MUMBAI : India's railways minister proposed to set up two wagon units with private partners and lowered the annual target for wagon orders, dampening prospects of private sector wagon makers and mauling their shares.
Loco transformers maker Hind Rectifiers and wagon maker Kalindee Rail fell to their 52-week low. Stone India fell nearly 13 per cent, Texmaco 15 per cent and Titagarh Wagons slumped nearly 18 per cent.
"The rail minister has announced setting up of rail wagon units. So the share of private sector allocation for wagon orders will be reducing," said an analyst with a local brokerage house.
Private wagon manufacturers have a 78 percent share and "we need to figure out how the projects will be set up because if the wagon orders gets skewed towards PSUs, it will be a bit of a concern," said Pankaj Pandey, head of research at ICICI Securities.
"I would personally feel it would have been better if the railways did not really get into so much of manufacturing projects," said Umesh Chowdhary, vice chairman at Titagarh Wagons.
Another ICICI Securities analyst said setting up more wagon making units through JVs will increase competition in the sector in years to come.
The railways placed orders for 22,180 wagons till October last year, Pandey said. On Friday, Rail Minister Mamata Banerjee lowered the wagon procurement target of 18,000 for FY12.
"How are we going to leapfrog into the volumes we are talking about?", asked Sachin Bhanushali, president of Gateway Rail Freight, a unit of logistics firm Gateway Distriparks.
FUNDING CONCERNS LOOM
The budget also announced a record fresh investment of 576.3 billion rupees into Indian railways in 2011/12, but industry participants say raising funds would be a challenge.
The Indian Railways Finance Corp (IRFC) will borrow an estimated 204.54 billion rupees in FY12 and plans to issue tax-free bonds totalling 100 billion rupees in the coming financial year.
"The operating ratio hovers to the level of about 90-93 percent. It is going to be tough on railways to generate internal resources because there would be hardly any surplus to deal with," said Gateway's Bhanushali.
Others said that it would be almost impossible to raise the funds without more active participation of private players.
"At the end of the day the kind of investments the government is seeking is huge. They have to ask the private sector to invest in the expansion programme. I can't forsee any other way she can get the money," said Sajal Mitra, CEO of Arshiya Rail Infrastructure, a unit of Arshiya International.
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