Industrial Overview
With over 150 years of existence, Indian Railways, the premier transport organization in the country, holds the distinction of being the largest rail network in Asia, and the world's second largest railway system under a single management.1 Indian Railways traverses through the length and breadth of the country, covering a total distance of 63,332 route kms. As the principal constituent of the nation's transport system, Indian Railways owns a fleet of 8,025 locomotives, 50,080 coaches, 207,176 freight wagons, running around 8,707 passenger trains on a daily basis. Indian Railways carries approximately 183 lakh tonnes of freight traffic and about 156.8 lakh passengers covering 6,974 stations daily. Indian Railways has also been part of one of the most successful turnaround stories in the past decade, recovering dramatically from a situation of being enmeshed in a perennial debt trap with its funds balances standing at Rs. 35,900 lakhs in FY 2001, to being poised to generate a cash surplus before dividend of approximately Rs. 2,000,000 lakhs in FY 20071.
The chief initiatives that assisted the Indian Railways in achieving the turnaround occurred in the freight segment. Freight traffic has been a lifeline for the Indian Railways with the segment showing a steady growth in the late nineties and touched a target of 6,000 lakh tonnes in 2004-05 from 4,735 lakh tonnes in 2000-01 registering a cumulative growth of over 25%. The targets of 6,350 lakh tonnes projected in the 2005-06 Rail Budget had been revised to 6,750 lakh tonnes taking into account buoyancy in the general economy and efficiencies acquired by the Indian Railways in terms of better utilization of their rolling stock and freight management techniques2. As per the Railway Budget 2007-08, incremental loading expected for FY 2007 was about 600 lakh tonnes, thereby resulting in a cumulative incremental loading of 1,700 lakh tonnes in the past three years. The freight loading expected for FY 2008 has been pegged at 7,850 lakh tonnes, and by the terminal year of the 11th Five Year Plan, the Railways are targeting a freight loading of 11,000 lakh tonnes. In order to achieve this target, the Railways are targeting to focus their investments in the coming years in the freight segment with a view to meet the growing demand for transportation, and the wagons manufacturing industry, by the virtue of being directly linked to freight business is expected to be benefited to a large extent.
Wagon Manufacturing Segment
At present, there are approximately 10 companies operating in the country who are in the wagon manufacturing business, meeting the infrastructural requirements as laid down by Indian Railways. Out of the 10, four companies, viz. Burn Standard Company Limited, Bharat Wagon Engineering Company Limited, Braithwaite & Company Limited, and Bridge & Roof Company Limited are in the public sector domain under the Ministry of Heavy Industry and Public Enterprises (Department of Heavy Industries). Companies such as Titagarh Wagons Limited, Texmaco Limited, Hindustan Engineering Industries Limited, Modern Industries Limited, Besco Limited and Jessop & Co. Limited are in the private sector and joint sector.
Indian Railways is one of the biggest customers of these wagon-manufacturing companies. Wagon acquisition by Indian Railways is a need-based activity, which is dependent on the traffic needs and availability of funds after taking into consideration the replacement of wagons. The Railway Board floats a tender on behalf of the Ministry of Railways, Government of India, for acquisition of wagons. Indian Railways has been, by and large, following a system of distributing orders against a tender that ensures equitable distribution of load among the established players in the industry, as well as ensuring achievement of competitive prices to bring in cost savings. Indian Railway distributes the bulk of the tender quantity amongst all established wagon manufacturing units at the lowest eligible bidding price or a negotiated price, on the basis of their past performance. The balance tender quantity is distributed among the three lowest bidders in a certain ratio. Technical and commercial aspects of price and allocation of quantities are evaluated by the tender committee of Indian Railway. Thus, the present policy of wagon procurement ensures equitable distribution of load amongst established suppliers and at the same time it helps in obtaining competitive prices for Indian Railway. Since the tender structure builds in strong weightage for past performance in terms of execution, it makes it difficult for the new entrants and other small competitors to gain scale in this business in the short term.
