Financial year 2017 witnessed good performance by both the railway and road segments. News reports indicated that as far as the freight business is concerned, Indian Railways (IR) carried 1,107 MT of goods in FY17, the highest-ever in its history; also, originating passengers for IR increased after a hiatus of 4 years while passenger earnings jumped by ~`19 bn versus last year. Broad Gauge (BG) line commissioning at 2,855 km in FY17 was the highest ever; so was electrification of 2,013 km of lines in FY17 (up 16% y-o-y).
Road project awards in FY17 touched ~16,000 km as against ~10,000 km in FY16. With NHAI project awards being flat y-o-y, the entire increase came from state PWDs’ awards. Flat performance by NHAI was a dampener for listed road companies which mainly compete for NHAI projects.
Road construction in FY17 touched ~8,100 km versus ~6,000 km in FY16 and ~4,400 km in FY15 — while NHAI construction was up 32% y-o-y, MoRTH project construction was up 36% y-o-y. The key beneficiaries in the roads space include KNR Constructions (BUY), Sadbhav Engineering (BUY), PNC Infratech (BUY) and Ashoka Buildcon (BUY). The railway sector beneficiaries include KEC International (BUY) and logistic companies like CONCOR (Not Rated).
IR turns corner on freight business
To tackle loss of market share in the freight business, IR has taken several steps to attract more freight on its network. These measures seem to be bearing fruit with IR carrying 1,107 MT of goods in FY17. IR exceeded the revised freight target of 1,094 MT in FY17, despite the tough market scenario and surpassed the 1,102 MT freight carried in FY16. For FY18, IR is targeting 1,165MT of freight loading.
Freight rebates: To make itself competitive, IR withdrew the busy season surcharge and port congestion charges. News reports indicate that annual loading from Coal India in FY17 is expected to be ~223 rakes per day, which is the highest ever.
Expansion of freight basket: News reports suggest that IR achieved this by expanding its basket to include goods like automobiles, stones, vegetable oil, chemical, fly ash, red mud, timber, etc. During FY17, IR carried ~80 MT of these “other goods”. In addition, IR hauled 137 MT of iron ore in FY17 compared to 117 MT in FY16. IR also witnessed highest steel loading of 48 MT surpassing the previous best of 42.5 MT.
Passenger segment sees growth after 4 years
Originating passengers for IR had been declining continuously since FY13. To reverse this, IR had initiated multitude of steps to improve service quality for passengers. These include starting 87 new trains and increasing frequencies of certain trains; also, 586 additional coaches were added in regular trains. News reports suggest that as a result, originating passengers for IR have increased after a gap of 4 years while passenger earnings have spurted by `19 billion compared to last year. We believe this is a huge positive as far as IR’s earnings and profitability are concerned.
Railway capex on an uptrend
IR commissioned 2,855 km of BG lines in FY17; the target for FY18 is 3,500 km of rail lines. IR exceeded its target by electrifying more than 2,000 km of lines in FY17 (up 16% y-o-y). For FY18, the electrification target at 4,000 km is almost double that of FY17.