Key takeaways of the call

Consolidated order book at Rs 2510 crore (OB of Indian operations Rs 1165 crore; overseas subsidiaries Rs 1345 crore) up 12% from Rs 2245 crore (OB of Indian operations Rs 654 crore; overseas subsidiaries Rs 1590 crore) in the corresponding previous year.

Of the consolidated domestic order book of Rs 1165 crore, the wagon order book of TWL and Cimmco was Rs 400 crore and Rs 360 crore respectively. Of the balance domestic order book about Rs 130 crore is for ship building, Rs 60 crore for bridges, Rs 80 crore for Porches and others including defense is about Rs 60-70 crore.

The order book of Cimmco as end of March 2018 was Rs 415 crore. The order book of Titagarh Firema SpA, Italy (TFA) as end of March 31, 2018 was Euro 138 million and that includes pending inherited order book of Euro 62 million and new orders of Euro 76 million. The French subsidiary i.e. Titagarh Wagons AFR (TWA) has an order book of Euro 24 million as end of March 31, 2018.

Cimmco is L1 in a contract for supply of BTPGLN wagons to Bharat Petroleum Corporation Limited. The approximate value of the tender is Rs 90 crore.

About 80% of current order book of TWL and Cimmco will get converted to revenue in FY19. Out of TFA order book about 60-70% will get converted to revenue in FY19.

IR has issued the bulk wagon order on December 28, 2017 and on that Titagarh Wagon bagged order for 1147 wagons worth Rs 270 crore and Cimmco has bagged orders for 1191 wagons worth Rs 286 crore. Execution of this bulk wagon orders from IR has started from Q1FY19.

TFA has participated/ is prequalified for several tenders in tenders in Europe and other parts of the world and is pursuing them. The total value of the tenders participated or in the process is almost Euro 2 billion.

Sales of TWL for the quarter and year ended 31st March 2018 was impacted mainly due to delay in release of bulk orders by Indian Railways due to which Company could not utilize its capacity for wagon manufacturing for major part of the year.

Financials of Cimmco for the quarter and year and ended 31st March 2018 include an exceptional item amounting to Rs 6.1412 crore towards impairment of Plant and Machinery and Intangible assets of Tractor business acquired by Cimmco through merger of Titagarh Agrico Private. Merger of subsidiary engaged in the manufacture of Tractors has been completed and effect of the same given in the books of accounts of Cimmco.

The sales and profitability of TWA in FY18 was impacted due to technical problem in the bogies which hampered production during the year. The problem has since been resolved and the production has resumed. Further the revenue from operations includes 33% of the revenue with negative margins taken by TWA in order to regain entry into stainless steel wagons market. The order has been fully executed during the year. TWA is now working on several strategies to bring down the cost of production of the above wagons in order to have better margins.

TFA registered a PAT loss of Rs 80.23 crore in FY18 (as against a profit of Rs 33.13 crore in FY17) on a sales of Rs 580.31 crore, which was down by 43%. Loss at bottomline was largely due to one time provision of Rs 80.97 crore made by the company during the fiscal. TFA‘s EBIDTA margin before one time provision was 5.72% in FY18 as against 8.59% in the previous year and this is basically due to execution of low margin orders inherited alongwith the acquisition of business. These are contracts with very low or negative margins which were a part of the acquisition agreement.

One time provision made by TFA in FY18 represents one-time provision/write off of losses of Rs. 31.3391 crore (Euro 4.21 million) incurred on account of re-estimation of certain long term contracts that were inherited alongwith the acquisition of the business from the seller, Firema Trasporti SA (FAS). In Q3FY18. Further the auditors in their quarterly results for Q3 had also commented upon the non-provisioning of estimated penalties amounting to Rs 49.6329 crore (Euro 6.58 million) likely to arise due to expected delay in supply of trains against contracts that were inherited. Considering the various circumstances that led to the delay, while Management is in active negotiation with the customer to renegotiate and reduce the total amount of this penalty, and the final amount will be known on conclusion of the negotiation, however, as a matter of prudence and abundant precaution necessary provision towards the above penalties has been made in the books of accounts during the quarter ended March 31, 2018 and thereby the financial statements are without any qualified opinion of the auditors in this regard.

After considering these one-time provision and the actual consideration paid, the total cost of acquisition is substantially lower than the fair value of the fixed assets (as carried out by independent valuers) and by and large as per the original estimates made at the time of acquisition.

Hope to turnaround European subsidiaries by next fiscal.

IR floated tenders two-three weeks ago for 24000 wagons. The company hope to maintain its market share of about 25-28% in IR bulk orders. IR has also reopened wagon investment scheme in 2011-12 it was withdrawn and was reintroduced few weeks ago and there is strong enquiry.

One tender from Mumbai metro and balance are to come in coming months. Pune Metro tender is yet to be floated.

While IR wagon orders are with PVC, in case of private wagon orders the company do back to back contracting for steel. The company largely able to pass on the incremental cost to customers if any.

Dedicated Freight Corridor (DFC) – So far only small tenders for wagons only floated by Japanese consortium especially for maintaining DFC corridor. DFC procurement to start happening by end of this fiscal. DFC wagon demand has to come from private sector and the wagon investment scheme will accelerate it.

Debt at TFA was Euro 41 million and that at TWA was Euro 8-10 million.

With life time of a wagon being 25 years, IR given its current wagon fleet, requires 10000 wagons for replacement per year. So to maintain and improve its market share in growing cargo in a growing economy it requires additional wagons. So the wagon market in the country is anywhere between 25000-29000 wagons per year. The ordering in the last 10 years is not upto this level and it's just a fraction of the demand.

The stainless steel Bogey problem at TWA will get resolved in next 2 quarters. Investigation and resolution taken longer than the company anticipated.