Railway Budget: FY13

Economics
The Railway Budget for 2012-13, while emphasizing on its priority to increase rail safety and security, also seeks to raise investment in modernization and up gradation of rail infrastructure. The rail Budget has also proposed the first hike in passenger fares in nine years and a plan outlay of Rs.60,100 crs for the railways, the highest ever outlay by far. The Railway Minister has envisaged 5 focus areas for the coming year safety, consolidation, decongestion & capacity augmentation, modernization and improvements in operating ratios. The measures to improve the operational efficiency of the rail system would help reduce transport time of the various commodities that are transported though the rail system.

March 14, 2012

Highlights: Increase in passenger fares across classes 50% concession in fare in AC-2, AC-3, Chair Car & Sleeper classes to patients suffering from Aplastic Anaemia and Sickle Cell Anaemia Highest ever plan outlay of Rs 60,100 crore that would be financed through Gross budgetary support Rs 24,000 crore Railway safety fund Rs 2,000 crore Internal resources Rs 18,050 crore Extra budgetary resources Rs 16,050 crore, which includes market borrowing of Rs 15,000 crore and PPP of Rs 1,050 crore Addition of 725 new lines. Rs 6,872 crore allocated for the same Proposal to electrify 1,100 km rail network. Rs 828 crore provided for the same

Financial Performance FY12 Loading target reduced by 23MT to 970MT Gross traffic receipts revised to Rs 1,03,917 crs from Rs.1,06,239 crs (Budget Estimate FY12) Working expenses revised to Rs 75,650 crs from Rs.73650 crs (BE) Pension payments up by Rs 1,000 crore Current dividend liability of Rs 6,735 crore to be fully discharged. Excess of receipts over expenditure of Rs 1,492 crore as against the budget amount of Rs 5,258 crore
1

Economics
Operating ratio at 95%

Budget Estimates FY13 Freight load of 1,025MT Passenger growth pegged at 5.4% Gross receipts Rs 1,32,552 crore Ordinary Working Expenses Rs 84,400 crore. Dividend payment estimated at Rs 6,676 crore Operating ratio estimated at 84.9% Surplus expected to be Rs 15,557 cr.

Budget Implications 1. The expected decline in operating ratio in FY13 will need to be monitored as the drop expected is quite sharp compared to the increase witnessed in FY12 (revised) over FY12 (budget). Share of goods earnings could come down in case there is substitution to road transport. 2. With highest ever allocation of Rs 60,100 crore, the budget looks positive on moving towards building a strong infrastructure. The budget provides significant opportunities for private investment through public-private partnership resources. In particular on account of the focus being put on modernization, electrification, increasing the lines, use of solar energy etc, there will be a positive boost for related industries such as cement, steel, containers, carriages, electrical equipment, cables, solar equipment etc. 3. The increase in freight rates across the board will have an impact on prices and will affect goods that use railways as a mode of transport. A guesstimate is that for industry as whole the average increase of over 20% in freight rates (will vary depending on the class as well as distance) cost of production could increase by between 1-3% which will exert pressure on prices of final products. Even in case of farm products where railway transport is used, the cost would tend to move up. 4. Increase in passenger fares would result in additional revenue of Rs 4,000 crore. This will partly help to offset the rising costs over the years. 5. Market borrowing of Rs 15,000 crore during the year, should be added to that of the central government when the Union Budget is announced on the 16th March when arriving at the aggregate borrowing for the year. 6. The budget also estimates that surplus will increase sharply to Rs 15,557 cr from Rs 1,492 cr in FY12. This will depend critically on the higher growth in freight and passenger fares, and any slippage will impact this surplus.

Railway Budget FY13

Economics

Contact: Madan Sabnavis Chief Economist madan.sabnavis@careratings.com 91-022-67543489 Anuja Jaripatke Associate Economist anuja.jaripatke@careratings.com 91-022-67543552

Kavita Chacko Economist Kavita.chacko@careratings.com 91-022-67543626

Disclaimer This report is prepared by the Economics Division of Credit Analysis & Research Limited [CARE]. CARE has taken utmost care to ensure accuracy and objectivity while developing this report based on information available in public domain. However, neither the accuracy nor completeness of information contained in this report is guaranteed. CARE is not responsible for any errors or omissions in analysis/inferences/views or for results obtained from the use of information contained in this report and especially states that CARE (including all divisions) has no financial liability whatsoever to the user of this report. Credit Analysis and Research Limited proposes, subject to receipt of requisite approvals, market conditions and other considerations, to make an initial public offer of its equity shares and has filed a draft red herring prospectus (DRHP) with the Securities and Exchange Board of India (SEBI). The DRHP is available on the website of SEBI at www.sebi.gov.in as well as on the websites of the Book Running Lead Managers at www.investmentbank.kotak.com, www.dspml.com, www.edelcap.com, www.icicisecurities.com, www.idbicapital.com, and www.sbicaps.com. Investors should note that investment in equity shares involves a high degree of risk and for details relating to the same, see the section titled Risk Factors of the DRHP. This press release is not for publication or distribution to persons in the United States, and is not an offer for sale within the United States of any equity shares or any other security of Credit Analysis & Research Ltd. Securities of Credit Analysis & Research Ltd., including its equity shares, may not be offered or sold in the United States absent registration under U.S. securities laws or unless exempt from registration under such laws.

Railway Budget FY13