Railway Budget 2013-14 | Economy

February 26, 2013

Railway Budget 2013-14

No passenger fare hikes; freight tariff likely to increase by about 5%
The Railway Budget 2013-14 has focused on fiscal discipline with no major capex related increases. Passenger fares have not been hiked in the budget as increase in this segment has been effected just recently (in January 2013), which is to garner `6,600cr for the railways in FY2014. Freight tariffs have been effectively hiked in the Budget by about 5.0% to adjust for the rise in fuel cost. The fuel bill is estimated to increase by `5,100cr in FY2014 due to upward revision in HSD oil prices and electricity tariffs. The Railway Minister has proposed to segregate the fuel component in tariffs such that the fuel adjustment component (FAC) adjusts to changes in fuel costs, and has proposed to implement this revision in freight tariff from April 1, 2013. Since the FAC is applicable only on freight rates and no additional hike in passenger fares has been proposed, the railways would absorb the impact of the expected burden of `850cr, on this account. Moreover, the railways have proposed increase in supplementary charges for super fast trains, reservation fees, clerkage charges, cancellation charges and tatkal charges. However the enhanced reservation fee has been abolished to simplify the fee structure.

Bhupali Gursale
022-3935 7800 Ext: 6820 bhupali.gursale@angelbroking.com

Key targets and achievements

Losses on passenger train operations increased to `24,600cr as compared to `22,500 in the previous year. The target of 700km of new lines in FY2013 has been scaled down drastically to 470km owing to inadequate resources. In FY2014 the railways is targeting 500km of new lines. This is lower than the 709km and 727km of new lines in FY2011 and FY2012 respectively. As far as the dedicated freight corridor is concerned, land acquisition for about 2,800km of the eastern and western freight corridors is almost complete and 343km section of the eastern corridor has already been awarded. The railways expects construction on the two corridors to start and cover upto 1,500km by the end of 2013-14. Through partnership projects with ports, large mines, industry etc, the railways expects an investment of `9,000cr, including `3,800cr for port connectivity projects, `4,000cr for coal mine connectivity and `800cr for iron ore mines connectivity improvements.

Exhibit 1: Key targets set for FY2014 (` in cr)

Change (%, yoy) FY13BE Freight earning target Passenger earning target Plan investment Operating Ratio (%) 89,339 36,073 60,100 84.90 FY13RE 85976 32,500 52,265 88.80 FY14BE 93,554 42,210 63,363 87.80 FY14BE/FY13RE 8.8 29.9 21.2 FY13RE/FY13BE (3.8) (9.9) (13.0)

Source: Ministry of Railways, Angel Research

The operating ratio is slated to be brought down to 87.8% in FY2014 from the revised estimate of 88.8% in FY2013. The deceleration in the operating ratio from the 95.0% level in FY2012 suggests an improvement in the financial health of the railways.
Please refer to important disclosures at the end of this report

Railway Budget 2013-14

Budget Estimates
Exhibit 2: Budget estimates for FY2014 (` in cr)
Change (%, yoy) FY12 Passenger Earnings Goods Earnings Others Gross Traffic Receipts Misc. Total receipts Ordinary working expenses Depreciation Reserve Fund Pension Fund Others Total expenditure Excess of revenue over expenditure
Source: Ministry of Railways, Angel Research

FY13BE 36,073 89,339 7,140 132,552 3,142 135,694 84,400 9,500 18,500 7,737 120,137 15,557

FY13RE 32,500 85,956 7,224 125,680 2,522 128,202 84,400 7,000 20,000 6,393 117,793 10,409

FY14BE 42,210 93,554 7,978 143,742 2,884 146,626 96,500 7,500 22,000 7,479 133,479 13,147

FY13RE/FY12 15.1 23.6 14.4 20.7 18.1 20.7 13.2 7.4 13.6 (0.9) 12.1 824.8

FY14BE/FY13RE 29.9 8.8 10.4 14.4 14.3 14.4 14.3 7.1 10.0 17.0 13.3 26.3

FY13RE/FY13BE (9.9) (3.8) 1.2 (5.2) (19.7) (5.5) (26.3) 8.1 (17.4) (2.0) (33.1)

28,246 69,548 6,316 104,110 2,135 106,245 74,537 6,520 17,610 6,452 105,120 1,126

Passenger segment earnings are budgeted to increase robustly by 29.9% in FY2014 over the previous years estimates while earnings from freight are budgeted to increase by a more modest 8.8% during FY2014. We believe that the FY2014 budgeted estimates of passenger segment earnings are optimistic, particularly as even the revised estimate for FY2013 indicates a decline of almost 10.0% over the budgeted estimate in that period. It is thus likely overstating the gross traffic receipts (FY2014 BE of `143,742cr) to an extent.

