Titagarh Rail Systems – Is this train finally moving?

Titagarh Wagons Q2 FY24 Concall Highlights

Order Book

• Received LOA from GMRCL for Design, Manufacture, Supply, Testing, Commissioning & Training of 30 nos. of Standard Gauge Cars for the Ahmedabad Metro Rail Phase-II Project with an order value of appx Rs. 350 Cr.

• The company has finalized significant wagon orders from private customers in the past few months (~Rs 1200cr), thereby taking the wagon order book from private players to ~26% of the overall FTRS order book

• The Company has achieved the highest-ever dispatch of wagons i.e., 759 wagons in September 2023

• The company has launched the first Diving Support Crafts (DSC) which will be inducted into the Indian Navy’s Southern Naval Command Clearance Diving Teams (CCDT) and will provide diving assistance during underwater repair, maintenance, and salvage operations on ships inside designated harbours

• The order book mix of private wagons and freight wagons keeps on changing each quarter

Margins

• The private orders margins are normally higher

• Given the company now has higher efficiency and more volumes, the margins should sustain in the 11% range in the long run for the freight wagon business

• The low margins in PRS of 2-3% are due to low volumes. As the volume increases to about 15-20 cars a month, which they expect they can achieve by Q2 FY25, the margins should increase to around 10%. Once the backward integration is started (the propulsion and components business), they can see another 2-3% improvement in EBITDA margins in the business

• The current strategy currently is to be in the train ecosystem with forward integration in the Vande Bharat space and backward integration in the components space

• On receivables- The receivables have grown substantially this quarter. However, according to the management, these are normal receivables and not overdue receivables and the management is not worried about it

• The industry is an open industry and anybody can enter the industry. Normally, a new entrant takes around 3-5 years to become a regular manufacturer

• The wagons are a domesticated industry since the logistics costs are generally very high