THE SPINE OF INDIAN ECONOMY

Abhishek Singh Aniruddha Halder Ashwajeet kumar Gaurav Chaudhary Vipul Arun Niladeri Shekhar Jyoti Sharad Doknia

RAILWAYS
Group 4

AGENDA.
Describe the business case for the investment opportunity Why would you recommend an investment in this company

What are the compelling investment considerations Based on the information provided, identify the factors that would cause you to make an offer for investment
How do you seek to optimize the returns

PESTLE
Political:
10th five year plan- 16% growth (5% of GDP), 11th five year plan- 19% growth (78% of GDP) Government has decided to invest $300 billion in railways and related infrastructure over next 10years. Government thinking of allowing 100 % FDI in suburban corridors, high-speed train systems, freight line projects and implementing through public-private partnership. ($10 billion expected over next 5 years)

Economic:
Average GDP growth rate of 7.5% expected over next decade inclusive of 17% growth in T&L industry. Lowest per capita wagon availability globally (provided immense business opportunity, increase by 35%) CAPEX to double in next 7years in overall rolling stock. IRFC Bonds(January 2014) rated at AAA by CRISIL, ICRA and CARE

Social :
With rapid urbanization of India, Rail connectivity will boost productivity in all areas of growth. Railway is the preferred mode of transportation for millions of Indians (passenger volume to double by 2020)

PESTLE
Technological :
Newer and lighter wagons are being designed and being rolled out in Indian railways. (increased power efficiency)

Legal :
The legal problems for this sector may arise due to the fact of high population density and low availability of barren land for rail projects which require large land banks for infrastructure implementation.

Environmental :
More reliance on electrically connected wagons over diesel wagon to reduce Indias import bill and also being more environmentally sustainable model of railways. ( 84gm CO2 eq. for roadways Vs 28 gm for railways) Expected saving go up to 0.7% of total commercial power consumption.

More efficient network and route management is being done through technological up gradation. (highly efficient relay network, dynamic pricing etc)

Company Attributes
One of the leading player in manufacturing of customized CRF components and Tier 1 supplier for railways. Well defined & established management structure under strong leadership. In house developed expertise in CRF technology and collaboration with German technology partner for FCRF technology (revolutionary technology)

Reputed clientele base. Clients have strong financial backing to carry out projects and honor the MOUs with the company.
Diversification in revenue stream
Railways (73%), Commercial Vehicle (25%), Infrastructure & Environment (2%)

Last 3 year revenue CAGR 44% and more than 100% increase in % PAT Doubling of % EBITDA margin reflecting economies of scale in production, cost optimization and efficient management capability.

Already healthy order book for future FYs with confirmed orders from Tata Motors for the FCRF based commercial products.
Going for expansion with opening of new plants (4th plant to cater to future demand)

Compelling Investment factors

Grants for the investment in railways for the next 7 years shows prominent business opportunity. (Tier 1 Supplier) The past and the expected future growth in the CV segment (12.8% growth in last 5 years and 15-18% expected growth for next 3-5 years). Strong leadership, control & efficient management.
reflected in strong balance sheet, clientele acquired, up gradation to tier 1 supplier Reputed clientele like Tatas, BEML, ICF, TWL, Railways (14 Zonal railways) etc.

In house capability to develop technology thereby outperforming competitors and advancement to adopt new revolutionary technology. 44% CAGR for last three years & 62% CAGR for last two years with about more than 100% increase in EBITDA margins in last three years. Also 137% increase in PAT margins (in last three years). The Debt/ equity ratio for the company has decreased from 2.85 to 1.43.

Huge capital in Sundry debtors and net working capital.

Government being the main client. ( takes long time to clear the payment)

Factors for Investment offer

Economy
13% of Indias GDP spent on Logistics & Infrastructure sector Strong correlation b/w logistics and infra sector with GDP Focus of government in improving logistics infrastructure($160bn) & inefficiencies in operations.

Industry

Average growth rate of 17% in Transportation & Logistics Industry Freight traffic expected to increase by 2.5 times in next 10 years Road and Rail freight expected to grow at CAGR of 12% and 8% respectively 8% CAGR in Passenger and Freight Volume Wagon acquisition is expected to grow at 35% till 2020

Company

Promoter is an Industry veteran, having rich experience of 42 years Access to patented technology by Partnering with German company Revenue growing at 42% for the last 3 years Company has strong relationship with key clients Pioneer in several innovations Exclusive Supplier agreement for sheet metal foundation solutions

How to optimize the Returns

Investment in IT infrastructure to reduce costs, effective communication and increase efficiency. Optimize plant processes for meeting timely production &environmental standards. (optimize on inventory levels) Customize package for acquiring new customers in infrastructure sector & Environment business (ESPs).

Investment in technology and R&D to optimize energy consumption and supply chain.

THANK YOU