Plan investment Ambitious targets

Exhibit 3: Plan investment outlay (` in cr)
FY2014BE Gross budgetary support Internal resources Market borrowings PPP Road Safety Fund Total plan investment
Source: Ministry of Railways, Angel Research

12th Plan 194,000 105,000 120,000 100,000 519,000

26,000 14,260 15,103 6,000 2,000 63,363

For FY2014, the highest ever plan outlay of `63,363cr has been budgeted and it is likely to be financed mainly through gross budgetary support of `26,000cr. For the 12th Plan outlay (estimated at `5.19lakh cr), the target for internal resources and public private partnerships (PPP) appears ambitious. In the first year of the Plan period, the railways has allocated merely `10,000cr of its internal resources and the remaining `95,000cr are expected to be allocated in the next four years. In addition, the Railway Minister has himself contended that PPPs are a challenging area for the railways and thus far limited success has been achieved through this route. Despite the same, `1.0lakh cr is expected from PPP in the Plan period.
February 26, 2013

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Railway Budget 2013-14

Conclusion
Overall, we believe that the present budget is decent and on the right track since it emphasizes financial sustainability. This is also a positive signal from the government regarding its focus on fiscal discipline in the run up to the Union Budget. For the railways, the proposal for setting up of Railway Tariff Regulatory Authority, still at inter-ministerial consultation stage, is a positive and we believe its implementation would depoliticize railway tariff.

February 26, 2013

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Railway Budget 2013-14

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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February 26, 2013

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Railway Budget 2013-14

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Research Team Fundamental: Sarabjit Kour Nangra Vaibhav Agrawal Bhavesh Chauhan Viral Shah Sharan Lillaney V Srinivasan Yaresh Kothari Ankita Somani Sourabh Taparia Bhupali Gursale Vinay Rachh Amit Patil Shareen Batatawala Twinkle Gosar Tejashwini Kumari Technicals: Shardul Kulkarni Sameet Chavan Sacchitanand Uttekar Derivatives: Siddarth Bhamre Institutional Sales Team: Mayuresh Joshi Hiten Sampat Meenakshi Chavan Gaurang Tisani Akshay Shah Production Team: Tejas Vahalia Dilip Patel Research Editor Production tejas.vahalia@angelbroking.com dilipm.patel@angelbroking.com VP - Institutional Sales Sr. A.V.P- Institution sales Dealer Dealer Sr. Executive mayuresh.joshi@angelbroking.com hiten.sampat@angelbroking.com meenakshis.chavan@angelbroking.com gaurangp.tisani@angelbroking.com akshayr.shah@angelbroking.com Head - Derivatives siddarth.bhamre@angelbroking.com Sr. Technical Analyst Technical Analyst Technical Analyst shardul.kulkarni@angelbroking.com sameet.chavan@angelbroking.com sacchitanand.uttekar@angelbroking.com VP-Research, Pharmaceutical VP-Research, Banking Sr. Analyst (Metals & Mining) Sr. Analyst (Infrastructure) Analyst (Mid-cap) Analyst (Cement, FMCG) Analyst (Automobile) Analyst (IT, Telecom) Analyst (Banking) Economist Research Associate Research Associate Research Associate Research Associate Research Associate sarabjit@angelbroking.com vaibhav.agrawal@angelbroking.com bhaveshu.chauhan@angelbroking.com viralk.shah@angelbroking.com sharanb.lillaney@angelbroking.com v.srinivasan@angelbroking.com yareshb.kothari@angelbroking.com ankita.somani@angelbroking.com sourabh.taparia@angelbroking.com bhupali.gursale@angelbroking.com vinay.rachh@angelbroking.com amit.patil@angelbroking.com shareen.batatawala@angelbroking.com gosar.twinkle@angelbroking.com tejashwini.kumari@angelbroking.com

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February 26, 2013

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