Railway Budget: Short on expectations

Lack of big-bang announcements and a token increase in plan outlay dampened sentiment.

Share prices of companies catering to the railways tumbled due to lack of big-bang announcements in the Railway Budget. The only major proposal was a 10-year roadmap for the Indian Railways called “Vision 2020”, which included speeding up the laying of new railway lines to 1,000 km every year. However, given the past record, the industry considers this target unachievable. About 180 km of new lines have been laid annually in the past.

According to analysts, even if a part of this target is achieved, many companies involved in laying railway lines and undertaking electrification work (like Kalindee Rail Nirman) will benefit, albeit in the long run.

By 2020, the Indian Railways also plan to acquire about 80,000 new wagons, which is good news for companies such as Texmaco, BEML and Titagarh Wagons.

The Railway Budget also outlined the focus on the public-private partnership (PPP) model, whereby the aim will be to attract more private participation in the coming years. There is a proposal to set up five wagon companies under the PPP model. Also, private investments will be attracted for building new lines, developing freight corridors, modernising railway infrastructure and developing land. However, expect any gains (for companies) to accrue only in the long run.

For 2010-11, the planned outlay has been increased by a mere Rs 1,142 crore to Rs 41,426 crore, which again is insipid. This will be spent on new lines (Rs 1,142 crore), metro projects (Rs 1,001 crore), acquisition of 18,000 wagons, gauge conversion and electrification of 1,000 km of railway lines. Analysts feel most of these measures are general announcements.

Since there is nothing much to cheer in the immediate future, and considering that share prices of companies catering to the railways had risen prior to the budget, the selling pressure at these counters may continue for some time, say analysts.

The good news for India Inc is that freight rates have remained unchanged, due to which companies in steel and cement sectors are breathing easy. Likewise, the cut in the freight rate for foodgrain by Rs 100 per wagon is a positive for the food processing sector, due to which stocks of Kohinoor, KRBL and REI Agro, among others, rose on Wednesday.

*BS Railways Index comprises six companies catering to the Railways sector

With inputs: Jitendra Kumar Gupta & Sunaina Vasudev