Key takeaways of the conference call

The company on July 9, 2015 completed acquisition of Firema Transporti Spa Italy (FT), which is an established designer and manufacturer of metro coaches, semi/high speed trains, propulsion systems for trains such as traction motors, converters etc in Italy.

The company singed sales and purchase agreement with the company represented by extraordinary commissioner. The company has been acquired through its step down Italian subsidiary/SPV i.e. Titagarh Firema Adler SPA, registered in Milano. The acquisition of the business has been done in partnership with a leading Italian group i.e. Adler Plastics SPA, which will hold 10% stake in the Italian SPV. Company's investment was routed through its 100% subsidiary at Singapore, which has made an investment of Euro 25 million as the group's share of acquisition cost, Capex and portion of working capital.

FT is dominant player in Italian railway sector with its own Intellectual Property for trains with IGBT based 3 phase technology. Moreover they have Stainless steel coaches and aluminum coaches apart from carbon/ steel coaches. FT also has designs and capabilities for manufacturing of shunting locomotives and services for overhauling, repairing and maintenance of rolling stocks for Railways. But locomotive is not the major business of the company.

FT has 4 facilities in Italy comprising one design centre at Milano, Italy and 3 manufacturing units at Caserta, Tito (Power electrical) and Fallo (Spare parts).

None of old debts of FT are part of the purchase contract. Only 300 people out of total 500 people were acquired by the company as part of the agreement. The company has already negotiated a wage cut with the labour/staff union with about 6% cut in wage of Blue Collar workers and 12% in case of white collar.

The acquired company is getting reorganized and the potential of FT is much more than the peak revenue of Euro 195 million and an EBITDA of about 28 million achieved by it in 2008. But due to various reasons it went to extraordinary commissioner latter.

The company looks to turnaround the operations as early as possible and as the company has just start running the company it could not put a time line when it will turnaround.

Consolidated order book of Titagarh Wagon prior to acquisition (including French company order) of FT is Rs 875 crore which will be executed in 12-18 months. The newly acquired company i.e. FT has an order book of Euro 220 million and part of which is in WIP and balance are yet to be manufactured. Bulks of the orders are from Italy and for passenger train coaches with some Electricals order for metro.

The acquisition of FT has given the company much needed technology and facilitated the company to tap opportunities across the globe as a group. Italian units given their un-favourable cost competitiveness vice versa India can't cater to Indian market but focus on European markets and others.

Though the acquisition will give the technology for metro coaches/trains, some-times the company has to bid as a consortium in case of tenders (both in India as well as elsewhere) if the tender contains a PQ criteria of supply of coaches/trains to certain number of countries etc.

Going by its earlier acquisition of HIL's engineering division and French company the inorganic route will give ready infra at effective cost which cut down time scale up.

Typically margin in passenger segment is better than wagon segment.

Applied for Industrial licence for defence equipment manufacturing and this is first step for getting into this sector.

Wagon tender for IR are yet to come in.