Wednesday, July 4, 2012

>RAILWAYS: Dedicated Freight Corridor (DFC) project is being implemented

The Dedicated Freight Corridor (DFC) project is being implemented to speed up rail freight movement via two corridors—Delhi-Mumbai and Delhi-Kolkata—of over 3,322 kms at a cost of over INR800bn-1,000bn over the next five years. Similarly, Delhi Metro, having completed phase I and II, is now targeting completing Phase III by 2016 at a cost of INR352bn. Ergo, we expect these two large projects to generate construction contracts worth INR681bn and systems contracts worth INR350bn. Rolling stock contracts is the additional opportunity for both projects.

DFC: Likely to generate orders worth INR523bn over FY13-14
DFC, one of the biggest infrastructure projects, proposes to construct two dedicated freight corridors on the Eastern corridor from Ludhiana to Dankuni via Mughalsarai of 1,839 km and on Western corridor from Dadri to JNPT of 1,534 km. Indian Railways is looking at running heavier (higher axle load), speedier (100 kmph) and longer freight trains to maximise utilisation of existing track capacity. The project cost is expected to top ~INR800bn-1,000bn when completed, spread equally between Eastern DFC and Western DFC. We expect awarding of construction contracts to start shortly and system contracts with a lag of 12-18 months. During FY13-14, we expect DFC to dole out contracts worth INR523bn.

DMRC: Order awards worth INR200bn likely in 12-18 months
Delhi Metro (Phase III) is clearly in an overdrive mode having already placed orders worth INR81bn for civil construction. We expect balance civil construction contracts worth INR94bn to be awarded over the next 12 months. Further, given the usual lag of six-nine months for placing orders for systems, we understand that all systems (electrical and signalling) contracts are expected to be placed by Q1FY14. Tenders for electrical worth INR16bn are already out for phase III. Orders for rolling stock (30% of total capex) are expected to be finalised over the next 12 months given the tender document (for 486 rolling stocks) is already out. We expect over INR200bn worth contracts to be awarded over the next 12-18 months for Delhi Metro’s Phase III.

Outlook: Leg up for construction and systems companies
With strong order flow expected from both DFC and Delhi Metro over the next few years, we believe these two large railway / infrastructure projects are likely to present significant opportunities for construction companies, systems (electrical and signalling) companies and rolling stock / locomotive companies. We expect total awards of INR681bn and INR350bn for construction contracts and systems contracts, respectively, for these large infrastructure projects. Rolling stock contract for Delhi Metro is expected at INR106bn while that for DFC will be over and above the INR800bn-1,000bn expected to be spent on the project. We believe likely beneficiaries could included L&T (BUY/SO), NCC (BUY/SO) and IVRCL (HOLD/SP) on the construction side and Siemens (BUY/SO), ABB (REDUCE/SU), Alstom T&D (Not Rated) and Alstom India (Not Rated) for the Systems contracts.

To read report in detail: DFC