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Texmaco Rail & Engineering Ltd

BSE: 533326 | NSE: TEXRAIL ISIN: INE621L01012
Market Cap: [Rs.Cr.] 2,614.25 Face Value: [Rs.] 1
Industry: Engineering

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Director's Report

Your Directors have pleasure in presenting the 4th Operational Annual Report of the Company along with the Audited Accounts of the Company for the year ended 31st March, 2014.

Financial Results

Rupees in Lakhs

2013-14 2012-13
Operating Profit (PBIDT) 3,517.23 14,813.99
Less: Interest (Net) 467.51 398.14
Gross Profit (PBDT) 3,049.72 14,415.85
Less: Depreciation 1,173.78 939.18
Profit before Taxation 1,875.94 13,476.67
Less: Provision for Taxation:
Current Tax 355.00 4,012.00
MAT Credit entitlement (355.00)
Deferred Tax Liability/(Asset) 174.57 37.76
Income Tax for earlier years 4.15
Profit after Taxation 1,697.22 9,426.91
Add: Balance brought forward from previous year 10,711.52 9,214.23
12,408.74 18,641.14
Proposed Dividend on Equity Shares (Incl.Tax) 532.41 2,129.62
General Reserve 500.00 5,800.00
Balance Carried Forward 12,408.74 10,711.52
12,408.74 18,641.14

During the year under review, the Company’s overall performance was substantially impacted due to unprecedented delay in release of wagon orders by Indian Railways for FY’14, and the Company suffered idle capacity for the entire year.

The Gross Turnover for the year stood at Rs. 5152 million, net of the value of free-supply inputs including steel and components of over Rs.160 million, provided to the Company by Indian Railways and other clients for some large value contracts.

The Gross Profit for the year (PBDT) and Profit Before Tax (PBT) were at Rs.305 million and Rs. 188 million respectively. The Net Profit was Rs.170 million, after providing net tax liability of Rs.18 million for the year in accordance with the Accounting Standards issued by the Institute of Chartered Accountants of India.


In view of lower profits, the Directors recommend payment of a dividend of 25% for the year ended 31st March, 2014.

The Management Discussion and Analysis

In keeping with the demand projections of Indian Railways to wheel the national economy, your Company has endeavored to stay a step ahead to maintain its leadership in being the largest supplier of freight cars to Indian Railways. Accordingly, the Company has built world-class infrastructure for its production capacity going upto 10,000 freight cars a year.

Unfortunately, however, the persistent problem (bte noire) of the Wagon Industry in India is erratic planning and placement of orders by the Railways, throwing the working of the Industry in disarray and saddling it with huge infructuous cost of idle capacity. Your Company has done its best in changing the gears in sync with Railway’s procurement programme.

During the immediate past year 2012-13, the Company had a robust order book, including the Railways’ order for 3915 wagons, which was the maximum quantity ordered by Indian Railways on any wagon builder. Besides, the Management was buoyed up with the Railways’ highest ever planned outlay of Rs.601 billion during 2012-13. The budgeted expenditure for procurement of rolling stock was about 32% more over the previous year, which was expected to result in procurement of larger number of wagons.

Unfortunately, there were increasing signs of economic slowdown as the nation entered 2013, and the year 2012-13, which was having record performance, suddenly suffered a setback towards the close owing to depleting orders, bringing the production to a virtual halt in the last quarter Jan-March 2013.

No wagon orders were released for FY’14. For the year under review it was an endless wait, and the orders were ultimately released only after expiry of the year in April 2014. The entire Industry has been plunged in a state of despair. In view of such vulnerability owing to excessive dependence on IR wagon orders, your Company has taken steps to diversify and expand its product portfolio in the Railway sector. The new Coach Shop set up at Sodepur is equipped to manufacture Electric and Diesel Multiple Units, as well as, Coaches for the Railways. Further, it has also taken up the production of Loco Shells and Loco Components. Besides, your Company has acquired Kalindee Rail Nirman (Engineers) Limited, a company which does EPC contracts for Railways and Metros. It specializes in track work, railway signaling, telecom and metro track work. Texmaco is thus poised to be the end-to-end solution provider for Railways and Metros.

