ICRA ONLINE LIMITED

RAILWAY BUDGET

2013 - 2014

Highlights & Analysis

Executive Summary
While I have a feeling of a colossus today, it is only ephemeral and is instantaneously overtaken by a sense of humility. Democracy gives wings to the wingless, cautioning us all the while, that howsoever high or wide our flight may be, we must remain connected to the ground, the opening speech of Railway Minister Pawan Kumar Bansal probably sums up the true essence of the Railway Budget for 2013-14. A sort of balancing act is evident from the various proposals put forth during the Railway Budget speech. While on one hand, the Railway Minister refrained from hiking passenger fares further, especially after an across-the-board fare hike last month, on the other hand the Minister has adopted the Fuel Adjustment Component, which will be dynamic in nature and may move in either direction after revision of fuel price twice a year. This will result in freight rates going up from April 1. Moreover, various supplementary charges on tickets and reservation fee, cancellation charges, tatkal rates etc were raised, which will make travelling in rail costlier. The proposal for setting up of Railway Tariff Regulatory Authority has also been formulated and was at the stage of inter-ministerial consultations. Internal revenue generation of the Railways has fallen short of target because of increase in diesel prices and slowdown in freight. But, the positive lining has been that the Railways did not seek any supplementary grants and had been able to repay the loan sought in addition to gross Budgetary support before the scheduled time. There were promises to reduce expenditure but that did not stop the Minister from announcing measures to upgrade safety, introducing 67 new express trains, besides increasing the frequency of sub-urban train services, carrying forward East-West Metro corridor project in Kolkata, laying 470 km of new line in 2013-14, 575 km of gauge conversion, introducing first AC EMU in Mumbai, setting up new manufacturing and maintenance units, besides other announcements. Moreover, the Operating Ratio, which is pegged to go below 90% this year and the next, is a good sign. A lot of passenger-friendly measures were taken to improve the overall service of the railways. Next-Gen eticketing system, e-ticketing through mobile phones, extended internet ticketing hours, free Wi-Fi facilities in some trains, mechanized laundries, contacting on-board staff through SMS, phone, e-mail for coach cleanliness, escalators and lifts at major stations, ISO certified state-of-the-art base kitchen in railway premises, extension of bio-toilets in trains, extension of on-board housekeeping scheme are among the various proposals put forth by the Railway Minister which will bring a smile on the face of the passengers. Now that the Railway Budget is over, the focus will definitely shift towards the Union Budget, due to be presented on February 28. It remains to be seen whether the Government goes ahead with the reforms measures initiated late last year.

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Railway Budget - At a Glance

Financial Performance
Operating Ratio of 88.8% compared to 84.9% in Budget Estimate (BE). Gross Traffic Receipts fixed at Rs. 1,25,680 crore in Revised Estimate (RE), short by Rs. 6,872 crore over BE. Ordinary working expenses fixed at Rs. 84,400 crore, unchanged compared to BE; payment to Pension Fund up by Rs. 1,500 crore. Loading target revised to 1,007 Million Tonnes (MT) against 1,025 MT in BE. Dividend Liability to the Government to be fully discharged. Loan of Rs. 3,000 crore, taken in 2011-12, fully repaid along with interest. (For details refer Annexure 1)

Budget Estimates
Targeted Operating Ratio of 87.8%. Freight loading of 1,047 MT, 40 MT more than 2012-13. Passenger growth estimated at 5.2%. Gross Traffic Receipts fixed at Rs. 1,43,742.00 crore in the BE 2013-14, compared to Rs. 1,32,552.00 crore in BE of 2012-13. Ordinary Working Expenses: Rs.96,500.00 crore. Appropriation to Depreciation Reserve Fund and Pension Fund at Rs. 7,500 crore and Rs. 22,000 crore respectively. Dividend Payment estimated at Rs. 6,249.20 crore. Fund Balances to exceed Rs. 12,000.00 crore. Market borrowings by Indian Railway Finance Corporation for investment in Rolling Stock & Projects stood at Rs. 14,999.00 crore in the Budget estimate of 2013-14. Market borrowings by Rail Vikas Nigam Ltd. at Rs. 104.00 crore. Investment through Public Private Partnership (PPP) mode - Rs.6,000.00 crore.

