Titagarh Wagons is adding new businesses and increasing focus on Railways

India’s diverse engineering industry is affected by the economic downturn in different ways, depending on the user segment that it caters to. The main user segments are Railways, power, infrastructure, auto components, steel, refinery and consumer durables. So, the impact on the engineering companies is as varied as its product range. For instance, companies focusing on the auto components and steel sectors are more affected while those dependent on Railways and infrastructure sectors are much less affected since they depend largely on public sector orders. However, there has been a significant dip in export levels in the second half of FY09, since the US and Europe are much more severely affected than India. The downturn has led a lot of companies to re-orient in terms of product marketing strategy and customer focus.

 

Titagarh Wagons, which is one of the leading private sector wagon-maker, has overhauled its customer strategy completely. Wagons for the private sector accounted for more than half of its wagon business. Not surprisingly, as the private sector kept delaying purchases on account of decline in exports of iron ore, and delays in steel and power projects, Titagarh Wagons was affected. In the interim, Titagarh has been able to offset it with a major order from the Railways which is worth more than Rs 300 crore.

Umesh Chowdhury, managing director, Titagarh Wagons said, “We quickly changed tack and focused on Railways. We started increasing output along these lines.” Also two new divisions—passenger coaches and defence—assumed importance. The company has already bagged order worth Rs 70 crore for the new divisions while there are orders of Rs 100 crore in the kitty of the special projects division. However, the gestation period in these businesses are high.

Apart from wagon manufacture, which accounts for 90 per cent of the company’s business, Titagarh has divisions like special projects, which manufactures and supplies bridges, heavy earth moving and mining equipment, foundry and rail coach.

The whole idea behind reviewing the customer approach was to shift focus to recession-resistant customers, while containing costs. In an attempt to control costs, Titagarh, renegotiated contracts as input costs fluctuated.

Chowdhury explained that contracts with steel and components manufacturers were renegotiated. Steel prices have dropped by more than 50 per cent since October 2008, which is also reflected on component prices. Also, contracts for the wheels, which the company imports, were renegotiated.

Despite the renegotiation, the EBITDA (earnings before interest, tax and depreciation) margins would not change because of the price variation clause. Chowdhury said, “Even though EBIDTA margins would not change, we didn’t want to get sandwiched between a low selling price and high input cost.”

The company has also moderated its expansion plans. Castings, which was to be increased from 7,000 tonne to 12,000 tonne, was being put on hold. But the other expansion, which entails increasing capacity for wagon manufacture, was on track. The company has acquired 9.5 acre adjacent to its existing unit at Titagarh. This would not only add to capacity but also smoothen the flow of operations.

Titagarh may not be able to maintain the 50-60 per cent compounded annual growth rate that it has been clocking for the last three-four years, but it would still manage a “decent” growth in top line, said Choudhury.

The downturn has taught the company to do business differently and going forward, wagons, which currently account for 90 per cent of the business, would come down to 50 per cent in one-two years. The move was imperative as the market expects further decline in decline in volumes for wagons in the private sector in FY09.