ICICI Securities Limited

Rail Budget Review

February 28, 2011

Rail Budget 2011-12: Ambitious target…

Our take on the Rail Budget

ƒ The Rail Budget 2011-12 followed a populist theme as

anticipated. The Budget estimates for FY12 also did set in an
ambitious target for gross traffic receipts of | 1,06,239 crore
(assuming freight loading target of 993 MT and passenger
growth of 6.4% as per Budget Estimates), which is ~12% higher
then FY11 (RE).

ƒ For FY11, Indian Railways has reduced the loading target by 20

million tonnes (MT) to 924 MT, primarily on account of disruption
of train movements and ban on export on iron ore, which
resulted in a loss of ~| 1500 crore and ~| 2000 crore,
respectively

Exhibit 1: Indian Railways – Earning Trend

(| Crore) FY11(BE) FY11(RE) 10MFY11 FY12 (BE)
Freight earnings 62489 NA 50899 NA
Passenger earnings 26127 NA 21337 NA
The loading target for FY11 has been reduced by 20 MT to Coaching earnings 2778 NA 2094 NA
924 MT while for FY12 the loading target has been set at Sundry earnings 3171 NA 1857 NA
993 MT Gross Traffic Receipts 94565 94840 76187 106239
% Growth 0.3 12.0
Freight Loading (MT) 944 924 756 993
% Growth -2.1 7.5

Source: Indian Railways Budget 2009-10

ƒ In our view, a fair estimate of gross traffic receipts for FY12E is

expected to be ~ | 99000 crore (assuming freight loading target
of 940 MT and passenger growth of 6.5%) (shown in Exhibit 1)

Exhibit 2: Expected Gross Traffic Receipts for FY12E (our estimates)

(| crore) As per FY11(BE) Growth (%) in FY12E FY12(E)
Freight earnings 62489 3.8 64848
Passenger earnings 26127 6.5 27825
Coaching earnings 2778 6.5 2959
Sundry earnings 3171 6.5 3377
Gross Traffic Receipts 94565 4.7 99009
*Freight earnings calculation assumption: Blended Realisation for Jan11 in |/tonne (690) * Volume for
FY12E in million tonnes (940)
Source: ICICIdirect.com Research

ƒ The annual plan (capex) of | 57630 crore is to be met through

gross budgetary support of | 20000 crore, market borrowings of
Analyst’s name | 20,594 crore through Indian Railway Finance Corporation
Mayur Matani (IRFC), diesel cess of | 1041 crore, internal resources of | 14219
mayur.matani@icicisecurities.com crore and | 1776 crore through external source of financing
Dewang Sanghavi through PPP, WIS, etc
dewang.sanghavi@icicisecurities.com
ƒ Out of the annual plan, | 9,583 crore is provided for new lines, |
5,406 crore is provided for doubling, | 2,470 crore is provided for
gauge conversion and | 13,820 crore for acquisition of rolling
stock

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Exhibit 3: Key takeaways from the Budget

Key Announcements Our take / View Companies impacted Impact
No Change in freight rates There was no change in the Container Corporation,
freight tariff as expected Gateway Distriparks

To add 1300 km (including 300 km In FY11 ~ 700 km of new L&T, IVRCL, Siemens,
spill over from FY11) of new lines in lines are being completed. Kalindee Rail
FY12. Also planned gauge Historical average is only
conversion of 1017 km in FY12 ~180 km which indicates a
notable improvement in
FY11

Source: Indian Railways, ICICIdirect.com Research

Wagon procurement

⇒ Record procurement of 16,500 wagons being done in 2010-11

⇒ Target for 2011-12 kept at 18,000 wagons
⇒ Setting up of two wagon factories under JV/PPP mode at Kolar and
Alappuzha and one at Buniadpur
⇒ Wagon factory in Orissa to be taken up, once land is identified

Exhibit 4: Wagon procurement plans announced over the years

20000 18000 18000 18000

18000 16500
16000
14000
12000 11000
10000
8000
6000
4000
2000
0
FY09 FY10 (RE) FY11(BE) FY11 (RE) FY12 (BE)