The Hydro Mechanical Division is promising great prospects with the procurement activities being recommenced for the large Hydro Power Projects which were dormant for last few years.

Steel Foundry Division of the Company is facing challenges in the domestic market and rising up to the occasion has made effective penetration in the export markets for long term benefits.

In the aforesaid situation, the performance during FY’14, as detailed hereunder, has to be judged in proper perspective.

Heavy Engineering Division

Rolling Stock

The wagon orders for the year under review were placed by Indian Railways on the Industry as late as on 29th April, 2014, after expiry of the year. The redeeming feature, however, was that your Company received the highest order for 2400 wagons in the Industry.

The workload from Indian Railways available to the Company during the entire year 2013-14 was a meagre quantity of 161 wagons, (which was diverted to it by the Railway Board owing to the default of certain other wagon builders).

This was an unprecedented situation faced by the Company, rendering its massive capacity idle and thousands of workmen jobless. Numerous representations by the Company at all levels were of no avail, which was, indeed, inexplicable despite a budgetary approval of the Parliament for procurement of 11728 wagons (excluding PSUs and Railway Workshops), during FY’14.

Unfortunately, the demand from the private sector too was sluggish owing to general economic downturn. However, your Company managed its operations, albeit at a low level, by executing orders for 671 wagons, comprising of Special Purpose Commodity-specific Wagons for private customers and exports. The aggregate turnover in the Wagon Division was Rs.3326.68 million, made up of an all-time low 19% from IR orders, 57% non-IR and 24% exports.

The Company is continuing to engage in expanding the product-mix and has made a significant breakthrough in securing an order for 3 rakes of BCACBM wagons ( Car Carrying wagons ) from an esteemed Group, with prospect of substantial demand potential for transport of various models of passenger cars in India. An advanced model of the Bogie Double Deck Automobile Car Carrying Wagon (BDDAC) to a European design is also under prototype development for premium segment customers.

Besides, the Company is well-placed in respect of a large value Tender of the Ministry of Defence, Govt. of India, which is expected to be finalised shortly.

The Company has also been working on a new design Double Stack Container Flat Wagon (BFCTA/B) to Australian Design, which is under approval by RDSO for prototype manufacture, and it is expected to command a large market on successful trial.

The Company has intensified its efforts to explore further export opportunities, and is encouraged by the response of a number of high-powered delegations visiting its Works from various countries. They have been impressed with the Company’s excellent infrastructure and evinced keen interest in doing business with the Company.

EMU Coaches

Your Directors are pleased to report that the new State-of-the-Art Coach manufacturing facility at the Company’s Sodepur Works has been commissioned, and the prototype rake of EMU Coaches is in advanced stage of completion. The first unit of 3 coaches is already complete in all respects and is undergoing testing. The manufacture of the balance 2 units comprising of 6 coaches is also progressing, and the full rake is expected to be completed by August 2014. Under a Technical Assistance Agreement with M/s. Kawasaki Heavy Industries (KHI), Japan, the Company is receiving valuable support in the domain of manufacturing technology, processes and quality assurance.

Electric Locomotive Components / Assemblies

Your Company has diversified into manufacture of Electric Locomotive Shells and Sub-Assemblies, and secured orders for supply of Centre Sills, Head Stocks, Underframe Assemblies, and Complete Shell Assembly. It expects to further consolidate its position as a major supplier of Locomotive Assemblies and Sub-assemblies in the coming years.

KHI is a strong contender to secure the contract for Electric Locomotives for Dedicated Freight Corridor (DFC), and the experience gained in manufacture of electric locomotive assemblies will enable your Company to effectively partner with KHI in their indigenization efforts.