1 (Status Paper on Indian Railways, Issues and Options, Government of India, Ministry of Railways, May 2002)
2 Standing Committee On Railways (2005-06) - Fourteenth Lok Sabha - Ministry of Railways
The 11th Five Year Plan document indicates that investments in wagons would be witnessing a manifold increase, as compared to investments in made by earlier plans. In addition to demand from Indian Railways, demand for wagons from public sector companies such as National Aluminum Company Limited ("NALCO"), National Thermal Power Corporation Limited ("NTPC"), Container Corporation of India Limited ("CONCOR"), etc. has also been picking up. Companies such as NALCO, NTPC, etc. procure wagons for their in-house utilization whereas CONCOR procures container flats for container transportation purposes. The demand of wagons has further been bolstered by the Wagon Investment Scheme ("WIS"), which was implemented by Indian Railways w.e.f April 1, 2005. WIS aims at securing investment in procurement of wagons by stakeholders in the private and the public sectors, with an additional objective towards meeting the anticipated incremental freight traffic in the coming years. This scheme replaced the existing Own Your Wagon Scheme ("OYWS") under which private sector organizations could procure wagons, own them and lease them to Indian Railways. A customer desirous of being covered under WIS makes an application to the Zonal Railway stating the nodal points between which the wagons are proposed to be plied by him. On being granted the requisite No-Objection-Certificate ("NOC") by the Zonal Railway and subsequent permission from the Railway Board, procurement of wagons from the approved wagon manufacturers commences. In consideration of the investment made by the customer, he is granted an assured supply of a number of rakes every month against every rake that he makes investment for, until the expiry of a period, with certain freight concessions for the load carried. On the expiry of the said period, the ownership of the wagon invested by the customer is transferred to Indian Railways. Investors opting for the Engine on Load Scheme receive an additional bonus supply of two BG rakes per month without concession in freight.
Due to its simplicity and transparency, the Wagon Investment Scheme has gained much popularity among the various players in the segment who require wagon rakes for transportation of various commodities on a regular basis. In the Railway Budget 2007-2008, proposals to expand the scope of the WIS has been made by allowing customers to benefit from the scheme by procuring or leasing wagons or containers as against the previous directive of buying their own wagons. Moreover, benefits of the scheme has been proposed to be extended to include all types of general purpose wagons as well as special purpose wagons suitable for specific commodities, as against the current applicability of the scheme to only open and covered wagons.
It has also been proposed in the Rail Budget of FY 2008 to allow wagon manufacturers to introduce their own designs instead of depending only on RDSO designs. This would give a thrust to introduction of new and more efficient designs of wagons thereby making the IR fleet more cost effective and help in further gaining of market share.
Further IR has proposed that in case of purchase of lower tare weight wagons by a user, the IR would incentivize the purchaser of such wagon by offering a substantial discount on the additional carrying capacity generated due to the lower tare weight of the wagon.
Privatisation of Container Freight Traffic Scheme
Until recently, transportation of goods by rail was a monopoly of the Indian Railways, with the container movement by rail being handled by CONCOR, a subsidiary of Indian Railways. However, from 2006, Indian Railways has opened up its containerized operations to the private and public sector players and has broken its erstwhile monopoly. So far, only 15 operators in India including CONCOR have been issued license by the Railway Board. Based on the operations in specific sector/ route or all over India, the license fees have been charged as Rs. 1,000 lakhs and Rs. 5,000 lakhs, respectively. Operating permission is being granted for 20 years, which can be further extended by another 10 years to transport export-import ("EXIM") and domestic traffic. While the registration fee has been kept relatively low, the earnings for the Indian Railways would be through haulage charges that the parties would have to pay on a per-container basis.
Applicants, private as well as public, will have to procure flat wagons for transporting containers, whereas Indian Railways would provide locomotives. As a result a huge demand of flat wagons is expected. Players such as Pipavav Rail Corporation Ltd., Gateway Distriparks Ltd., CONCOR, Hind Terminals, India Infrastructure and Leasing, Central Warehousing Corporation, JM Baxi group, Adani Logistics, P&O Ports, SICAL Logistics Ltd., Bothra Shipping are understood to be interested in procurement of flat wagons. This is expected to hike the demand of container flats in a big way.
Wheel-set is one of the most critical components in wagon manufacturing business. There are two existing wheel-set manufacturing companies in India, in West Bengal and in Bangalore, both of which are in the public sector. These companies generally run on full capacity and are booked for the Indian Railways. Consequently, these companies are not able to meet any additional demand of wheel-sets created by WIS or by the entry of private players in the wagons manufacturing segment. Consequently, the wagon manufacturers have started importing wagon wheel-sets to take care of this scarcity. Presently there are a limited number of Railway Board approved wheel-set manufacturers from whom the wagon manufacturers in India can import wheels.
