Titagarh Rail Systems Limited

Titagarh Rail Systems reported a mixed Q3 FY26. The Freight Rail Systems segment experienced muted revenue, declining from INR800 crores to approximately INR600 crores year-on-year, primarily due to persistent wheel set supply chain issues. In contrast, the Passenger Rail Systems segment demonstrated robust growth, with revenue surging from INR40 crores to INR160 crores and EBITDA increasing from less than INR5 crores to about INR22 crores. Management highlighted the passenger business as the 'silver lining' for the quarter, indicating its growing importance.

The company is aggressively expanding its passenger rail capabilities, having flagged off the first Ahmedabad Metro train and commenced series production. The first propulsion set for EMU has received RDSO approval, backed by an order book of approximately INR500 crores, with revenue expected from FY27. Strategic agreements, including one with ABB for 750 kVA and 25 kVA TCMS technology transfer, will enable in-house production of critical components like traction motors and converters. Furthermore, the establishment of an aluminium metro line, anticipated by Q2 FY27, will facilitate backward integration for end-to-end manufacturing of aluminium metro and high-speed train coaches.

The Freight Rail Systems business faced headwinds from type-wise mismatches and supply disruptions of wheel sets, impacting overall industry production. While the issue has seen some normalization, the company has resorted to importing wheel sets for private wagons to mitigate lost production. A long-term solution is underway with trial production from their joint venture for wheel sets expected by March 2026, aiming for full internal availability within a couple of quarters. The company maintains a capacity to produce 1,000 wagons per month and anticipates new government tenders in Q1 FY27, aligning with the railways' ambitious target of 3 billion tons of freight by 2030.

Titagarh Rail Systems secured a wagon leasing license, a strategic move to enhance its presence in the private sector wagon market and enter the wagon maintenance segment. The demerger of the shipbuilding business has been successfully completed, and the company has already received an order for a Coastal Research Vessel, with this subsidiary business showing promising growth. The defence business remains under evaluation by a Board committee, with future announcements expected upon final decisions. The company also confirmed the ongoing process for the Italian State Railways to buy out its loss-making Titagarh Firema JV, ensuring no further exposure or impact on Indian operations.

The company's total order book stands at approximately INR27,755 crores. The passenger segment alone accounts for a significant portion, with INR11,000 crores directly and an additional INR7,000 crores indirectly through a JV with BHEL. Recent wins include INR4,000 crores for Mumbai Metro Line 5 & 6 in the last six months. For FY26, the company produced 39 metro cars in 9 months and expects to be 'pretty close' to its aspirational target of 100-120 cars, with a significant ramp-up in Q4. The backlog for CRRC Bangalore Metro is projected to be cleared mostly by FY27, potentially spilling into early FY28.

Freight wagon margins remained stable at 11-12.5%. For the passenger business, current margins are 11-12% at basic economies of scale. Management aims to achieve an ultimate EBITDA margin of 15% for the passenger segment within a couple of financial years, driven by in-house propulsion and full backward integration. The overall capex for Passenger Rail Systems, targeting projected capacity, is approximately INR1,000 crores. FY27 capex will fall within this amount, funded by a mix of equity, internal accruals, and debt, with no new capital required for existing projects, as key infrastructure is expected to be completed in H1 FY27.

Management expressed strong optimism for FY27 and FY28, anticipating these years to be 'very important' and 'exciting' for the Passenger Rail Systems due to planned production ramp-ups. They also hope for continued growth in the Freight Rail Systems business, supported by new railway orders in H1 FY27. The Union Budget was viewed positively, with its focus on new Vande Bharat trains and high-speed corridors aligning well with Titagarh's capabilities as a self-reliant manufacturer, reinforcing the company's long-term growth trajectory.