All time high budgetary allocation in Railways augurs well for entire value chain

Buzzing:

Railway infrastructure creation has received a boost from higher budgetary allocation.

Context:

Strong allocation in Railways through redevelopment of stations, procurement of locomotives, wagons and new trains are expected to create a multi-year opportunity for companies present across its value chain.

Our Perspective:

The central government’s focus on infrastructure development is clearly visible by looking at the allocation towards the sector in the Union Budget for FY23. Sectors like railways have received an allocation of Rs 1.37 trillion for FY23, which is 17% higher compared to FY22 revised estimate. Including IEBR, the Railways has received a total allocation of Rs 2.46 trillion, up 14%.

Railways has laid out its plan of getting back to its modal share (share in total freight) of 35% by 2030 and 45% by 2050 from the current share of 26-27%. This will require Railways to develop its capacity and infrastructure in a massive way in the coming years. For example, to reach 35% modal share, Railways would require additional 4 lakh wagons in the next eight years.

In the next phase of capex in key segments, Railways plans to spend Rs 360 billion (bn) on locomotive procurement, Rs 310 bn on wagon procurement, Rs 300 bn on station redevelopment, Rs 250 bn on Vande Bharat trains and Rs 10 bn on Kavach anti-collision system.

Railways intends to procure 90,000 wagons over the next three years. The process of floating tenders is expected to begin soon. This procurement of 30,000 wagons on a yearly basis is significantly higher than the average procurement of 13000 wagons in the last three to four years. Moreover, construction of new lines, gauge conversion, doubling of lines and electrification project offers multi-year opportunity for companies present across the sub sectors like EPC contracting (L&T, Siemens, ABB, KEC International), industrial equipment (Bharat Electronics, Thermax, Bhel, AIA, Cummins), industrial consumables like bearings (SKF India, Timken India) and locomotives & wagons procurement (Titagarh Wagons, Texmaco Rail & Engineering).