Joint Venture with UGL Rail Services Ltd., Australia

Texmaco UGL Rail Pvt. Ltd. executed its first prestigious order for 50 nos. Bogies, valued at Rs. 56.3 million for Kazakhstan Railways successfully at the start of its operations. The Company has received further orders for Bogies and Cabs, valued at Rs. 287 million, including a major order for 135 nos. Bogies from Queensland Railways, Australia, which is under execution. The JV has been certified by GE Transportation as a global sourcing vendor which is expected to bring in steady future business.

Meanwhile, with a view to expanding the domestic market base, the registration processes with various establishments of Indian Railways have been completed alongside ISO 9001:2008, 14001:2004 & BS OHSAS 18001:2007 accreditation.

The Company has recently participated in the International Railway Equipment Exhibition (IREE), and the hi-tech products displayed at the Company’s stall evinced a lot of interest in the Industry. It has been followed by developmental orders for LHB Bogies from Indian Railways and non rail products from the Wind Energy & Construction Equipment in the private sector. The prospects for FY’15 and onwards show promising growth in the Railways, Infrastructure and Process industries.

The long term fund requirement of the JV has been met from the issue of Cumulative Redeemable Preference Shares of Rs. 600 million in April 2014 in the ratio of 1:1 to both the parent companies.

Joint Venture with Touax Rail, France

The prospect of financing business is linked with macroeconomic scenario, which has unfortunately been rather depressing for the past couple of years, at home and also globally. This forced the companies in the core sector to either abandon or defer their capital expenditure plans for the time being. Hence, the leasing business did not take off, and the Management hopes for pick-up in activity in the coming years.

Strategic Investment in Kalindee Rail Nirman (Engineers) Limited

The Company identified an opportunity for making a strategic investment in Kalindee Rail Nirman (Engineers) Limited (Kalindee), engaged in the business of providing engineering & construction services to infrastructure sectors, especially in the field of Rail / Metro signalling, telecommunication, track and information system. Kalindee has considerable synergies with the business of your Company and would serve to substantially augment the overall working prospects of both the companies.

Accordingly, your Company as a strategic investor subscribed to the preferential allotment made by Kalindee for 41,10,400 Equity Shares (24.90%) on 13th July, 2013. To thwart the threat of an open offer launched by M/s. Jupiter Metal Pvt. Ltd. on 10th July, 2013 to take control of Kalindee in the guise of entry as a strategic investor, your Company entered into a Share Purchase Agreement (‘SPA’) on 20th July, 2013 with the promoters of Kalindee for acquiring their entire stake of 19,37,060 Equity Shares of Kalindee i.e. approx. 11.74% of the enhanced Paid up Share Capital of Kalindee. Having thus acquired the aforesaid 24.90%, and agreed to acquire 11.74% of the Promoter’s stake making a total of 36.64%, the acquisition / intent to acquire Equity Shares exceeded the trigger limit for an Open Offer under Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. Your Company, therefore, accordingly made an Open Offer to the Shareholders of Kalindee on 20th July, 2013 for 49,52,280 Equity Shares being 30% of the fully enhanced Equity Capital of Kalindee.

Your Company successfully completed the process of open offer on 3rd December, 2013. The public Shareholders tendered 12.42% of the Equity Shares in the Open Offer against 30% open offer proposed by the Company. Post allotment of shares under preferential issue, SPA with promoters and acquisition of shares under the open offer to the public, the Equity Share holding of your Company in Kalindee is now 49.07% including Equity Shares to be transferred under a SPA with erstwhile promoters.

After taking control of 49.07% equity, the Management of Kalindee was taken over by Texmaco as Promoter in December 2013. Immediately thereafter, with the induction of a strong team of highly qualified and experienced professional managers in Kalindee, there was a significant turnaround in Q4 of FY’14 after a rather dismal performance in the preceding 3 quarters ended December 2013.

