ET Now Indian Railways has been one of the most under-spent sector in the nation since the past 60 years, says Umesh Chowdhary, VC & MD, Titagarh Wagons. in an interview with ET Now, Chowdhary says that the spending on railway infrastructure has then potential of changing the dynamics of Indian railways, and also of the country as a whole. Edited excerpts:
ET Now: What are your observations on the changes that we are seeing in the railways and the upcoming projects that we are likely to see?
Umesh Chowdhary: The biggest change that we are seeing is in the mindset of the railways. The railways have always been shy of borrowing and spending and if we see, out of the Rs 96,000 crores that has been spent last year, almost 55-57 thousand crores has been borrowed by the railways and been invested in building up infrastructure.
Now that is a big shift of mindset. I have always been very vocal proponent of the fact that the railways is a unique industry where the variable cost of operation is only 30%. So the only way for the railways to really come out of the problems of the past is to increase volumes. In order to increase volumes, they have to spend on the infrastructure.
It has been one of the most under-spent sector in the country in the last 60 years. I am very happy that this trend is reversing. The railways is spending on building up the infrastructure and that in itself would completely change the dynamics of the Indian Railways and the country as a whole.
ET Now: The headline numbers are out in the open. Some were documented along with the railway budget. If I talk to companies that do business with railways, they are happy but they are not excited.
Umesh Chowdhary: If you ask me, I would put the other way round. I am excited. I am not happy because happiness is very momentary. If I get orders, I am happy but if I see prospects, I am excited. So I am seeing prospects. I have not got orders, so I am not happy. But let us look at this whole cycle. This whole cycle, it is a very long gestation.
Railway is a very long gestation investment or return on investment cycle sector. Today if the railway minister comes forward and announces that he is going to place an order for 100,000 wagons, I would be very-very happy. But what has happened is that that has not happened.
Yes, the focus on the operations on the increase on the rolling stock has not been so high, but then that is a very-very logical thing to follow. If the infrastructure is there, for example, just now we spoke about the locomotive orders, now if they buy these 2,000 locomotives, what are they going to do with that?
They need several thousand wagons behind those locomotives and that has to come. It is a period of time. Yes that period of time is not very conducive for industries like us that if it is too long but it has to come. So I am excited.
ET Now: We are also going to see the first set of stations coming up, station redevelopment contracts that is being awarded in the coming months and orders for coaches and wagons are also on the anvil. Give us an insight on the expected size and timelines for these.
Umesh Chowdhary: This is one area where the industry has had a kind of constant, I would not use the word battle, but constant kind of challenge with the Indian Railways because the Indian Railways on one side continue to be manufacturers of rolling stock and on the other side buyers of rolling stock. This does not happen anywhere in the world.
Now there are certain historical compulsions that the Indian Railways have to carry on with, that the investments were made, it is a period of matter of great political, there are many political angles to disinvesting them or privatising them or corporatizing them so I would leave that aside.
But the railways should actually take very strong policy decisions and there would be no further PPP projects in production. Production should be left alone to the industry.
There is capacity that is available. There are entrepreneurs that are available to invest. The railways need not put a single penny on that and that is really going to grow the wagon and coach business and improve the technology, because the company like ours which has the best in class technology for freight wagons by acquiring leading freight wagon manufacturer in France.
We have best in class passenger train technology by acquiring the second largest passenger train manufacturer of Italy. We would be most happy to bring those technologies to invest in India and produce in India for the Indian Railways.
ET Now: Since capex generally has high seasonality, some sceptics really doubt meeting the lofty Rs 1.2 lakh crore target this year. What is your sense on this one?
Umesh Chowdhary: I would not be an extremist either ways. I do not know what the sceptic feel or what they are sceptical about but let us look at this. So there is a time, there is gestation period for anything to be done.
Even if we takeover a small company, there is first initial period wherein you have to set your systems right before you can really take off. So I would attribute the first three quarters or two quarters of slow expenditure to that period of gestation and I am hoping that is the case and now the takeoff really started from the third or the fourth quarter or primarily from the fourth quarter and that momentum would continue.
Having said that, in the railway industry definitely the first and the second quarters are traditionally a slower quarter because the tenders come out, they take a little time to get finalised. The manufacturers or the contractors take some time to kind of gather their own resources and start the work. So there is a little bit of cyclical nature to this whole sector but not so much of a difference and I would primarily attribute it to the first period of gestation.
ET Now: When you said that you are excited and you are not happy, what will make you happy? When do you think orders will start coming? What is the scenario like?
Umesh Chowdhary: We are hoping that the tender that was floated earlier this year would get finalised very soon. We are very hopeful that the new technology wagons which is the 25-tonne axle load wagons would get introduced by the Indian Railways.
The first time the Indian Railways have floated a very small tender that is just 2000 wagon tender for the 25-tonne axle load wagon.
This according to me would make a quantum change in the way the railway operates that would make me a wee bit happy, because it is not a very large tender but then what would make me happy is the iron ore and core sector pickup.
At the end of the day, our industry, the logistics industry or the wagon demand is completely and directly related to the core sector of the economy.
If there is movement, there is iron ore production that picks up, there is coal production or steel production that picks up, obviously the wagon requirement would come up. Another thing that would make us happy for sure is if the railways liberalise further. They have liberalised the container train, they have opened it up for various commodities. But if they liberalise and make it more attractive for private investors to come and invest in wagons and coaches and run them, I think that would make us very happy and that would be an extremely big step for the Indian Railways.