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Operational Performance
Railways completed laying 709 km and 727 km of new line in 2010-11 and 2011-12, respectively. However, during 2012-13, emphasis was laid on capacity enhancement work like laying double line, improving traffic facilities etc. The target of laying 700 km of new line in the current year had to be scaled down to 470 km due to inadequate resources. The target of 800 km of gauge conversion fixed for 2012-13 has also been scaled down to 575 km. Railways met the target of new line and electrification but fell short of the targets for laying double line and gauge conversion, achieving only 2,758 km and 5,321 km respectively. Land acquisition for nearly 2,800 km of the Eastern and Western Freight Corridors is almost complete. The number of passenger trains moved up from 8,897 in 2001-02 to 12,335 in 2011-12.

Key Announcements
Elimination of 10,797 level crossings during the 12th Plan and no addition of level crossings. Introduction of Train Protection Warning System on Automatic Signalling Systems. Introduction of 160/200 kmph Self-Propelled Accident Relief Trains. Internet ticketing from 0030 hours to 2330 hours and e-ticketing through mobile phones. Next-Gen eticketing system to be rolled out, which will be capable of handling 7,200 tickets per minute against 2,000 now and 1.20 lakh users simultaneously against 40,000 now. Free Wi-Fi service in several trains. 470 km new lines, 750 km doubling, 575 km gauge conversion and 1200 km electrification targeted in 2013-14. Passenger friendly initiatives proposed: 179 escalators and 400 lifts at A-1 and other major stations to be installed, which will help elderly and disabled people. Upgrading another 60 stations as Adarsh Stations in addition to 980 already selected. Recruitment in RPF with 10% vacancies reserved for women for safety of women passengers. Pilot project on select trains to facilitate passengers contact on-board staff through SMS/phone call/e-mail for coach cleanliness and real time feedback. Introduction of an Anubhuti coach in select trains to provide excellent ambience and latest facilities and services. Third party audit and tie-up with food testing laboratories for food quality control; ISO certified state-of-the-art base kitchens to be set up in railway premises. Centralized Catering Services Monitoring Cell set up with a toll free number: 1800 111 321.

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Fares & Freights

There was no hike in passenger fare this time as already there has been an across-the-board fare hike in January this year. However, supplementary charges for super fast trains, reservation fees, clerkage charges, cancellation charges and tatkal charges were raised marginally. Fuel Adjustment Component (FAC) linked revision for freight tariff to be implemented from April 1, 2013.

Comparison with Five Year Plan

The targets for the Railways for the 12th Five Year Plan are: The Planning Commission has pegged the Railways 12th Plan at Rs 5.19 lakh crore with a Gross Budgetary Support of Rs 1.94 lakh crore, internal resources of Rs 1.05 lakh crore and market borrowing of Rs 1.20 lakh crore, with another Rs. 1 lakh crore expected to be raised through Public Private Partnership (PPP) route. In order to improve safety standards, the Government proposes to initiate an exercise of making Corporate Safety Plan for a ten-year period (2014-24). For the first time, 347 ongoing projects have been identified as priority projects and provided committed funding. The Government intends to ensure required funding of these projects during the 12th Plan to complete them within specified time. (For details refer Annexure - 2)

PublicPrivate Partnership (PPP)

A target of Rs. 1 lakh crore has been set to attract investments through PPP route during the 12th Plan. A target of Rs 1,000 crore has been proposed to be fixed for both Rail Land Development Authority and IR Station Development Corporation in 2013-14. An investment of up to Rs. 9,000 crore is likely to be made under these projects, including Rs. 3,800 crore for port connectivity projects, Rs. 4,000 crore for coal mine connectivity and Rs. 800 crore for iron ore mines connectivity improvements.

