Wagon makers supplying to Indian Railways are poised for a 20% revenue growth this fiscal year, driven by a scaling up of operations that is expected to improve operating margins by around 100 basis points (bps), according to a CRISIL Ratings report. This increase is likely to enhance cash flow for manufacturers.
The report, based on a study of wagon makers that represent 65% of the industry’s 40,000 wagons per year capacity, highlights the unprecedented demand surge. “In the last two fiscal years, more than 90,000 wagons have been ordered, a significant rise compared to the average 10,000 wagons per year seen over the past decade,” CRISIL noted. The report adds that this momentum is likely to continue, as the government aims to raise rail transport’s share of freight from 27% to 45% by 2030.
Rahul Guha, Director of CRISIL Ratings, pointed out that private sector players, especially from industries like steel, coal, cement, automotive, and logistics, are also purchasing wagons under the government’s Liberalised Wagons Investment Scheme. “These private orders typically command a 10-15% premium due to lower competition, further boosting the performance of wagon manufacturers,” he said.
CRISIL also revealed that wagon manufacturers had order books at 2.3 times their revenue in the previous fiscal year. As a result, the industry, which was operating at less than 50% capacity in fiscal 2021, is expected to reach 90% capacity utilization this year.
Operating margins for CRISIL-rated wagon makers are projected to increase by 100 bps, reaching 12.5% this fiscal, supported by stronger cash generation. The increased demand will also lead to capital expenditure of Rs 800-1,000 crore by these companies, aimed at backward integration for component production and expanding wagon manufacturing capacity.
