Texmaco Rail & Engineering, a leader in freight wagons, is set for significant growth due to benefits from Dedicated Freight Corridors (DFC) and government rail initiatives. With a strong order book, expansion into passenger wagons, and the demerger of its Rail EPC business, Texmaco is positioned to enhance profitability and margins.

Strong Incremental Demand from Railways & Pvt. Players

Texmaco’s strong order book totals ~₹5,000 crores (~14,000 wagons) as of March 2024. The company has applied for ~15,000 wagon tenders and expects 20,000-25,000 additional orders from Indian Railways over 2-3 years. The Dedicated Freight Corridors (DFC) aim to increase rail freight market share to 45% by FY30, driving further demand. The private sector and industries like steel, cement, and coal will also boost wagon needs, with ~17,000 wagons expected in FY25. Additionally, Texmaco plans to enter the passenger wagons market, anticipating growth from the government’s plan for ~3,000 new trains in the next 3-4 years.

Strategic Decision to demerge Rail EPC business

Texmaco’s Rail EPC segment faced challenges with completing legacy orders, but most have been finished, except for those in Bangladesh and Bangalore Metro. The company now avoids long-term contracts, focusing on shorter-duration projects such as signaling, ballastless track, and overhead electrification, which typically last 18 to 30 months. Track-laying projects, which can exceed 36 months and face infrastructure bottlenecks, are being phased out. The demerger of Kalindee Rail and Bright Power into separate subsidiaries aims to create synergies, improve management control, and enhance shareholder value. This restructuring is also expected to boost receivables and profitability by targeting defaulting and pending client payments.

Cost Rationalization Methods

Texmaco is evaluating whether to manufacture components in-house or outsource to optimize costs, as materials account for 80-84% of operating expenses. By increasing monthly production from 750 to ~1,000 wagons and targeting 11,000 wagons in FY25, the company aims to improve margins. It is focusing on shorter-term contracts (18-30 months) and completing long-term projects swiftly. Texmaco projects a 40% increase in production volume across all divisions in FY25, with an expected revenue growth of 52% in the Wagons division. Average realization per wagon is ~₹35-45 lakhs.

Fundraising & Debt Repayment

The company raised ₹1,050 crores through QIP and preferential allotment for debt repayment, working capital, and capacity expansion. It repaid ₹353 crores in FY24 and ₹175 crores in April 2024. Current debt stands at ₹456 crores, with ₹80-90 crores of long-term debt planned for repayment in FY25. Reduced debt is expected to enhance profitability by lowering interest payments.