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Projects
To meet the rising demand, reduce dependency on imports and to generate employment opportunities, new manufacturing/maintenance facilities were proposed to be set up. New Forged Wheel Factory at Rae Bareli, for which a Memorandum of Understanding has been signed with Rashtriya Ispat Nigam Limited (RINL). Greenfield Mainline Electrical Multiple Units (MEMU) manufacturing facility at Bhilwara, Rajasthan in collaboration with the State Government and BHEL. Coach manufacturing unit in Sonepat district, Haryana, in collaboration with the State Government. Midlife Rehabilitation (MLR) Workshop at Kurnool, Andhra Pradesh in tie-up with the State Government. Conversion of Bikaner and Pratapgarh workshop to undertake POH of BG wagons. Workshop for repair and rehabilitation of motorised bogies at Misrod, Madhya Pradesh. New wagon maintenance workshop in Kalahandi district, Odisha. Modern signalling equipment facility in Chandigarh through PPP route.

Freight Corridors
Land acquisition for nearly 2,800 km of Eastern and Western Freight Corridors is near completion. The first major civil construction contract on the 343 km Kanpur-Khurja section of the Eastern Corridor has already been awarded. Construction contract to cover up to 1,500 km on the two corridors would be awarded by the end of FY14 and the work has been started. Preliminary Engineering-cum-Traffic Studies (PETS) have been taken up on four future Dedicated Freight Corridors.

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Safety Measures
In line with the recommendations by Kakodkar and Sam Pitroda Committee, the improvement of safety measures have become one of the major thrust area of the Railway Ministry. Accordingly, the Railway Minister proposed certain steps to improve the safety standard, some of which are similar to the ones announced in the previous Railway Budget (FY12-13). The key safety measures announced are: In order to mitigate the risk of accidents, it was proposed to eliminate 10,797 level crossings during the 12th Five Year Plan and not adding any level crossing in future. To ensure enhanced safety for railway operations and increase the track capacity, the Ministry has decided to improve the signalling system. Introduction of Train Protection Warning System (TPWS) on automatic signalling systems. The system ensures automatic application of brakes whenever a driver over-shoots a signal, thereby eliminating chances of collision of trains. The indigenously developed Train Collision Avoidance System (TCAS) has been proposed to be put in more extensive ways, following the succession of initial testing. Upgradation of track structure using 60 kg rails, 260 metre long welded rail-panels and improved flash butt welding technology. Induction of Self Propelled Accident Relief Trains (SPART) with speed potential of 160/200 kmph on a trial basis with a view of putting a fast and reliable disaster management system in place. Rehabilitation of 17 bridges, identified as distressed, to be completed over the next one year. Improvement of fire fighting measures.

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Other Key Highlights

Some of the other important announcements during the Railway Budget are listed below: An educational tourist train called Azadi Express introduced to enable youths travel to important places connected with the freedom movement. In view of disposing of scrap, the Railway Budget introduced a special drive during the year to take up disposal of scrap lying in stores, depots, workshops, along the tracks and at construction sites. A target of Rs 4,500 crore has been set for 2013-14. Railways took the initiative of protecting the environment and promoting sustainable development and use of energy-efficient technologies. To motivate students undertake research on Indian Railway related issues, it was proposed to introduce 5 fellowships in national universities. The fellowship will carry an appropriate stipend also. Complimentary passes for Olympic medalist, Arjuna awardees, sportspersons, brave and valiant soldiers, the parents of posthumous unmarried awardees of Maha Vir Chakra, Vir Chakra, Kirti Chakra, Shaurya Chakra, Presidents Police Medal for Gallantry and Police Medal for Gallantry On the tourism front, mountain railways of the country are the World Heritage Sites, placing India in an exclusive club of nations that include only Switzerland and Austria. Necessary measures will be taken to preserve them. Focused Areas: In the Railway Budget, the Government has tried to reduce capital investments and other expenditure instead of hiking passenger fares. In order to compensate the high fuel bill, the Government proposed to introduce Fuel Adjustment Component and passenger amenities cess. Steps were taken to improve safety of women and other individuals and bringing about modernisation in Railways.

