Titagarh Wagons hits 4-year high; gains 26% in 2 weeks on strong order book

Shares of Titagarh Wagons (TWL) hit a four-year high of Rs 127.60, rising 3 per cent on the BSE in Tuesday’s weak market. In the past two weeks, the stock has outperformed the market by surging 26 per cent on a strong order book position. It was trading at its highest level since March 2018. In comparison, the S&P BSE Sensex was down 0.36 per cent at 09:37 am.

In the past one year, the stock has rallied 75 per cent, as against a 3.5 per cent rise in the Sensex. It had it a record high of Rs 190 on July 1, 2017.

TWL is one of the largest private sector wagon manufacturers in India with a capacity to manufacture 8,400 wagons p.a. Over the years, the group has diversified its presence outside India by acquiring Italy-based metro coach maker Titagarh Firema (TFA), Italy in 2015. The credentials of TFA, Italy enabled TWL to get high value order of Rs 1,125 crore from Pune Metro in August 2019

As on March 2002, TWL had a strong diversified order book position of Rs 15,123 crore across Indian (Rs 10,675 crore) and Italian business (Rs 4,448 crore) operations.

In the January-March quarter, the company had received orders for 24,177 wagons from Indian Railways (IR) amounting to Rs 7,800 crore approximately. The Bank Guarantee has been submitted and final contract execution is on its way, which is expected to be completed soon. The company has made a small request for change of wagon type which is pending consideration of IR, it said in an investor presentation on June 7, 2022.

The outlook on the long-term rating of TWL remains ‘Positive’ on the expectation of improvement in scale of operations going forward given the current order book and sustenance of profitability margins resulting in improvement in return ratios with comfortable capital structure and debt coverage indicators, CARE Ratings said.

Railways is the largest consumer of wagons. The outlook of the wagon industry is mainly dependent on the demand from the same and the budgeted allocation for such outlays. Government of India is expected to focus on improving the railway infrastructure and ensure faster development and completion of tracks, rail electrification, rolling stock manufacturing and delivery of passenger freight services. This would translate into a stable demand outlook for the products and services offered by the company, the rating agency said in a report in March.

TWL’s domestic operations have improved since FY20, primarily because of the company’s ability to manage its working capital cycle. This has been possible mainly on account of the inflow of mobilisation advances coupled with the faster recovery of dues from IR and other inventory management techniques employed by the company.

Despite the shift in TWL’s business profile to metro manufacturing from wagon manufacturing on a medium-term basis, the credit profile would remain robust over FY22-FY23, backed by its strong counterparties, India Ratings and Research (Ind-Ra) said in a rating rational dated September 14, 2021.

Ind-Ra believes TWL would participate in more metro orders over FY22-FY23 and would diversify its customer profile, which is dominated by the Indian Railways at present. Ind-Ra believes that this diversification would not only improve the business profile of TWL but also offer the much needed sustainability in the demand forecast.