Source: Indian Railway, ICICIdirect.com Research

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Other Highlights

Exhibit 5: Key financials

(| Crore) FY11(BE) FY11(RE) FY12 (BE)
Ordinary working expenses 65000 67000 73650
% Growth 3.1 9.9
Depreciation Fund 7600 5700 7000
% Growth -25.0 22.8
Pension Fund 14500 14500 15800
Operating ratio is expected to decline from 92.1% in FY11 % Growth 0.0 9.0
(RE) to 91.1% in FY12 (BE) Total Working expenses 87100 87200 96450
% Growth 0.1 10.6
Operating Ratio (%) 92.3 92.1 91.1
Dividend Payment 6609 4917 6735
% Growth -25.6 37.0
Excess 3173 4105 5258
% Growth 29.4 28.1
Annual Plan Outlay 41426 40315 57630
% Growth -2.7 42.9
Source: Indian Railways, ICICIdirect.com Research

Highlights of Railway Budget 2011-12

Expansion of rail infrastructure
⇒ Total 700 km of new lines being completed in 2010-11
⇒ Total 800 km gauge conversion, 700 km doubling and 1,000 km
electrification targeted for completion in 2010-11
⇒ Survey of 94 out of 114 socially desirable new lines completed
⇒ A new scheme ‘Pradhan Mantri Rail Vikas Yojana’ to start to fund
socially desirable projects
⇒ Construction of four new lines to connect unserved and underserved
regions
⇒ Increase in allocation of 19 projects in underdeveloped and
underserved areas to | 771 crore
⇒ Non-lapsable fund for railway projects in the North East region
created
⇒ All state capitals in the North East except Sikkim to be connected in
the next seven years

Rail based industries

⇒ Setting up of rail-based industries for meeting the demand for rolling
stock
⇒ The works at New Jalpaiguri, Adra, Jellingham and Kulti taken up in
collaboration with different PSUs
⇒ First coach from the Raebareli coach factory to be rolled out in next
three months
⇒ Projects for supply of locomotives, coaches and critical loco
components being taken forward in many locations
⇒ Group of officers working on PPP/JV project models

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⇒ Railways is executing works either departmentally or through PPP/JV

at Budge Budge, Dankuni, Naopara, Anara, Tindharia, New Cooch
Behar, Kharagpur, Haldia, Guwahati and Kazipet
⇒ Wagon factory in Orissa to be taken up once land is identified
⇒ ICF Perambur’s second unit to come up
⇒ Setting up of the Palakkad coach factory
⇒ Burn Standard Company Limited and Braithwaite Company Limited
brought under Ministry of Railways
⇒ Setting up of a bridge factory in Jammu & Kashmir and an institute
for Tunnel & Bridge Engineering at Jammu
⇒ Setting up of a metro coach factory in Singur
⇒ Setting up of a diesel locomotive centre in Manipur
⇒ Setting up of a centre of excellence in software at Darjeeling
⇒ Setting up of two wagon factories under JV/PPP mode at Kolar and
Alappuzha and one at Buniadpur
⇒ Setting up of a factory for manufacturing on-track machines and a
new track machine POH facility at Uluberia
⇒ Setting up of rail industrial parks at Jellingham and New Bongaigaon
⇒ A unit to manufacture car steel bogies and couplers through JV
between Burn Standard Co. Ltd and SAIL has already been initiated
in Jellingham Park
⇒ Setting up of a 700 MW gas-based power plant at Thakurli in
Maharashtra

For public in general

⇒ Total 442 more stations upgraded as Adarsh Stations
⇒ Total 236 more stations included in the list of Adarsh Stations
⇒ More MFCs and budget hotels to be set up at 45 locations
⇒ Introduction of pan-India multi-purpose ‘Go India’ smart card
⇒ Two new passenger terminals in Kerala and one each in Uttar
Pradesh and West Bengal
⇒ Better accessibility for physically challenged customers
⇒ Rail Yatri Sevaks for six more stations
⇒ New portal for e-ticketing
⇒ Internet access on Howrah-Rajdhani Express on a pilot basis
⇒ Extension of train management system to five stations
⇒ Introduction of advance booking of retiring rooms
⇒ Introduction of new super AC class of travel
⇒ Feasibility study with the help of Japan to raise speed of passenger
trains to 160-200 kmph

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For employees
⇒ Expanding the scope of Liberalised Active Retirement Scheme for
Guaranteed Employment for safety category staff
⇒ Extending medical facilities to both dependent father and mother
⇒ Increasing the scholarship for girl child of group-D employees to |
1,200 per month
⇒ Setting up of Railway Vidyalaya Prabandhan Board
⇒ Provision of 20 road medical vans
⇒ Total 20 additional hostels for children of railway employees to be
set up

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RATING RATIONALE
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target price is defined as the analysts' valuation for a stock.

Strong Buy: 20% or more;

Buy: Between 10% and 20%;
Add: Up to 10%;
Reduce: Up to -10%
Sell: -10% or more;

Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com

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