Railway Budget - Populist expectations, No freight hike:: Emkay

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Railway Budget – Populist expectations, No freight hike

Mamata Banerjee, facing assembly elections in West Bengal in two months will like to focus on WB, could also announce a slew of projects for her state. We expect no hike in Freight or passenger fares barring for a few selected segments.

Railways is expected to miss the FY11E freight targets by 2.5% and Revenue targets by 2.8%

Railway’s has carried 756 MT on 10M FY11 which is 80% of FY11E budget estimates (944MT). Railway’s is expected to achieve a freight tonnage of 920MT. Major reasons for railways missing the target due to 18%yoy decline in iron ore trade.

The Railways have generated Rs. 761.9 bn of revenue earnings from commodity-wise freight traffic during April 2010-January 2011 as compared to Rs. 945.7 bn of overall expected Revenues for FY11E and has achieved ~81% of the annual target. We expect due to shortage in overall targeted freight movement Railways will be able to achieve an overall revenues of Rs 919 bn.

							Already	Emkay Estimates
Revenues (Rs Bn)	2006-07	2007-08	2008-09	2009-10	FY11 (BE)	10MFY11	achieved	FY11E	FY12E
Passengers	172.2	198.4	219.3	234.9	261.3	213.4	82%	255.0	285.0
Other Coaching	17.2	18.0	19.7	22.4	27.8	20.9	75%	25.0	30.0
Goods Income	417.2	474.4	534.3	585.0	624.9	509.0	81%	615.1	668.1
Growth		14%	13%	9%	7%			5%	9%
Sundry Income	17.1	25.7	25.0	28.8	31.7	18.6	59%	24.0	25.0
Total Earnings	623.7	716.5	798.4	871.1	945.7	761.9	81%	919.1	1008.1
Growth		15%	11%	9%	9%			6%	10%
Freight MT	727.8	793.9	833.4	887.9	944.0	756.0	80%	920.0	975.2
Growth		9%	5%	7%	6%			4%	6%

Our expectation for FY12E

We expect the FY12E targets by Railways will be ~975 MT a 6% yoy growth.

Rail freight expected to grow by 6% to 975 MT in FY12E

Source: Indian Railway, Emkay Research

Capital expenditure for Railways is expected to increase by 5% to Rs 435 bn in FY12E from the budgeted Rs 414 bn in FY11E.

Capital outlay to remain subdued

Source: Indian Railway, Emkay Research

Key Takeaways

Freight rates not likely to be hiked as Railways has sought a hike in Dec 10 of approximately 4%. No hike expected on the Freight side – Little impact on Concor or GDL major.

Railways budgeted procurement of 18,000 wagons in FY11E, we expect similar levels of procurement for FY12E. Companies to watch out -Texmaco, Titagarh Wagons,

We expect the increase in plan outlay will benefit companies like - L&T, Kernex Microsystem, BEML, Kalindee Rail, ARSS Infra, Hindustan Rectifier.