The Management with an objective to harness the synergy of identical business portfolio between Texmaco and Kalindee, and convert the Company as a Total Rail Solution provider, has proposed to merge Kalindee into and with the Company as per the Scheme of Arrangement and subject to requisite approvals of Shareholders, SEBI, Stock Exchanges, Hon’ble High Courts at Calcutta and Delhi, etc. This will enable the Company to target large value contracts with the combined strength of Texmaco and Kalindee for various Rail Solution requirements of the Railways, Export and other Public & Private Sectors.

Hydro-mechanical Eqpt. and Steel Structures

The total income of the Division during the year was approx. Rs. 300 million, which was way below the target owing to setbacks in the execution of ongoing projects, especially due to political agitation in Assam. However, during the Q4 of the year, the social turbulence ebbed out which helped movement of WIP and finished inventory. There was substantial recovery of long outstanding dues. In the current year, the pace of job execution on certain major projects has picked up, and the Division is expected to fare better with comfortable work load of Rs.3450 million in hand.

The Division has forayed into refurbishment/replacement work opportunities in old Hydro Projects and Barrage Equipments after successful execution of rehabilitation work at Farakka Barrage and Rampur HEP of SJVNL. Enquiries from quite a few other projects for Equipment Health Study and Refurbishment have been responded, and positive outcome is expected.

Hopefully, the acknowledged business potential in Hydro-mechanical Equipment and Penstock Liner would start materialising in the current year. The Company is well-placed in large value tenders for World Bank funded prestigious projects, and is making further bid in major Hydro Projects after successfully meeting the PQ requirements.

Steel Foundry Division

After maintaining a steady run over the past six years, the Foundry’s performance suffered considerable setback during the year owing to non-release of orders by Indian Railways on the Wagon Industry. The production and despatch during the year were 8006 MT and 9947 MT, against 17856 MT and 15733 MT respectively in the corresponding year. However, in spite of the steep decline, the Company was able to retain a leading market share in the Industry of 25% in Bogies and 34% in Couplers with a turnover of Rs. 1400 million.

The Foundry’s export performance continued to be impressive, and the despatches were maintained at Rs.214 million, almost at the same level as that of previous year. The Foundry has developed new products, which will enhance the Division’s exports in the current year. The Division had a robust order-book of over Rs. 350 million at the close of the year.

Your Foundry has received the Conformity Certificate for specified Side Frames and Bolsters for Wagons from the designated Certification Authority for Railway Transport on the basis of Certification Protocol from Testing Centre, Ukraine Scientific and Research Institution on Wagon Production. The Company is now ready to export Railway Castings to these countries.

The major modernisation of the old Foundry with installation of the 2nd High Pressure Moulding Line from Kunkel Wagner, Germany, has been completed and it is ready for commissioning.


During the year, the Company executed export orders worth Rs.1295 million comprising of export of Meter Gauge Tank Wagons to Bangladesh & Africa, Hydro Mechanical Equipment to Nepal and Industrial & Railway Castings to Australia and North America. The Company is actively pursuing export of Wagon Components and Steel Castings to CIS countries and have obtained some of the critical certifications required for eligibility to export to CIS countries.

The present export order book of the Company stands at Rs.1301 million.

R & D Activities

The R&D activities of the Company are getting a new impetus by pooling of the Management expertise drawn from various Divisions and organizing a more frequent and closer interaction amongst the senior professionals at the macro level, thereby coming out of the narrow confines of their respective domains. The experience of cross-fertilization of ideas on a broader platform has been very rewarding, and R&D is happily progressing on the basis of a shared ownership. The whole team is geared led by an intrapreneur for a common objective viz. cost effectiveness and quality improvement to help export promotion and import substitution.

