Titagarh Wagons
Titagarh Wagons is entering the capital market on 24th March 08 with an issue of 23.84 lakh equity shares of Rs.10 each in the band of Rs.540 to Rs.610 per share. Of this, fresh issue is of 20.68 lakh shares while offer for sale is of 3.16 lakh shares, being made by the promoters of the company.
The company is engaged in the manufacturing of railways wagons, bailey bridges, heavy earth moving and mining equipments and steel and S G Iron castings of moderate to complex configuration with its two plants at Titagarh and Uttarpara, both in West Bengal. The company has been posting consistent financial performance year after year with FY 07 topline at Rs.284 crores with PAT of Rs.29.18 crores, resulting in an EPS of Rs.20. For six months ending 30-09-07, the total income of the company was at Rs.212 crores with PAT of Rs.24.30 crores. Generally, second half of the company is always better and hence FY 08 may see a topline of Rs.480 crores with PAT of Rs.58 crores, which may translate into an EPs of Rs.31.50 for the year. The present equity of the company of Rs.16.37 crores would rise to Rs.18.44 crores.
The wagon manufacturing division contributed about 80% to the income of FY 07 with Indian Railways being one of the largest customer of wagons. As at 31-01-08, of total wagon orders, 49.9% came from Railways. However, non-railway revenue was 68.25% of total income in FY 07. This is due to strong demand coming in from non-Indian Railway Customers for Wagons. Orders with the company as at 31-01-08 were of Rs.753 crores, of which wagon orders were for Rs.670 crores.
Presently there are 10 wagon manufacturers in India, of which, 4 are in public sector and 6 are in private sector. Indian Railways is planning to purchase 20,000 wagons in FY 09 against target of 11,000 wagon in FY 08, as per the recent railway budget. Wagon Investment Scheme introduced by the Railways from 1st April 2005, in place of Own Your Wagon Scheme also boosted the demand for wagons by the players using rakes for transportation of commodities on a regular basis.
Wheelsets are most critical component in wagon manufacturing, which are made in India by two manufacturers, both being PSUs. The company, therefore, to improve the wagon manufacturing capacity is setting up an axle machining and wheelset assembly facilities. The company would procure loose machined wheels and rough axles and shall undertake the machining, drilling, and tapping of the axles and hub machining of the wheels and shall press the wheels on to the axles to make them into wheelsets. This capacity is likely to be about 10,000 - 12,000 wheelsets per annum.
The comparable listed peer for the company is Texmaco Ltd., which is now ruling at Rs.1,300. Texmaco is likely to have a topline of Rs.700 crore, with PAT of Rs.55 crores, translating into an expected EPS of Rs.55 for FY 08, on an equity of Rs.10.44 crores. Book value per share of Texmaco is likely to be Rs.200 as at 31-03-08. This means share is presently ruling at a PE of 24 for Texmaco.
While comparing Titagarh with Texmaco, its book value post issue, would be close to Rs.200, if shares are issued at Rs.610 per share. The same would be at Rs.192, if shares are issued at Rs.540. Considering an expected EPS of Rs.31 for FY 08, share at the upper band is issued at a PE multiple of close to 20. Even post issue stake of promoters at 49% is close to 53% of Texmaco. FII stake of 38% in pre-issue instills confidence.
Considering the increase in purchase of wagons to 20,000 in the recent railway budget, the company would be having larger share and may continue to have 27% share of the enlarged orders of Indian Railways. Even procuring loose wheels and axles would improve its wagon capacity.
Share at lower band of Rs.540 is quite attractive and at the upper band of Rs.610 also, leaves room for gain, as FY 09 performance of the company would be quite good. The sector of the company enjoys very good discounting on the bourses and hence investment is recommended in the issue.