| Titagarh Rail Systems Limited | ||||||
| Long-term rating upgraded to 'CRISIL A+/Stable'; Short-term rating reaffirmed; Rated amount enhanced for Bank Debt | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
CRISIL Ratings has upgraded its ratings on the long-term bank facilities of Titagarh Rail Systems Limited (TRSL) to ‘CRISIL A+/Stable’ from ‘CRISIL A/Stable’, while reaffirming the rating on the short-term bank facilities at 'CRISIL A1'
The rating upgrade factors in the improvement in business and financial risk profiles of TRSL. The business risk profile improvement factors in the improved order book position with significant orders inflow from the passenger rail systems segment in 1HFY24. This along with healthy execution of the existing order book from both wagons and passenger segment has resulted in healthy revenue and profitability growth from Q3FY24 onwards. In fiscal 2023, TRSL’s revenue grew by 90% to Rs 2,781 crore and EBITDA to Rs 265 crore (fiscal 2022: Rs 165 crore) as execution of the IR order picked pace in the second half of fiscal 2023.
The order book has improved from Rs 10,645 crore in FY2022 to Rs 27,896 crore in 1QFY2024 providing medium to long term revenue visibility based on execution timelines. In the year till date, TRSL received orders including Vande Bharat order (Rs 12,156 crore), Surat Metro order (Rs 858 crore), Ahmedabad Metro Order (Rs 350 crore) and Wheelset manufacturing (Rs 6,300 crore, to be executed in joint venture). This is on top of the existing order of Rs 7,838 crore from India Railways with around Rs 6,055 crore remaining to be completed over FY2024-26.
With orders coming in from the passenger rail segment, the OB composition has also diversified from Freight:Passenger ratio of 89:11 (at FYE2022) to 46:54 (at Q1FY2023). However, the timelines of passenger rail segment orders vary with around first 18 months (from the receipt of LOA) of the development stage and hence any meaningful contribution to revenue and profitability will come at end of fiscal 2025. The successful buildup of prototypes under development stage and execution as per contract timelines along with expected margins would remain a key monitorable.
The improvement in financial risk profile resulted from improved net cash accruals to Rs 126 crores resulting in NCAAD improved to 0.5x (fiscal 2022: 0.8x). Gearing though has increased with debt rising to Rs 249 crore as on March 31, 2023, from Rs 119 crore as on March 31, 2022, on account of increased working capital requirement due to ramp of execution. However, TRSL was able to maintain the debt/EBITDA under 1x on account of improved profitability.
While CRISIL Ratings expects a moderate increase in debt over the medium term, the credit metrics TRSL is expected to remain healthy on account of expected healthy profitability resulting in healthy cash accruals. Further, incremental capex for capacity expansion and investments for wheelset orders are expected to be financed through a mix of internal accruals and appropriately sized debt, keeping debt protection metric stable over the medium term. TRSL has also successfully raised Rs 288 crore in July 2023 reducing its debt requirement in the near term leading to improvement in debt metrics. Further, the management maintains its stance of not providing any financial support to international associates including TFA Italy directly or indirectly from TRSL’ balance sheet.
Any deterioration in operating performance due to delays in order execution or RM supply constraints and delay in clearances will remain a monitorable here. Further any stretch in liquidity due to a longer WC cycle, higher than expected debt funded capex or incremental support towards group companies or overseas subsidiaries will also be a monitorable.
The ratings continue to factor in the TRSL’s established market position in the wagon manufacturing industry, and benefits derived from diversification into passenger rolling stock segment (Vande Bharat and various Metro orders), along with an improved financial risk profile. These strengths are partially offset by working capital-intensive operations, significant dependence on IR for orders and exposure to volatility in raw material prices. |
Analytical Approach CRISIL Ratings has considered the standalone business and financial risk profiles of TRSL.
Titagarh Bridges & International Pvt Ltd (TBIPL), was amalgamated with TRSL in fiscal 2023. TFA Italy (erstwhile subsidiary and now a joint venture) continues to be not consolidated as the corporate guarantee towards TFA has ceased to exist. Additionally, there are covenants laid down by the working capital lenders restricting financial support to the group entities without prior approval.
CRISIL Ratings has not consolidated the recently set up JV, Ramkrishna Titagarh Rail Wheels Limited (RTRWL) for executing the wheelset order from Indian Railways. As per articulation received from management, any debt availed by the JV will not be backed by corporate guarantee from TRSL. |
Key Rating Drivers & Detailed Description Strengths: Established market position in the core Wagon Manufacturing business TRSL is one of India’s largest wagon manufacturers, with a capacity of 8,400 wagons per annum with plans to enhance capacity to 12,000 wagons per annum by FY2025. TRSL has maintained its leadership position in the segment and accounted for 32% (24,177 wagons) of the orders awarded by IR in May 2022. Access to technical capability through foreign collaborations enhances the business risk profile.
