March 8, 2018

Railways Industry Analysis

ALWAYS – INVEST IN WHAT YOU KNOW & WHAT YOU CAN UNDERSTAND. DEVELOP CURIOSITY AS A TRAIT

Railways Industry Analysis

Must know facts:

  • The Indian Railways is among the world’s largest rail networks. It is spread over 115,000 km, with 12,617 passenger trains and 7,421 freight trains each day from 7,172 stations plying 23 million travellers and 3 million tonnes (MT) of freight daily.
  • Inspite of plying 23 million travellers, most of the passenger sector trains is still loss making.

 

Influencing Factors for price change:

  1. Government initiatives to improve railway infrastructure & it could be in any of these forms – railway ground infrastructure – like development of logistic parks that provide for warehousing, packaging, labelling, distribution, railway service infrastructure – enabling last mile connectivity across the length and breadth of India, railways technology infrastructure – WIFI zones across all railway stations, transparent ticketing models which can avoid delays in ticket confirmations.
  2. Approval of dedicated freight corridors by government.
  3. Government enabling more investment participation through PPP route. Improvement of railway safety standards with the introduction of effective periodic audits.

 

Understanding the Industry:

The Indian Railway network is growing at a healthy rate. In the next five years, the Indian railway market will be the third largest, accounting for 10 per cent of the global market. Indian Railways, which is one of the country’s biggest employers, can generate one million jobs, according to Mr Piyush Goyal, Union Minister for Railways and Coal.

The railway network is also ideal for long-distance travel and movement of bulk commodities, apart from being an energy efficient and economic mode of conveyance and transport. As 70% of railways traffic accounts to freight, improving rail infrastructure constantly is certainly a need of the hour to attract new address new age logistics requirements. Improvement of railway infrastructure comes at a huge cost & this is where the scope of investment lies. And it is these companies that you should make them as part of your stock portfolio. (Offcourse choosing companies which has better management is the key).

The sector has taken up port connectivity on priority, through the PPP mode of funding in tandem with the Sagar Mala Project of Port Development. Railways will facilitate connectivity to new and upcoming ports through private participation. The development of identified stations to international standards with modern facilities and passenger amenities on the lines of newly developed airports, through PPP mode.

 

Estimated Market Size:

During April-November 2017, the passenger traffic of Indian Railways grew 0.68 per cent to 5,543.15 million. The overall revenue of Indian Railways grew 5.68 per cent year-on-year to Rs 109,209.15 crore (US$ 16.87 billion) during April-November 2017. The passenger earnings grew 5.24 per cent to Rs 32,370.54 crore (US$ 5 billion) and the freight earnings grew 8.01 per cent to Rs 71,168.67 crore (US$ 10.99 billion) during the same period.

 

Road Ahead:

The Government of India has focused on investing on railway infrastructure by making investor-friendly policies. It has moved quickly to enable Foreign Direct Investment (FDI) in railways to improve infrastructure for freight and high-speed trains. At present, several domestic and foreign companies are also looking to invest in Indian rail projects.

Private investment in railway logistics will see an encouraging trend moment you open doors with effective FDI policies. Indian Railways proposes to modernise its logistics operations by setting up logistic parks that provide for warehousing, packaging, labelling, distribution, door-to-door delivery and consignment tracking in order to achieve better efficiency; mechanisation of loading and unloading will be given top priority. These are certainly one of those improvement measures when it translates to reality, it can match to international standards.

 

Top Stocks in the industry:

ABB India, Siemens, BEML, Titagarh wagons, Container Corporation & many more.

(Please note above stocks are not recommendations, they are purely for information purpose only)

 

Information Source / References: IBEF, Ministry of Railways,The Economic Survey 2016–17 & 17/18, Agricultural and Processed Food Products Export Development Authority (APEDA), Department of Commerce and Industry, Union Budget 2017–18, Press Information Bureau, Ministry of Statistics and Programme Implementation, Press Releases, Media Reports,

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