Some of the programmes undertaken by the Company during the year, which have met with appreciable success or are still under implementation, are enumerated below:

In Steel Foundry Division, the notable developments were: i. Bogie Castings for use in ultra-low temperature application, such as around - 40C. These castings successfully stood Variable Load Dynamic Fatigue Testing in a foreign lab, and have been approved for export.

ii. Slackless Draw Bar has been developed as an import substitute component for use in Container Carrying cars, and approved for use on Indian Rail network. iii. High Resistant Wear Components were developed for mining application and are being currently exported regularly to the advanced countries.

iv. The work is under way for achieving higher grain size

(5 to 7) in the Hadfield Castings to improve mechanical properties and secure higher service life. The effort so far has already met with partial success, and further R&D work is continuing.

The Rolling Stock Division has to its credit successful designing and development of the following Double Deck Wagons with high volumetric load carrying capacity : i. Double Deck Car Carrying Wagon with technical support from a renowned European company. The designs have been approved by RDSO, and the prototype is under development. ii. The Double Stack Bogie Container Wagon with technical support from UGL, Australia. The designs are pending final approval of RDSO for prototype development.

The Hydro-mechanical Division too has made its mark in successfully developing an economical design of Lining Application for Dam Radial Gate Weir Channels using high abrasion resistant materials with high surface hardness in substitution of abrasion resistant stainless steel. This will be used for carrying heavy silt laden water for a prestigious foreign Project. The above materials conform to ISO Specification and require very special welding techniques which have been developed and perfected in house.

IT Services

The IT Services Department has been engaged in progressive development of a responsive and efficient IT networking and application to meet the business requirement of different Divisions. All the Factory Establishments, Administrative Centers, and Corporate Office downtown, are integrated through VPN on-line redundant connectivity with increased bandwidth. After initial start with ERP system Oracle ‘11i’, there has been a migration to more advanced system Oracle R12 during FY’12, which has got stabilised in the Procurement, Stores and Finance functions. Various critical reports required by the respective functional Heads of Departments for MIS and Operational Control have been designed and deployed in the R12 system.

The phase-2 implementation for extension of R12 ERP system to the Manufacturing & Sales operations has been initiated during last quarter of FY’14 with the assistance of the Implementation Agency KPMG, and it is expected to be in effective use for optimised production planning and control by the 3rd quarter of FY’15.

Human Relations

The Company aims to align HR practices with business goals, motivate the team members for improved performance both in terms of quality and productivity and build a healthy competitive working environment.

Development of employees’ competency and their career planning continue to be HR’s core policy and thrust area.

Various programmes & workshops are being conducted which include Personality Grooming, Communication Skills, Health & Safety, House Keeping, Energy Management, Productivity Improvement, Total Quality Management and

5S Kaizen initiatives. These programmes are organized to bridging the skill gaps and increasing employee’s motivation and participation level. The Company imparts regular structured training & learning programmes at the entry and other levels to its workforce.

The Company continues to maintain cordial and harmonious industrial relations over the decades. The management enjoys full co-operation, understanding and trust of the workmen and their unions in implementing its growth-oriented programmes and promoting latest technology for achieving Cost effectiveness, On-time delivery & Quality.

Opportunity & Threats

The saying goes: "there is a silver lining in every cloud". The electioneering campaign and tempo during the general election of 2014 was phenomenal. It gave vent to the frustration and aspirations of the masses and a new band of youths, joining for the first time over 800 million voters, to elect the largest democracy in the world. We have now a strong and stable Government at the centre, which is expected to usher a new slew of reforms and policy decisions where the economics will not be overtaken by politics under compulsions of coalition.

The stalled projects, which have contributed to prolonged economic downturn, are likely to be kick-started with speedy clearances. Projects worth Rs.6.2 trillion were shelved last year due to bureaucratic gridlock, according to the Centre for Monitoring Indian Economy, a think-tank. This is the highest in the past 18 years.

The GDP which has been hovering around as low as 4.4 to 4.7% (except 5.2% in Q2 of FY’14) should hopefully resume its upward journey to a high of 9% over the next few years. The manufacturing sector, which contracted 0.7% in FY’14 compared with 1.1% growth in the previous year, will happily be the focus area for the new Government, as gathered from knowledgeable quarters. The whole nation is agog with expectation of a remarkable upside to growth with the new Government in power. The budget for the current fiscal year 2014-15 will flash the signals for which the whole world is waiting.