ET Now: What are your observations on the changes that we are seeing in the railways and the upcoming projects that we are likely to see?
Umesh Chowdhary: The biggest change that we are seeing is in the mindset of the railways. The railways have always been shy of borrowing and spending and if we see, out of the Rs 96,000 crores that has been spent last year, almost 55-57 thousand crores has been borrowed by the railways and been invested in building up infrastructure.
Now that is a big shift of mindset. I have always been very vocal proponent of the fact that the railways is a unique industry where the variable cost of operation is only 30%. So the only way for the railways to really come out of the problems of the past is to increase volumes. In order to increase volumes, they have to spend on the infrastructure.
It has been one of the most under-spent sector in the country in the last 60 years. I am very happy that this trend is reversing. The railways is spending on building up the infrastructure and that in itself would completely change the dynamics of the Indian Railways and the country as a whole.
ET Now: The headline numbers are out in the open. Some were documented along with the railway budget. If I talk to companies that do business with railways, they are happy but they are not excited.
Umesh Chowdhary: If you ask me, I would put the other way round. I am excited. I am not happy because happiness is very momentary. If I get orders, I am happy but if I see prospects, I am excited. So I am seeing prospects. I have not got orders, so I am not happy. But let us look at this whole cycle. This whole cycle, it is a very long gestation.
Railway is a very long gestation investment or return on investment cycle sector. Today if the railway minister comes forward and announces that he is going to place an order for 100,000 wagons, I would be very-very happy. But what has happened is that that has not happened.
Yes, the focus on the operations on the increase on the rolling stock has not been so high, but then that is a very-very logical thing to follow. If the infrastructure is there, for example, just now we spoke about the locomotive orders, now if they buy these 2,000 locomotives, what are they going to do with that?
They need several thousand wagons behind those locomotives and that has to come. It is a period of time. Yes that period of time is not very conducive for industries like us that if it is too long but it has to come. So I am excited.
ET Now: We are also going to see the first set of stations coming up, station redevelopment contracts that is being awarded in the coming months and orders for coaches and wagons are also on the anvil. Give us an insight on the expected size and timelines for these.
Umesh Chowdhary: This is one area where the industry has had a kind of constant, I would not use the word battle, but constant kind of challenge with the Indian Railways because the Indian Railways on one side continue to be manufacturers of rolling stock and on the other side buyers of rolling stock. This does not happen anywhere in the world.
Now there are certain historical compulsions that the Indian Railways have to carry on with, that the investments were made, it is a period of matter of great political, there are many political angles to disinvesting them or privatising them or corporatizing them so I would leave that aside.
But the railways should actually take very strong policy decisions and there would be no further PPP projects in production. Production should be left alone to the industry.
There is capacity that is available. There are entrepreneurs that are available to invest. The railways need not put a single penny on that and that is really going to grow the wagon and coach business and improve the technology, because the company like ours which has the best in class technology for freight wagons by acquiring leading freight wagon manufacturer in France.
We have best in class passenger train technology by acquiring the second largest passenger train manufacturer of Italy. We would be most happy to bring those technologies to invest in India and produce in India for the Indian Railways.
ET Now: Since capex generally has high seasonality, some sceptics really doubt meeting the lofty Rs 1.2 lakh crore target this year. What is your sense on this one?
Umesh Chowdhary: I would not be an extremist either ways. I do not know what the sceptic feel or what they are sceptical about but let us look at this. So there is a time, there is gestation period for anything to be done.
Even if we takeover a small company, there is first initial period wherein you have to set your systems right before you can really take off. So I would attribute the first three quarters or two quarters of slow expenditure to that period of gestation and I am hoping that is the case and now the takeoff really started from the third or the fourth quarter or primarily from the fourth quarter and that momentum would continue.
Having said that, in the railway industry definitely the first and the second quarters are traditionally a slower quarter because the tenders come out, they take a little time to get finalised. The manufacturers or the contractors take some time to kind of gather their own resources and start the work. So there is a little bit of cyclical nature to this whole sector but not so much of a difference and I would primarily attribute it to the first period of gestation.
ET Now: When you said that you are excited and you are not happy, what will make you happy? When do you think orders will start coming? What is the scenario like?
Umesh Chowdhary: We are hoping that the tender that was floated earlier this year would get finalised very soon. We are very hopeful that the new technology wagons which is the 25-tonne axle load wagons would get introduced by the Indian Railways.
The first time the Indian Railways have floated a very small tender that is just 2000 wagon tender for the 25-tonne axle load wagon.
This according to me would make a quantum change in the way the railway operates that would make me a wee bit happy, because it is not a very large tender but then what would make me happy is the iron ore and core sector pickup.
At the end of the day, our industry, the logistics industry or the wagon demand is completely and directly related to the core sector of the economy.
If there is movement, there is iron ore production that picks up, there is coal production or steel production that picks up, obviously the wagon requirement would come up. Another thing that would make us happy for sure is if the railways liberalise further. They have liberalised the container train, they have opened it up for various commodities. But if they liberalise and make it more attractive for private investors to come and invest in wagons and coaches and run them, I think that would make us very happy and that would be an extremely big step for the Indian Railways.
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