Business
Kolkata based Titagarh Wagons Limited (TWL) is a private sector wagon manufacturer in India. It is primarily in the business of manufacturing railway wagons, bailey bridges, heavy earth moving and minding equipments, steel and SG iron casting of moderate complex configuration.
The company has four revenue centers. Wagon manufacturing division is the biggest revenue generator with 79% of the total revenue of the company. The company manufactures Indian Railway freight cars, special purpose freight cars, bogies and couplers. The company has many achievements in the areas such as RORO and WOW. The company has shown good growth in wagon dispatch from 644 wagons in FY2002-2003 to 2073 wagons in FY2006-2007 which transalates into a CAGR of 34%. For the six months ended September 30, 2007 the company has recorded dispatch of 1394 wagons.
The special projects division is catering to the defence requirements and bailey bridges with a manufacturing capacity of 72 bridges per annum. It is an approved source by DRDO for procurement of integrated field shelters, special purpose wagons and other engineering equipment and has got an order from Nuclear Power Corporation for manufacture of certain equipment.
The company acquired mining equipment unit of Hyderabad Industries in 2005 and converted into a profit making division involved in the manufacture and sale of heavy earth moving equipment. This division manufactures hydraulic excavators, crawler cranes and construction cranes. The company enjoys enviable clientele which includes NMDC, SAIL and Coal India.
The fourth division of TWL caters to high growth segments like electric multiple unit (EMU) and metro coaches. It has received a supply contract for manufacture and supply of nine car rakes.
Financials
Revenue
FY2002-2003: Rs 47.17 crore
FY 2006-2007: Rs 284.05 crore
CAGR of 56%
Profit
FY2002-2003: Rs 3.23 crore
FY 2006-2007: Rs 26.18 crore
CAGR of 68%
Six months ended September 30, 2007
Revenue: Rs 211.56 crore
Profit: Rs 26.02 crore
Objective
Setting up an EMU manufacturing facility at Uttarpara unit for Rs 18.7 crore
Modernize and expand existing facilities at our Titagarh and Uttarpara units for Rs 18.84 crore
Setting up an axle manufacturing and wheelset assembly facility for Rs 12.93 crore
Building a corporate office and research center for Rs 7 crore
Strategic invetstment & brand building for Rs 14.5 crore
Key takeaways
Long term sourcing arrangements for components for its wagon businesses from RDSO approved vendors across the world an arrangement with Komatsu Mining Germany for supply of components and spares for heavy earth moving and mining equipment. Backward integration to ensure the supply of bogies and coupler sets for in-house consumption.
Joint venture with FreightCar America in order to develop lighter and more efficient wagons that are in high demand especially in the metro transport systems.
An agreement with JP Morgan to rehabilitate Cimmco Birla, subject to approval from BIFR. Cimmco Birla is a Rajasthan based loss making wagon manufacturing company which is under BIFR and will trigger further growth for TWL.
Order book of Rs 753.1 crore offers good earnings visibility.
High entry barriers
Already got the patronage of global investors.
Risk
Single customer (indian railways) dependence
Rising concerns over quality of business such as falling debtor turnover ratio
Dependence on few suppliers
Valuation
The stock on offer is valued at 19 to 22 times its annuliased earnings for the six months ended September 30, 2007 on its fully diluted equity capital. Texmaco, another wagon manufacturer is valued at 27 times its trailing 12 months and Blackstone recently valued TWL at Rs 675.
Our Call
The stock is a concept stock and hence subscribe for long term capital appreciation.
Source: UMCapital India |
