Revival Of Indian Railways Is A Rs 6.7 Trillion Opportunity

The government’s move to reinvigorate Indian Railways offers unprecedented business opportunities worth Rs 6.7 trillion in the five years to 2020, perhaps the largest anywhere barring China, CRISIL Research said. That would be more than 2.5 times the capex seen in the five fiscals to 2015.

As much as Rs 935 billion was spent in fiscal 2016 (52% more than fiscal 2015), which indicates the government’s resolve to execute plans within defined timeframes. And in the current fiscal, of the Rs 1.2 trillion envisaged, 55% has been spent up to November 2016.

CRISIL Research expects the upcoming Union Budget 2017 to earmark Rs 1.3-1.4 trillion spending for next fiscal.

The pipeline of projects, too, is ramping up as sanctions gather pace. Around Rs 1.1 trillion worth of projects were sanctioned on average in the past two fiscals in key segments compared with an average ~Rs 250 billion in the four fiscals preceding.

Says Prasad Koparkar, Senior Director, CRISIL Research: “We see gross budgetary support going mainly into network decongestion and expansion. Secured debt of Rs 1.5 trillion from the Life Insurance Corporation of India (LIC), and Rs 523 billion loan from the World Bank and the Japan International Cooperation Agency have already been tied up. These will lead to higher allocation for, and faster execution of, strategic and remunerative projects.”

The loan from LIC is expected to boost investments in electrification and track-doubling projects, which offer adequate returns. The multilateral funds, on the other hand, are expected to aid investments in dedicated freight corridors (DFCs). Consequently, we see planned capex on network decongestion and rolling stock materialising largely by fiscal 2020.

CRISIL Research estimates high-impact projects involving decongestion would be prioritised over new lines, and open up a Rs 2.4 trillion business opportunity.Investment in rolling stock – locomotives and coaches — is seen at Rs 1.1 trillion. Of this, purchase of locomotives would account for nearly half.

Investments in safety would treble to Rs 900 billion, but will fall short of the target of Rs 1.27 trillion. Bulk of it will be to build rail under- and over-bridges, with the rest for track renewal, signalling and telecom, etc.Safety-related projects are funded from internal accruals. Given their criticality, we believe the Indian Railways will seek to tap additional sources of funds.

Binaifer Jehani, Director, CRISIL Research, said: “The Eastern and Western Dedicated Freight Corridors (DFCs), on which work is underway, have seen a significant step-up in investments. Most of the land required has been acquired, and majority of civil and systems contracts have been awarded. The speed of work can be gauged from the fact that around 29-31% worth of contracts were awarded in fiscal 2016, compared with around 23-24% in the previous 7 years cumulatively.”

The remaining civil and systems contracts are expected to be awarded in the next few months. Phased commissioning of these DFCs by fiscal 2020 will ease congestion, but the Sonnagar-Dankuni stretch coming up under PPP remains a monitorable. Further, three other DFCs offer investment opportunity of Rs 2,717 billion beyond fiscal 2021.

Indian Railways plans to harness private capital for funding capex across projects, such as first/last mile and port connectivity projects, logistic parks/ private freight terminals, and station redevelopment. Public-private opportunities across these projects is expected to be worth ~Rs 250 billion by fiscal 2020.

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