1. Indian Railways freight concessions hit revenues hard, but outlook up

Indian Railways freight concessions hit revenues hard, but outlook up

The freight concessions being offered by Indian Railways (IR) as part of a strategy to boost volumes and increase market share have had an adverse impact on its revenue in the short term...

By: | New Delhi | Published: July 21, 2016 6:23 AM
Railway Freight Indian Railways’ freight revenue in Q1FY17 declined 10.3% to Rs 25,503 crore compared to the year-ago period, on a flat growth in freight loading. (Reuters)

The freight concessions being offered by Indian Railways (IR) as part of a strategy to boost volumes and increase market share have had an adverse impact on its revenue in the short term, reveal the transporters’ first-quarter numbers, reports Bilal Abdi in New Delhi.

But officials say this is temporary and receipts would pick up over the current quarter and the next. IR’s freight revenue in Q1FY17 declined 10.3% to Rs 25,503 crore compared to the year-ago period, on a flat growth in freight loading.

Of course, for all of FY17, the growth target set was a relatively modest 5.4%, factoring in the sops designed to attract fresh customers. In Q1 last year, the growth in freight was 15% and for the whole of FY16, 7.7%.

Passenger volumes up to July 10 this fiscal declined 0.22% but the railways was able to generate Rs 13,332 core as passenger revenue in the period, a growth of 3.42% compared with the corresponding period last year. The revenue growth was significantly more than the increase in the number of passengers as the transporter managed to raise fares a bit through means like enhanced cancellation charges, higher charges for new premium trains, etc.

The national behemoths’ freight loading witnessed a modest (0.46%) decline in Q1, reflecting the continued sluggishness in investment in the economy and industrial production, as opposed to the budgeted growth of 4.51% for FY17, as tonnage of key commodities like coal, cement, foodgrains and fertilisers declined. As against the loading target of the April-June period, the achievement was lower by 7.3%.

In fact, rail freight growth stayed negative in June, though better than the record lows in April, coming at -5% year-on-year. Tonnage, however, grew an annual 3% after seven months of declines, giving some credence to IR’s claim that a turnaround is round the corner. Freight declined in June for all categories, except iron ore and fertilisers. Containers, grains and oil saw tonnage fall, but all categories saw a decline in distance travelled, coal the most, observed analysts at Credit Suisse.

The transporter, which has been announcing a slew of new freight rationalising schemes, saw freight loading for pig iron and finished steel, iron ore and container traffic grew by 4%, 12% and 0.34%, respectively in Q1. Even though these commodities experienced growth over the last fiscal, the budgeted loading targets could not be met in the quarter. The transporter has also scrapped the dual freight policy (freight differential between ore traded locally and exported ) on iron ore, removed the 10% port congestion surcharge and withdrew the busy-season surcharge which all have led to a growth in freight volume of ore and some other commodities but overall, revenue has yet to pick up.

“The numbers are not encouraging… The freight rebate schemes announced should have had resulted a growth in freight loading but three months is too short a time for the policies to have the desired effect. Besides increasing freight revenue and loading, the transporter will have to focus on other sources for revenue generation to offset the year-on-year decline in freight and passenger revenues,” said Abhay Krishna Agarwal, partner, infrastructure & PPP at Ernst & Young.

“The transporters freight revenue has declined because of the numerous freight rebate schemes announced. This is a temporary phenomena; it will take a couple of months for the policies to take effect which will eventually result in higher loading,” a senior railway official said.

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