The phenomenal success of the Indian Railways in the recent year seems to have had a chain reaction on all companies dependent on the public sector unit. Titagarh Wagons Limited will be opening their issue bids on March 24 and are hoping to raise anywhere between Rs 128 to Rs 145 crore. The company is essentially a private sector wagon manufacturing firm. The core business of the firm is the manufacture of railway wagons. But the company also makes bailey bridges, heavy-earth movers and mining equipment, steel and SG iron castings of moderate and complex configurations. The primary customers of the company are MGR Wagons and the Indian defence establishment. It has also designed a special wagon called WoW to carry various types of trucks and caters to the logistics industry by providing roll-on-roll-off service and this design is currently under review by the Research Design and Standards Organisation.

Issue objectives

The objects of the issue are to utilise the net proceeds of the fresh issue towards the following purposes:

? Set up an EM manufacturing facility at the Uttarpara unit.

? Moderate and expand our existing facilities at the Titagarh and Uttarpara units.

? Set up an axle-machining and wheelset assembly facility at the Uttarpara unit.

? Construct a corporate office and a design cum research and development office.

? Strategic acquisition or investments

? Brand building exercises

? General corporate purposes

? To achieve the benefit of listing

These projects would require the company to spend approximately Rs 72 crore without taking into consideration general corporate expenses and issue expenses.

Risks involved

While the company looks like a good upcoming one to invest in, there are some issues that one must evaluate and consider. The primary concern is the company?s dependence on the Indian Railways. And though the Railways has done very well in the last four financial years, its continued performance is unpredictable. Wagon manufacturing comprised of 79% of their total income in 2007 and also accounted for 88.9% of their order book as on January 31, 2008. These figures are more than enough proof of the role of the Indian Railways in the company?s earnings.

Hence any policy changes with the Railways or any reduction by the PSU in its purchase of wagons will adversely affect the company. Apart from this risk, the company faces the threat of competition from other wagon manufacturers, both private and public. However, so far the company has done really well and in the last few years has registered significant growth. Thus as long as nothing drastic happens, the risks faced by the company are minimal.

Valuation

The company seems to be led by great faith and belief, as we see that not only do the promoters of the company still have a large stake in it, but also the company has already spent over Rs 5 crore on setting up some of the units for which they wish to raise money for. It?s sales have shown great growth since 2003, and the sales in 2007 was almost 7 times of that in 2003. This shows that the company is definitely been on an upward curve. However, where they stabilise is largely dependent on the whim and whiff of government and Railway policy. If the infrastructure continues to be given as much importance as it currently is accorded, then the company should have a secure future.

The companies PAT as on 2007 was over Rs 29 crore and this year it is estimated to be way higher, showing massive growth and jumps in the company?s profit as well. The company should have an earnings-per-share (EPS) of Rs 28.22 after annualising the current year?s profit, as well as a PE of 19.13(x) and 21.16(x) at the lower and higher price-bands respectively. With all the figures projecting a growing company with earnings, the company looks like a good investment. If the tides don?t turn, then Titagarh Wagons looks like its ready to roll.