Titagarh Wagons

 

At Current Price Of Rs 374, Co Trades At 10.8 Times Its Trailing 4-Quarter Earnings

 

THE scrip of Titagarh Wagons fell by nearly 1% in a buoyant broader market on Monday, following its announcement of an overseas acquisition. Titagarh Wagons, which is a leading player for the supply of wagons to the Indian Railways, has acquired the assets and the business of Arbel Fauvet Rail, a French rail wagon maker.

   Though financial details of this transaction are not available, Titagarh's senior management has indicated that it would pay nearly € 1.9 million (nearly Rs 12 crore) towards the acquisition.

   To begin with, Titagarh has chalked out plans to beef up the working capital of Arbel Fauvet. The French company is reeling under financial difficulties and reviving its operations will be the immediate need. Though details are not available, Titagarh may have to spend over € 15 million (approximately Rs 90 crore) over the next few years, according to experts.

   Titagarh had a cash and bank balance of Rs 98 crore at the end of March '09. Its debt was negligible compared to its equity (debt: equity ratio of 0:1), which leaves enough room for the company to raise further capital through debt. Hence, financing the latest acquisition should not be a problem. The acquisition would give Titagarh an access to additional capacity to manufacture up to 5,000 wagons per year in the European market.

   The company had supplied 3,685 wagons during the financial year ended March '09 in the domestic market. It would also get the technology related to the production of wagons used for transporting oil and cars, which is not easily available in India.

   Over the past two months, the Titagarh stock has outperformed the benchmark indices. It gained 20% during the period while the Sensex rose by 4.6%. The company's stock market performance reflects positive investor sentiment that follows the proposal in the current fiscal's Railway Budget to procure 18,000 new wagons.

   Titagarh Wagons trades at nearly 10.8 times its trailing four-quarter earnings (excluding the acquisition), while its bigger peer Texmaco trades at a P/E of 18. Titagarh's latest acquisition is expected to bring positive results only in the long term. And hence, its current valuations are unlikely to change in near future.