Titagarh Rail

Titagarh Rail Systems Limited successfully completed its exit from Firema, selling its investment to the Italian State Railways. This divestment was strategic, as the initial acquisition's goal of establishing passenger rail systems was achieved. Firema had been a continuous drain on the company's balance sheet and cash flow due to ongoing losses. All past and potential liabilities related to Firema have been fully provided for in the company's financials, ensuring no further losses or cash outflows are expected.

The shipbuilding business has been segregated and hived up into a wholly-owned subsidiary, Titagarh Naval Systems Limited. This new entity has acquired land in Falta, West Bengal, and leased an existing concrete jetty to facilitate construction and production activities. The total project cost for TNSL is estimated at INR 610 crores, for which the company has secured a 25% capital subsidy from the Government of India. Production at the Falta shipyard is expected to commence within the current financial year (FY27).

The passenger rail system business recorded its highest ever turnover and profitability in FY26. Sales for this segment significantly increased from 12 cars in FY25 to 63 cars in FY26. The company is highly confident in further scaling up, targeting 200 cars in FY27. The stand-alone order book for the passenger rail segment stands at approximately INR 10,600 crores, indicating strong future growth. The EBIT margin for passenger rolling stock was 19% in Q4 FY26 and 14.3% for the full FY26, with a long-term target of around 12% to be enhanced through backward integration.

The freight rail segment's order book is approximately INR 3,100 crores. The company aims for a run rate higher than the previous year and has completed capacity and technology enhancement for its foundry. This upgrade includes resin-based molding facilities, enabling the foundry to produce castings for 1,000 wagons per month once large tenders are finalized. Additionally, Titagarh has obtained a wagon leasing license and secured its first contract, diversifying its offerings in the freight business and expecting stable margins of 11-12%.

Titagarh has made significant progress on various projects. The first lot of 34 trains for Pune Metro has been supplied, and a repeat order for 12 additional trains has been received. Gujarat Metro supplies have commenced, with the completion of 34 trains (102 cars) targeted within FY27. For Mumbai Metro, supplies are set to begin within FY27, with execution spanning the next two financial years and the first train delivery expected in Q3/Q4 FY27. The first Vande Bharat prototype is also on track for delivery by the end of Q3 or beginning of Q4 FY27, with 10 car bodies already manufactured.

The joint venture for wheel sets is scheduled to commence production in June 2026, supported by a 20-year contract from Indian Railways for 80,000 wheels per annum. In a strategic move towards self-reliance, Titagarh is progressing to achieve full self-sufficiency in manufacturing aluminium coaches from raw material and extrusion by FY27 and beginning of FY28. This capability, achieved through imported machinery, positions the company to cater to higher-end wagons and high-speed trains, enhancing its competitive advantage.

In FY26, Titagarh generated a healthy free cash flow of INR 380 crores, a notable improvement from a flat or slightly negative free cash flow in FY25. While inventory days saw some increase due to past supply chain constraints, management anticipates normalization as production ramps up. Debtor days for the passenger rail segment are expected to stabilize around 75 days once operating leverage is achieved, compared to 30 days for the freight business. The company also noted slight delays in payments from government/public sector at year-end, a recurring but manageable issue.