FY16 Railway Budget Review - Maiden Move For Railways :: Edelweiss

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We view the Railway Budget positively-problems identified, goals set and performance parameters defined upfront. In the Railway Minister’s own words, “this Railway Budget is first budget made for Railways itself.” The Five year roadmap targets a massive INR8.5trn investment and FY16 budget is the first but big step in this direction. The focus rightly is on policy issues, resource augmentation and not on individual projects.

FY16 plan budget outlay is bold - up 52% to INR1trn. A continued reliance on freight increases may be seen as populist - we believe that a need for accelerated internal accruals and timing (political) would have played a part.

Railway Budget: Maiden step in a 5-year plan

Akin to a CEO, railway minister Mr. Suresh Prabhu has delivered a budget for the railways-setting goals, execution strategy and thrust areas. The budget is a first step towards a 5-year plan (detailed in a white paper) targeting aggressive investments of INR8.5tn, a 3.3x jump over the past 5 years. Immediate goals are improving customer experience, safety, capacity augmentation and financial self sustainability. The execution strategy focuses on partnerships, resource augmentation and revamp of management, systems and processes.

FY16 Budget - Capex spend up 52%, revenue targets optimistic

Capex in FY16 is expected to catapult ~52% YoY to INR1tn-outlay on capacity augmentation up 140%. This outlay will be funded via budgetary support (40%), borrowings (18%), PPP mode (6%), tie ups with PSUs (18%) and internal resources (18%). The railway minister’s speech highlighted that this plan will be scaled up as further resources with institutions are tied up.

While revenue projections appear a tad optimistic on passenger tariffs (no hikes), freight traffic will be helped by a 10% increase in rates across the board. This move appears populist (continued cross subsidisation), but we would like to believe that both timing (political) and an immediate demand on profitability metrics have played a part Freight hikes, especially on food grains, are likely to impact inflation as well. Again, budgetary estimates are susceptible to 7^th pay revision recommendations.

LINK
https://www.edelweiss.in/research/FY16-Railway-Budget-Review--Maiden-Move-For-Railways/28480.html