As on January 22nd , 2010

The first week of this month saw Rail stocks such as Texmaco, Titagarh Wagons, Kernex and Kalindee Rail Nirman witnessed excessive positive traction before weakening on account of profit booking at higher levels.

Indian Railways owns a fleet of 8,153 locomotives, 51,255 coaches and 207,719 wagons covering a total distance of 64,099 route km and running 11,000 trains daily including ~8,700 passenger trains. Inadequate investment over last many years has caused railway losing out market share in freight traffic to road sector Year. Presently railways account for 35% of the total freight traffic compared to 65% for road sector. Indian Railways had opened tenders for 5,862 wagons in July’09 and 10,739 wagons in Sep’09. Award of orders have been delayed and a further delay may happen on account of the Railway Budget 2010-11. However, once this is announced, it could act as a fresh trigger for the stocks. Further, companies are set to benefit from initiatives such as setting up dedicated freight corridors, increased outlay for gauge conversion and the rollout of metro rail projects.

The recent news development by the Rail Minister to expedite the work on rail infrastructure upgrade for Bangladesh is a positive for primary players in the rail tracks, signaling, rail coach and wagon manufacturing. The latest news on the 2nd metro rail project that it is expected to be completed within 5years is a positive for the major players like Titagarh Wagons, Kalindee Rail Nirman and BEML. Delay in orders from IR and weak private sector demand may impact the earnings in the short term.

Key Triggers :

KALINDEE RAIL NIRMAN:

Thus the outlook for the company seems to be positive with the expansion of rail-related infrastructure, continuous introductions of new trains & routes and redevelopment of major stations into world class stations.

TITAGARH WAGONS:

The company enjoys a long standing relationship with the Indian Railways. Private players and the relatively stable business opportunities available in the sector arising from the setting up of dedicated freight corridors, sustained capex by leading container rail logistics companies add to its potential. The progress on the acquisition of CIMCO unit will need to be closely monitored here.

BEML:

BEML enjoys monopoly status as the manufacturer of Metro Rail coaches in India. Being a PSU, the company seems to be better placed for the bidding process for orders floated by the government and hence the company is set to benefit from new initiatives taken here.

TEXMACO:

Award of orders could be a re-rating for the stock.

Keep an eye on the Rail stocks which historically have marked a pre-budget rally in anticipation of some positive announcement.