Titagarh Wagons will bid for projects worth Rs 12,000 crore in FY23: Umesh Chowdhary, VC & MD

Umesh Chowdhary, Vice Chairman & Managing Director, Titagarh Wagons Limited, talks about the business outlook for FY23, order book and order visibility, margins and Italian subsidiary among others during an exclusive interview with Swati Khandelwal, Zee Business. Edited Excerpts:

Q: The railways' sector has caught momentum since the presentation of the budget. How FY23 is looking from the perspective of business?

A: As far as the company is concerned, there has been a big development in which we have supplied a train to Pune metro. The first train, which is a proto-type train, was manufactured in Italy and was flagged off by Mr Prime Minister during the inauguration of the Pune metro. Last week, our first aluminium train - manufactured at our new factory based in Kolkata under 'Make In India', we will make 31 trains in India - was flagged off by Secretary, Ministry of Housing & Urban Affairs (MoHUA) It is being considered a great achievement in the metro sector because this is the first time that an aluminium metro has been manufactured by any company in India and it has been inducted by a metro company. It is environment friendly, energy-efficient, light and aesthetically, and the metro is quite pleasing. In the existing Indian facility, we have an annual production capacity of 250 coaches and the Italian facility will work as a complementary to India.

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Q: Where does your total order bookstand at present and what is the order visibility in FY23 and what is the revenue that you will get from it?

A: We have three business divisions:

• Freight Division: We have the largest capacity in India and have a capacity to build 8,400 wagons annually. Indian Railways has also taken a historical decision under the Gati Shakti program. Under the Prime Minister's Gati Shakti program a tender for 90,000 wagons has been announced to reduce the logistics cost and increase the railways' logistics. These wagons will be bought in the next three years. In fact, this government has made progressive investments in the last six to seven years to increase the railways capacity in terms of signalling, track and other places. Now, it is time to utilise that capacity in which the number of wagons will go up. Railways' market share used to be around 80% a few decades back, reduced to 20-25%, but now it is getting back to 40-50% now. So, the visibility of the next three years of 90,000 wagons will provide a great opportunity for capacity utilisation for our business.
• Transition and propulsion division: It is our second business unit and comprises metro and propulsion units and the new factory of the same is almost ready by now and our first metro is out from there. Secondly, our first propulsion will also be ready in the next 2-3 months and will also include a traction motor, and traction converter among others. The Prime Minister has already announced that the metro will be established in around 50 cities. The tenders for the Delhi metro are already out and tenders for Chennai metro and Surat metro among many others are coming into the market and we will participate in each of those.
• Shipbuilding: We have received an order worth Rs 400-450 crore from the Indian Navy and recently, we have also bought a small shipyard on the south side of the Howrah bridge.

So, combining these three businesses, we want to grow them parallelly.

Q: If we quantify it then where does the total order book the company stands and how FY23 is looking like especially is there any order where you are L1 and are confident that you will garner it?

A: We announced the Indian order book during the presentation of December's quarter results which stood at around Rs 2,400-2,500 crore and the Italian subsidiary had an order book of Rs 4,500-5,000 crore. As far as new tenders are concerned, there is a wagon tender worth Rs 35,000 crore and in the metro, we have participated or will participate in those next year, which will stand around Rs 10,000-12,000 crore. In addition, we have also received developmental orders for propulsion systems of the Vande Bharat trains, which have been announced by Indian Railways. So, we are also developing it. As far as tenders are concerned, the pipeline of the development is quite deep and good. They will be announced after we get those orders.

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Q: How are you managing your margins currently with pressure from rising commodity prices?

A: Commodities prices are increasing wildly, but more than that, one of the difficulties for a company like us is that of volatility. Volatility is more difficult than price increase. The maximum of the Indian contracts that we have - around 70% - is with a price variation clause. So, we are in a situation to a level to pass on the product or commodity price increase to the clients, of course, there are certain lags because it is linked with the wholesale price index. But during the volatility, we face more difficulties. So, we believe that as soon as this situation of the war will normalise then this volatility and unidirectional price increase of the commodity will have some corrections and there will be stability. As far as the margin is concerned, I have always guided that an 8-10% EBITDA margin in our business or industry is a sustainable EBITDA margin, it may see a plus/minus of 1-2% during good and bad years and quarters. So, it can be at such a level but on a blended basis, over a period of time, we target an EBITDA margin of 8-10% in our pricing strategy.

Q: How the performance of your Italian subsidiary is looking and is the Russia-Ukraine issue is having any impact on your business? Also, what is the company's CapEx plan for FY23?

A: As far as the Italian subsidiary is concerned, then we had old legacy contracts with the company when we bought it. The good news is that all of our legacy contracts will come to an end in the first quarter of FY23. We have executed each one of those properly. Going forward, we have a framework order book of around Euros 500 million and we are taking the same in execution, where we are closing the works of revamping and other contracts. We believe that next year - even the COVID outbreak that bought difficult times for us, especially in Italy suffered the most - the performance of the Italian subsidiary will turnaround next year. The synergy of the Indian and the Italian units is increasing because our Indian facility is ready for the passenger trains. So, we have received a contract of around 300 million from Rome Metro. Now, we will synergise the two units and execute the project from both countries.