The Management has to rise to the occasion to seize the emerging opportunities and garner the resources to put the Company on a fast track.

The Company is in capital goods manufacturing sector which is highly susceptible and exposed to the vagaries of growth pattern of the country economy. The major chunk of its business is Indian Railways dependent and any indecisiveness in its policy implementation will have an adverse bearing on the fortunes of the Company.

Corporate Social Responsibility

Indian democracy, the largest in the world, has to contend with critical social concerns unknown to the Western affluent democracies. As a political creed, democracy is contentious and a complex institution. It speaks volumes for the fathers of the Indian Constitution that Indian democracy has taken firm roots in the nation’s social milieu. The free & fair conduct of the general elections involving 800 million electors has emerged as a model for the world.

In the success of Indian democracy as a great institution of the civilized order, we cannot, however, gloss over the serious economic imbalance in the society, which looms large as a threat to the stability of the system. The corporate India has a major role to play in this regard for upliftment of the deprived sections of the community. There is increasing recognition for ‘inclusive growth’ in welfare programmes, and for the first time the Corporate Social Responsibility (CSR) Obligations have been introduced under the Companies Act, 2013. The Act seeks to make CSR spending mandatory for companies as per the prescribed criteria.

The concept of corporate citizenship has already been gaining ground with concern and understanding to integrate social, environmental, ethical human rights into the business operations. The organisation is conscious and significantly contributing to the improvement of the quality of life of the community at large, as well as, the workforce and their families.

As highlighted in the previous Annual Reports, Texmaco Management has committed liberally to the development of social infrastructure with amenities which are the envy of most urban dwellers. The people in the neighbouring localities are partners in the Company’s progress and prosperity through job opportunities, training and special assistance for health and education. The Company has taken special initiatives to promote local talents in performing arts, especially in the field of music and dancing.

The Company has received ISO: 14001:2004 Certification, and is ardently striving to maintain green and pollution-free environment in and around the Works and the residential estate, going beyond the call of legal and regulatory requirements.

Corporate Governance

A separate report on Corporate Governance pursuant to Clause 49 of the Listing Agreement with the Stock Exchanges is attached as a separate Annexure and forms a part of this Report.

Directors’ Responsibility Statement u/s 217(2AA) of the Companies Act, 1956

Your Directors state:

(i) that in the preparation of the annual accounts, applicable accounting standards were followed, along with proper explanations relating to material departures, and the Notes in the Auditors’ Report in this regard are self-explanatory;

(ii) that such accounting policies were selected and applied consistently and judgements and estimates made that are reasonable and prudent, so as to give a true and fair view of the state of affairs of the Company at the end of the financial year, and of the profit of the Company for that period;

(iii) that proper and sufficient care was taken to maintain of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company, and for preventing and detecting fraud and other irregularities; (iv) that the annual accounts were prepared on a ‘going concern’ basis.

The SEBI’s guidelines regarding Corporate Governance have been implemented by the Company.

Green Initiatives

Your Company has started a sustainability initiative with the aim of going green and minimizing the impact on environment. Your Company has already started sending Annual Report, Notices etc. through e-mails to the Shareholders, whose e-mail IDs are registered with their Depository Participants. In case a Shareholder wishe

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Key Information

Key Executives:

S K Poddar , Executive Chairman

A C Chakrabortti , Director

Ramesh Maheshwari , Executive Vice Chairman

D H Kela , Executive Director

Company Head Office / Quarters:

West Bengal-700056
Phone : West Bengal-91-33-25691500 / West Bengal-
Fax : West Bengal-91-33-25412448 / West Bengal-
E-mail : ak.vijay@texmaco.in
Web : http://www.texmaco.in


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