Firms dealing with Indian railway sector to gain from robust order book: Report

New Delhi, April 14 (IANS) Revenues of the entities operating in the Indian railway sector are expected to expand at a moderate rate of 5 per cent in FY2026, primarily driven by robust growth expectations from wagon manufacturers, though construction entities catering to Railway sector will witness relatively modest growth, according to an ICRA report released on Monday.

The weighted average margins are expected to continue to remain healthy at around 12 per cent for FY2026, supported by operating leverage benefits and expectations of stable input prices, the report states.

Over the years, the Union government has implemented several measures and made sizeable investments in transportation infrastructure to improve logistics cost, reduce transit time, and improve connectivity. There has been a sustained focus on improving railway infrastructure (track infrastructure and safety standards) and passenger experience (station amenities and rolling stock), as evident from the continued healthy allocation in the budgetary outlay.

Supported by the healthy budgetary allocation towards rolling stock and track infrastructure over the last five years, the order book for entities involved in the Engineering, Procurement and Construction (EPC) and wagon manufacturing segments has witnessed a strong growth.

The report points out that the order book-to-income ratio rose to 2.77 times in FY2024 from 1.33 times in FY2015, providing healthy medium-term revenue visibility.

Overall, the capital outlay for the Indian Railways has increased by 130 per cent over the previous five years to Rs. 2.52 lakh crore in the FY2026 budget estimate (BE). However, the budgetary support has grown by a modest 2 per cent during the FY2024 – FY2026BE period.

Suprio Banerjee, Vice President at ICRA Ltd, said: “As per ICRA’s analysis, the entities catering to the requirement of wagons, track infrastructure, electrification and safety components have witnessed a healthy compounded annual growth rate (CAGR) of 24 per cent over the three years ending in FY2024.”

“The revenue profile for the sector is likely to be driven by EPC and wagon manufacturing entities, given the bulky nature of the projects they undertake, though the margin profile for the sector will be mainly supported by service-oriented entities related to ticketing and logistics,” said Banerjee.

He added that while competition in the railway segment has increased substantially in recent years, especially in the EPC segment, the credit profiles of entities catering to the Indian railway sector will continue to benefit from the operating leverage and the comfortable receivable cycle.

--IANS

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