Bailey Bridges
Bailey bridges are portable prefabricated truss-bridges, initially designed for use by military engineering units to bridge gaps of up to 200 feet in a single span. Being modular in design, bailey bridges can be supplied in completely knocked down ("CKD") or semi-knocked down ("SKD") conditions, thereby facilitating easy logistics, mobility and assembly with minimal aid from heavy equipment. A panel represents the basic unit of a bailey bridge, manufactured from high tensile steel for strength and lightness, which is then assembled with accessories to suit the length of the bridge in multiples of 10 feet up to 200 feet. Bailey bridges are available in two roadway widths (standard and extra wide).
The advantages of bailey bridges include the following:
* Built up from standard pre-engineered system of ready-to-assemble components; bailey bridges require little or no installation time as compared to girder/ concrete bridges.
* Depending on carrying capacity, bailey bridges can be constructed with no intermediate support up to a span of 200 ft
* Usually erected completely from one end
* A bailey bridge once installed can quickly be upgraded to a higher load class through additional parts.
* Can be easily dismantled and reused elsewhere
* Modular replacement is a big advantage wherein only damaged parts need to be replaced
* Quick development of basic infrastructure thereby helping in socio-economic development of a region.
Owing to the boom in the infrastructure sector, the market for such bridges is likely to grow for a number of reasons: the need for such bridges as well as the growing popularity of modular bridges in view of their relative ease in erection and commissioning. State governments procure such bridges for installation in hilly and difficult to access terrains. The Directorate General Border Roads and the Government of Tripura constitute the largest customers of these bridges in India.
Bailey Bridges require superior engineering and manufacturing capabilities. Manufacturers have to undergo a rigorous testing and inspection processes for obtaining license from the DGQA, Ministry of Defense, Government of India for engaging in the business of building bailey bridges. Currently, only four players in India hold such licenses - out of these four companies, two are in the public sector, viz. Bridge & Roof Company Limited and Garden Reach Shipbuilders & Engineers Limited.
Heavy Earth Moving and Mining Equipments
Heavy Earth Moving and Mining Equipments cover a variety of machinery such as hydraulic excavators, cranes, forklifts, drills, scrapers, etc. They perform a variety of functions like preparation of ground, excavation, haulage of material, dumping/laying in specified manner, material handling, road construction etc. These equipments are required for both construction and mining activity.
Upswing in the Indian economy and increased activity in the infrastructure sector has increased the demand of such construction and mining equipments.
The government has already embarked upon massive infrastructure projects, with the National Highway Development Program building the North-South and East-West Corridors and the Golden Quadrangle Project connecting major cities. Besides, the government's decision to throw open the construction of roads, bridges, airports and ports to the private sector and allowing foreign investment in such projects has provided a boost to the construction industry as well as generate demand for construction and mining machinery.
The various planned infrastructure projects would give a boost to the heavy engineering equipment sector. While it is difficult to ascertain the size of the construction equipment industry, the table below shows the industry wise average share of the construction equipment segment in overall construction costs. This ensures that the future potential for the construction equipment segment is immense.
Particulars Construction Equipment cost (as a %age of the total construction cost)
Building 4.5 Roads 21-23 Bridges 16-18 Dams, etc 21-23 Power 21-24 Railway 6-8 Mineral Plant 20-22 Medium Industry 7-9 Transmission 5-7
Source: Construction Industry Development Council Survey
Keeping in track with the above percentage equipment cost as a part of construction cost and with the current demand in the construction industry and with growth of manufacturing sector, the requirement of cranes, excavators, and other equipment will see a huge volume growth.
EMU & Metro Coach
The population of India is increasing at a very alarming rate and the country is poised at a stage where there are huge plans of developing a fast and efficient mode of mass transportation. The Government has drawn out plans for developing metro railways / Mass Rapid Transport System ("MRTS") in major cities across the country. This would increase the total demand for self-propelled railway passenger vehicles such as EMUs Diesel Multiple Units ("DMUs"), Main Line Electrical Multiple Units (MEMUs) and metro coaches etc. After the huge success of the Delhi Metro, there are plans of developing similar metro systems at Mumbai, Hyderabad, and Bangalore and also to upgrade the present metro systems at both Delhi and Kolkata. Titagarh Wagons Ltd.
