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Assured rail business not enough for steel companies, say experts

Stainless steel coaches, foot overbridges and 4,000 km of track renewal each in 2018-19 and 2019-20 form some of the big orders announced by the railways

Aditi Divekar  |  Mumbai 

steel, infrastructure
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While recent orders from the for modernising of its do augur well for some steel players, analysts wonder if the assured revenue would majorly change the investor outlook for the firms.

& Power (JSPL), state-owned Steel Authority of India (SAIL, which had the earlier monopoly in supplying), and recently won various orders, a revenue plus, given the long-term nature of rail contracts.

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“It will have a substantial value addition to our portfolio, in profitability and volumes,” said Naushad Akhter Ansari, chief executive officer of the steel business at JSPL.

Giriraj Daga, portfolio manager at Visaria Securities, says: “From an investor perspective, assured revenue from the is not a major focus and though it is marginally positive for a company like Jindal Steel, it will not move the needle much in the bigger scheme of things.”

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Stainless steel coaches, foot overbridges and 4,000 km of track renewal each in 2018-19 and 2019-20 form some of the big orders announced by the in recent months.

“Railway orders form up to 10 per cent of our total revenue share. With a PSU, it is the commitment which is crucial and we want to be with the railways for the long term,” said Vijay Sharma, senior vice-president at aims to increase the segment’s share (now a tenth) in its turnover (~60,000 crore a year). “This year, we are to supply one million tonnes to the railways. Next year, we will raise it to 1.2 mt, then move to 1.4 mt and take it to 1.9 mt (annually),” said Anil Kumar Chaudhary, chairman.

Their Bhilai unit is where the company produces for the railways.

For three years, all three steel have seen revenue grow, even as their bottom line remained weak due to high debt.

has a high-cost structure compared to and, hence, (the latter) could get better margins from rail orders,” said a Mumbai-based analyst, on condition of anonymity.

Jindal Steel's annual capacity is eight mt, a fourth of which is in Oman.

First Published: Tue, February 12 2019. 21:24 IST
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