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Implication of Railway Budget on Various Markets

Equity Market
The benchmark indices, the 30-share S&P BSE Sensex, and the 50-unit CNX Nifty, both hit their lowest closing levels in thirteen weeks. The Government proposed a 5% hike in freight rate, which is likely to increase burden on the corporate earnings. No benefits were announced for the railway wagon makers, which dampened sentiments further.

Debt Market
The benchmark 10-year bond yield closed 2 basis points (bps) higher at 7.82% after easing earlier to 7.78%. The five-year OIS rate fell 5 bps to 7.18%, the lowest since January 30. The Railway Budget reflected contained spending, which is a sign of the Governments fiscal discipline.

Commodity Market
The implementation of Fuel Adjustment Component (FAC) - linked revision in freight tariff is likely to raise the price of commodities including coal, cement and steel, which use Railways for transportation purposes. The announcements were overall positive for sectors like steel, cement, metal products, containers, electrical equipment etc. because higher outlays will lead to an increase in demand for these industries.

Currency Market
There was no direct impact of the Railway Budget on the currency market. However, the sell-off in equity markets due to Railway Budget and global cues hit the domestic currency. The partially convertible rupee closed at 54.09/10 per dollar against its previous close of 53.87/88.

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Measures

Segment Impacted

Companies* Impacted

1. Thrust on improved signalling. 2. Introduction of Train Protection Warning System (TPWS) on automatic signalling systems. 3. Putting Train Collision Avoidance System (TCAS) to rigorous trials to validate the technology under complex operational conditions. 4. Progressive induction of crash-worthy Linke Holfmann Busch (LHB) coaches having anti-climb feature. 5. Proposed electronic display in trains for giving real time updates of train arrivals.

Security

1. Zicom 2. Kernex Microsystems Ltd. 3.Nelco 4. Nitin Fire 5. Bartronics India

No major announcement regarding wagons.

Wagons

1. Titagarh Wagons 2. BEML 3. Texmaco 4. Container Corporation of India 1. 2. 3. 4. Larsen & Toubro Ltd. Madhucon Projects Ltd. Siemens India Ltd. Stone India

Seventeen distressed rehabilitation.

bridges

have

been

sanctioned

for

Construction & Engineering

1. Greenfield Mainline Electrical Multiple Units (MEMU) manufacturing facility at Bhilwara (Rajasthan) in collaboration with the Rajasthan Government and BHEL. 2. Induction of crash-worthy LHB coaches having anti-climb feature. 1. Proposal to take up 22 projects of new lines and one gauge conversion project on socio-economic consideration. 2. A target to complete 470 km of new lines has been set for 2013-14. 3. Target to convert 575 km of MG/NG lines to broad gauge during 2013-14. 4. Target for Doubling has been increased to 750 km for 201314.

Coaches

1. BEML 2. BHEL

New Line Infrastructure

1. 2. 3. 4. 5. 6. 7. 8. 1. 2. 3. 4. 5. 6.

Kalindee Rail Texmaco Rail & Engg Ltd IVRCL NCC Tantia Construction Era Infra C&C Construction Tantia Construction Madhucon Era Infra Gammon Kalindee Rail C&C Construction.

1. Upgrading 60 stations as Adarsh stations in addition to 980 already selected.

Construction

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1. 1500 km construction contract will be awarded in the coming year in addition to 343 km Kanpur-Khurja section of the Eastern corridor, which has already been awarded. 2. Some parts of the Dedicated Freight Corridor will be completed under Public Private Partnership model.

Construction

1. 2. 3. 4. 5. 6. 7.

IVRCL NCC Tantia Construction Era Infra Kalindee Rail C&C Construction Gateway Distriparks

1. 67 new express trains and 26 new passenger trains.

