Railway Budget and impact on STOCKS

The Railway budget is out and it has again failed to bring about any systematic changes. The Railways have always run at a loss and this time the Mata of Railways has not even given any hint(s) on how to improve the worsening situation of the Railway finances.

The Railway Minister, Mamta Banerjee barely spoke about the mounting deficit of the Railways. All the usual gimmicks like increased railway lines, increased power terminals, increased coach factories were announced. All that the minister mentioned was that she was optimistic that financial health of the Railways will be revived by FY12. 

The Railways has a net deficit of around Rs 2,500 crore, excluding the 20000 Cr loan obligation of IRFC (Indian Railway Finance Corporation) but that has not stopped the minister from announcing hospitals, diagnostic centres, kendriya vidyalayas, model degree colleges, technical and management institutes, Tagore Museum and Academy, drinking water bottling plants and so on, at the cost of the core activities of the Railways. Every year she has promised at least 1000Kms of railway lines but the actual addition never crosses 200 KM. For the last year net addition was 150Km. 

She has never allowed any increase in passenger fares for suburban sections and lower classes on long-distance trains. I don't have a problem with that, but then if she goes on subsidizing travel then the losses on account of such policies will eat into the railway cash reserves. Losses from passenger operations were projected to zoom to Rs 19,120 crore in 2009-10 from Rs 14,000 crore in the previous year. Not changing the lower class passenger fares has already cost the Railways over Rs 61,000 crore during five years ending 2009-10. 

The cash reserves are for development purposes, increasing rail lines, improving and maintaining coach facilities, cleaning and maintaining railway stations. People don't have a problem in paying more but then the facilities need to be good enough. How long does she want the people of India to travel in the world's most dirtiest railway network. 

Let's talk about stocks that are keenly watched during a rail budget. My suggestion is to avoid them because though they could get increased orders, but payouts from the railways are very slow and sometimes takes months to be released. The second reason is that the technology provided by some of them for the anti collision are outdated and won using under the table techniques. So it could be there this year, next year you never know. 

It's always better to avoid those companies that get 60% of it's revenues from one single client. These companies always suffer from low margins and profitability. 

Most of the rail stocks are on their downward journey. The railway budget was a sheer disappointment. All railway stocks have reacted to the miserable announcement. In the morning, the stocks were down in 1-4% range, a little better than yesterday (down in 3-6% range).

Kalindee Rail Nirman (Engineers) was quoting at Rs 116, down Rs. 18, or 13.67%. on a YOY basis it is down 33%

Titagarh Wagons was quoting at Rs 331.90, down Rs 50.75, or 13.91%. it is almost touching 52 week low. 

Texmaco was quoting at Rs 37.60, down Rs 3.15, or 7.82%. it is 70% down when compared to last march.

BEML was quoting at Rs 621, down Rs 12.90, or 2.04%. a well diversified company having interests in power, mining, irrigation, construction, road building, defence and ofcourse railways. 

At 13:17 hrs Kernex Microsystems (India) was quoting at Rs 94.65, down Rs 4.90, or 4.91%. The Company has started developing Railway Safety systems from 1999 and have completed many successful installations. 

All I want to add is please avoid concentrated bets to these stocks just because they have corrected. The companies, except BEML, will always command a low P/E. BEML looks a better bet due to its diversified business interest. 

Finally some key highlights for those who came here expecting an improvement in India's largest state owned transportation company.

·        Got 85 proposals for PPP (Public Private Partnerships) just so that you know most of the existing projects have been stopped midway due to lack of funds.

• ·         High demand for coach, wagons can't be met immediately
• ·         To set-up single window for PPP approval
• ·         To set-up rail-based industries for passenger coaches
• ·         To set up coach factory in Palakkad
• ·         To set up metro coach factory in Singur
• ·         To set-up diesel locomotive centre in Manipur
• ·    Imphal to be connected with rail network soon what the!#*!$!* how were people traveling  from those parts of our country.
• ·         To set up new coach factory at Kolar via PPP or JV
• ·         To set up two more wagon units under JV mode
• ·         To set up rail industrial park at new Bongaigaon, Nandigram
• ·         To set up 700 MW gas-based power plant in Maharashtra
• ·         Planning 1320 MW thermal power plant in Agra
• ·         To set up 1300 MW thermal power plant in AP
• ·         Aiming 700 km of annual rail line addition as compared to the current 150 kms
• ·         To build new rail line capacity of 700km versus 180km a year
• ·         To raise Rs 10,000 crore via tax free bonds
• ·         Annual plan for FY12 at Rs 57,630 crore we run at a deficit right now i have no idea where on earth are they going to get funds for this all a gimmick 
• ·         Annual gross budgetary support at Rs 20,000 crore the Finance Ministry has not okayed this FYI!!  
• ·         Market borrowing at Rs 20,594 crore 
• ·         Doubling spend on gauge conversion to Rs 2,470 crore
• ·         To spend Rs 9,583 crore for new line in FY12
• ·         To create fund to implement socially desirable plans
• ·         Railways earnings likely to exceed Rs 1 lakh crore hahahaa
• ·         Three railway zones to implement anti-collision devices it is still not implemented the anti collision device was developed 10 years back. 
• ·         To do away with all unmanned rail crossings in FY12 !!!Great!!!
• ·         Started e-procurement system to ensure transparency
• ·         Saved Rs 300 crore on rail re-alignment
• ·         To give 12,000 acre for dedicated freight corridor
• ·         442 station up-gradation to be completed by March
• ·     To cut booking charge on AC to Rs 10 versus Rs 20 i am already paying 1000 saving Rs 10 is a great relief!
• ·         Freight loading aim at 993 million tonne in FY12
• ·         Wagon procurement target at 18,000 units in FY12
• ·         To launch nine new Duranto, three Shatabdi trains
• ·         To introduce 56 new express trains no railway lines but
• ·         Frequency of 17 trains to be increased
• ·         To fill up 13,000 RPF jobs
• ·         Lost Rs 2,000 crore in FY11 on iron ore export curbs
• ·         Disruption cost Rs 1,500 crore loss in FY11
• ·         Railways saved Rs 3,700 crore due to austerity steps 
• ·         Operating ratio excluding pay panel arrears at 84% now
• ·         Railway earnings set to top Rs 1 lakh crore mark in FY12
• ·         Expect railways financial health to revive in FY12
• ·         To see Rs 5,260 crore savings in FY12
• ·         See Rs 5,258 crore excess funds with railways in FY12
• ·         To complete 1,075 km new rail lines in FY12
• ·         Aim to complete dedicated freight corridor by December 2016
• ·         Concession for women senior citizen cut to 58 years versus 60 years