engineering shares information Titagarh Wagons

Titagarh Wagons Ltd (updated - 09 Jan 2012)
Last year, Indian fund houses changed their investment approach in favour of unconventional stock ideas. One company which fund managers then warmed up to was Titagarh Wagons, or TWL.

The shareholding of mutual funds in TWL - one of the prominent wagon suppliers to the Indian Railways - shot up from 0.15% in September 2010 to 3.01% in September 2011. This is a high for mutual funds in this company after its listing in mid 2008.

Headwinds, in the form of high inflation leading to a spurt in commodity prices and rising interest rates, have prompted mutual fund managers to focus on companies with strong balance sheets, high operating margins, decent operating cash flows and earning visibility.

Measured against these, TWL definitely scores on balance sheet strength given its low leverage, reasonable amount of cash in the books and average debtor days that have been contained to less than two months so far. Its revenue growth at close to 19% (trailing 12 months) is also impressive though margins have seen some contraction. Despite the price variation clause in most of its contracts that takes care of the impact of any rise in prices of commodities such as steel, a substantial rise in the price of power and fuel YoY did impact its margins, especially in the quarter to September. However, despite this contraction, TWL currently operates at an EBIDTA margin of over 17 (trailing 12 months), which is well off than many bigger players in the heavy engineering industry in the current market. But having said that, TWL’s reliance on Indian Railways as its largest customer is a concern as delays in orders from the railways is a regular phenomenon.

A report by brokerage IDBI Capital on the sector says usually the wagon ordering process kicks off in the month of April wherein allocations of 75% of the yearly acquisitions are completed by September-October. This year, however, the process is likely to be delayed further and the allocations are expected to be completed only after December 2011.

Apart from delays in order activity, competition from peers such as Texmaco Rail & Engineering is another threat to TWL, especially in light of the fact that not only does Texmaco operate at better operating margins than TWL, but also has a larger order book in comparison.
Source - Economic Times

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