New Trains

1. MIC Electronics 2.Nitin Fire 3. Hind Rectifiers 4. Kernex Micro 5.Integra Hindustan. 6. TRIL

Source: ICRA Online Research; * The list of companies is indicative not exhaustive

Performance of Railway Specific Stocks

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Annexures
Annexure 1
Statement of Revenue and Expenditure ( Figures in Rs. Crore) Particulars Revenue receipts i Passenger Earnings ii Other coach earnings iii Goods earnings iv Sundry other earnings v Suspense Gross Traffic Receipts (A) Miscellaneous Receipts: i Receipts from subsidised companies ii Railway Recruitment Board iii Other Miscellaneous Receipts iv Subsidy from General Revenue towards dividend relief and other concessions Total Miscellaneous Receipts (B) 1)TOTAL RECEIPTS (A+B) Expenditures i ii Ordinary Working Expenditures Appropriation to: Depreciation Reserve Fund Pension Fund Other Misc. expenditure Open Line Works- Revenue 84,400.00 9,500.00 18,500.00 1,000.82 60.00 113,460.82 22,233.07 6,676.07 15,557.00 10,557.00 5,000.00 Nil 15557.00 84.9% 12.1% 84,400.00 7,000.00 20,000.00 993.32 60.00 112,453.32 15,748.91 5,339.78 10,409.13 9,984.00 425.13 Nil 10409.13 88.8% 8.6% 96,500.00 7,500.00 22,000.00 1,170.00 60.00 127,230.00 19,396.00 6,249.20 13,146.80 3,550.00 5,433.80 4,163.00 13146.80 87.8% 9.2% 36,073.00 2,994.00 89,339.00 4,096.00 50.00 132,552.00 Nil 9.97 128.03 3,003.89 3,141.89 135,693.89 32,500.00 3,083.00 85,956.00 4,096.00 45.00 125,680.00 Nil 9.36 128.64 2,384.23 2,522.23 128,202.23 42,210.00 3,422.00 93,554.00 4,506.00 50.00 143,742.00 Nil 9.83 128.17 2,746.00 2,884.00 146,626.00 FY 2012-13 Budgeted Revised FY 2013-14 Budgeted

iii iv

2)TOTAL EXPENDITURE NET REVENUE (1-2) Payment To general Revenues Excess/(Shortfall) Appropriation to: Development Fund Capital Fund Railway Liability Reserve Fund Operating ratio Ratio of Net Revenue to Capital at charge and investment from Capital Fund

Source: Explanatory Memorandum: Railway Budget - 2013 14; ICRA Online Research

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Annexure 2
Overview of Financial Position of the Indian Railways (in Rs. Crore at current prices) Description Gross Traffic Receipts Net Ordinary Working Expenses Appropriation to Pension Fund Appropriation to Depreciation Reserve Fund Total Working Expenses Net Revenue Total Dividend Payable Excess/Shortfall Operating Ratio (per cent) Ratio of Net Revenue to capital at charge and investment from capital fund (per cent)
Source: Explanatory Memorandum to the Railway Budget for Various Years; ICRA Online Research

Terminal Year of Tenth 200607 62,731 37,432 7,416 4,198 49,047 14,453 4,247 10,206 78.7

2011-12 (RE) 1,03,917 75,650 16,800 6,160 98,610 7,144 5,652 1,492 95 4.43

Twelfth 201213 (BE) 1,32,552 84,400 18,500 9,500 1,12,400 22,233 6,676 15,557 85 12.10

Annexure 3
95.3 Indian Rail - Operating Ratio 94.9 94.6 Indian Rail - Net Revenue 25,000.00 20,000.00 88.8 15,000.00 87.8 10,000.00 5,000.00 2009-10 2010-11 2011-12 2012-13* 2013-14** Operating ratio
Source: Ministery of Railways; * Revised Estimates, ** Budgeted Estimates

96 94 92 90 88 86 84

19,396.0 15,748.9

6,781.6 5,544.1 6,346.1

0.00 2009-10 2010-11 2011-12 2012-13* 2013-14** Net Revenue

Source: Ministery of Railways; * Revised Estimates, ** Budgeted Estimates

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