024, topline increased 39% year-on-year to Rs 3,853 crore (fiscal 2023: Rs 2,781 crore, fiscal 2022 Rs 1,482 crore) because of healthy execution of large wagons order of Rs 7,800 crore for manufacture of 24,177 wagons received from Indian Railways in May 2022.

In year-to-date, TRSL has received projects including Vande Bharat order share (Rs 7,026 crore), Surat Metro order (Rs 858 crore), Ahmedabad Metro order (Rs 350 crore) and Wheelset manufacturing (TRSL share of Rs 6,300 crore, to be executed as Joint Venture [JV] with Ramakrishna Forgings Ltd, [RFL]}. This is on top of the large existing wagon order from the India Railways to be completed over fiscals 2025-2027.

The financial risk profile is supported by healthy net cash accrual of Rs 324 crore in fiscal 2024 (Rs 126 crore in fiscal 2023). This along with substantial reduction in debt resulted in net cash accrual to adjusted debt ratio improving to 4.89 times as on March 31, 2024 (from 0.50 time in fiscal 2023 and 0.82 time in fiscal 2022).

Any deterioration in operating performance due to delays in order execution or raw material (RM) supply constraints and delay in clearances will remain monitorable. Further any stretch in liquidity due to a longer working capital cycle, higher-than-expected debt-funded capex or incremental support towards group companies or overseas subsidiaries will also be monitorable.

The ratings continue to factor in the TRSL’s established market position in the wagon manufacturing industry and benefits derived from diversification into passenger rolling stock segment (Vande Bharat and various metro orders), along with an improved financial risk profile.

These strengths are partially offset by large working capital requirement, significant dependence on the Indian Railways for orders and exposure to volatility in RM prices.

Titagarh Rail Systems is a leading comprehensive mobility solution provider with presence in India and Italy. The company specializes in manufacturing semi high-speed trains, urban metros, passenger coaches, propulsion equipment, and a wide array of wagons, including specialized ones. It has capacity to manufacture 12,000 wagons, 300 coaches, and process around 30,000 tonnes of casting steel, per annum.