Diversified revenue profile of domestic operations The passenger segment contribution to topline at 19% of revenue in FY2023 (13% in fiscal 22, 5% in fiscal 21) has been steadily increasing. Further the new orders received in the current fiscal are majorly in passenger rail segment. This is reflected in current order book composition improving from Wagon:Passenger ratio of 89:11 in FY2022 to 46:54 in Q1FY2024.
TRSL received its first metro project order from Maharashtra Metro Rail Corporation Ltd for the Pune Metro project in consortium with TFA in August 2019. Furthermore, with successful execution of Pune metro order, TRSL is now bidding for further metro orders on its own and has won Surat and Ahmedabad metro orders in the recent past.
Healthy financial risk profile and liquidity Gearing increased to ~0.26 time as on March 31, 2023, from 0.12 time as on March 31, 2022, on account of increased WC utilization. Gearing is expected to remain largely stable over FY2024-26 despite some increase in debt on account of better accruals. Steady operating margin improvement over the years has led to improved debt protection metrics stable with adjusted interest cover (adjusted for notional interest) at 7.99 times in fiscal 2023 4.34 times in fiscal 2022. Liquidity remains healthy with significant untilised fund-based limits of Rs 433 crore as of July 2023. TRSL has raised funds from PE fund (Rs 288 cr for around 6% stake) which further improves the financial flexibility of the entity.
The accruals over FY2024-2026 are expected to be sufficient to fund the incremental capex of around Rs 300-400 crore, spread over FY2024-2026. Some increase in overall borrowings is expected due to increasing WC requirement in line with the increase in turnover along with investments of around Rs 150-200 crore to be made in JV set up for manufacturing wheelsets. Overall, the financial risk profile is expected to remain healthy backed by steady operating performance, limited capex to be financed via accruals, funds from private equity and appropriately sized term debt be availed over FY2024-25. However, any major debt-funded capex or any debt-led investment along with WC stretch will remain a key monitorable.
Weaknesses: Working capital-intensive operations The large working capital requirement is due to sizeable inventory requirement (67 days as on March 31, 2023, 86 days as on March 31, 2022). The working capital requirement increased during fiscal 2023, driven by increased execution due to large orders from IR and also due to sizeable unbilled revenue in metro segment which is expected to come down once the execution of the Pune metro order is complete. Increase in working capital limits, back-to-back contracts with suppliers, and healthy accrual should help meet the incremental working capital requirement.
Exposure to risks in raw material prices and competition The key inputs include steel and related products. The IR orders generally have a long execution period and are covered by a price-variation clause to a large extent. The private sector orders (15-20% of the freight wagon order book) have a shorter turnaround and are fixed price in nature, but these come with better pricing and margins. Hence, to an extent, TRSL is susceptible to fluctuations in steel prices during the order execution period. On the other hand, pricing power is restricted as the orders from IR (main customer) are spread across suppliers and are decided based on bids submitted by wagon manufacturers. The recently won large orders- Vande Bharat and Wheelsets order come with price variation clause, thus protecting margins. |
Liquidity: Strong TRSL had cash and equivalent of Rs 145 crore as on March 31, 2023. Fund-based working capital utilization averaged 50-60% in the 12 months through July 2023. The company has increased its overall working capital limits, which are likely to be available from September 2023. TRSL has scheduled debt obligation of around Rs 33 crore in fiscal 2024 and internal accruals would be sufficient for repayment of same. Expected cash accrual, increase in working capital limits, order-backed contracts with suppliers, and sizeable cash balance will help fund capex and incremental working capital requirement. |
CRISIL Ratings believes that TRSL’s operating performance will benefit over the medium term from existing healthy order book and sustenance of healthy financial risk profile. |
Rating Sensitivity factors Upward Factors * Timely execution of orders in hand along with ability to maintain healthy operating margins resulting in net cash accruals above Rs 200 crores. * Ability to maintain the working capital cycle resulting in debt/EBITDA below 1x on sustained basis
Downward Factors * Delay in order execution, weakening of operating performance and thus leading to sustained reduction in interest coverage ratio below 4x times. * Higher than expected debt funded capex resulting in weakening of debt protection metrics, * Weakening of liquidity on account of stretch in working capital cycle or incremental support towards group companies or overseas subsidiaries. |
About the Company Titagarh Rail Systems Limited (erstwhile Titagarh Wagons Limited) was set up in July 1997 by Mr Jagdish Prasad Chowdhary. It manufactures freight wagons, bailey bridges, heavy earth-moving and mining equipment, steel and spheroidal graphite iron castings, and other products. Operations are managed by Mr Umesh Chowdhary. The company has four manufacturing facilities: two in Titagarh and one in Uttarpara in West Bengal, and one in Bharatpur, Rajasthan. It has capacity to manufacture 8,400 wagons, 200 Metro coaches and 36 electric multiple unit coaches, and process around 30,000 tonne of casting steel, per annum. It also has the capacity to manufacture bridges, shelters, and propulsion equipment. Furthermore, it has a shipbuilding division, which delivered its first ship, a 1,000-tonne fuel tanker, to the Indian Navy in May 2018. |
Key Financial Indicators (Standalone; CRISIL Ratings-adjusted numbers)
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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