Titagarh Rail Systems Ltd Management Discussions

(a) Overall Review

The overall performance of the Company during the financial year 2020-21 is considered to be reasonably satisfactory

(b) Segment Review

The completion of merger of Cimmco Limited (Cimmco) and Titagarh Capital Private Limited with the Company has resulted in substantial benefits viz. consolidation of the different products in line with the plant capacities and bringing in efficiency resulting in creating the plant as a centre of excellence for that particular product, realigning the Company in distinct business segments i.e. Freight Rolling Stock, Passenger Rolling Stock and Others.

During the year, the Directors have identified the following reportable segments:-

a) Freight Rolling Stock - Consists of manufacturing of Wagons, Loco Shells, Bogies, Couplers and its components.

b) Passenger Rolling Stock - Consists of designing and manufacturing of Metro, Passenger Coaches, EMUs, Train Sets, Mono Rail, Propulsion equipment, Traction Motors and its components.

c) Others - Consisting of Shipbuilding which includes Designing and Construction of Warships, Passenger Vessels, Tug and other specialised self - propelled vessels and its components; and miscellaneous items like specialised equipments for Defence, Bridge Girders, Tractors etc which comprises of less than 10% revenue on individual basis.

The segment wise performance is given herein below:

						Rs. Lakhs
	Standalone			Consolidated
Particulars	2020-21	2019-20	Change %	2020-21	2019-20	Change %
Segment Revenue (Gross)
Freight Rolling Stock	96374.15	143037.10	(32.62)%	96374.16	143037.10	(32.62)%
Passenger Rolling Stock	4752.34	751.99	531.97%	54107.07	28962.93	86.81%
Others	1452.01	4632.40	(68.66)%	1582.72	4632.40	(65.83)%
Total	102578.50	148421.49	(30.89)%	152063.95	176632.43	(13.91)%
Segment Results
Freight Rolling Stock	12377.74	13464.54	(8.07)%	12377.74	13968.48	(11.39)%
Passenger Rolling Stock	(496.89)	-	(100.00)%	(4282.63)	64.50	(6739.47)%
Others	(345.70)	664.03	(152.06)%	(407.16)	664.03	(161.32)%
Total	11535.15	14128.57	(18.36)%	7687.95	14697.01	(47.69)%
Total Profit/(Loss) before tax from continuing operations	6448.67	(9849.84)	165.47%	(557.70)	3745.79	(114.89)%
Profit/(Loss) after Tax from discontinued operations					(9410.55)	100%
Total Profit/ (Loss) after tax	5027.56	(7992.49)	162.90%	(1878.65)	(3614.21)	48.02%

During the year under review, the freight rolling stock business of the Company was impacted due to the COVID-19 pandemic, however the performance has been quite stable. The Company received a major order from Indian Railways in September 2020 for 1800 wagons worth Rs. 500 crore. Post the merger of Cimmco with the Company, the capabilities for the manufacture of wagons at the Companys plant in Titagarh, West Bengal, have been enhanced and steps are being taken to make it the center of excellence for the wagons production.

Under the Passenger Rolling Stock segment of the Company, the execution of Pune Metro is a very important milestone for the Company. The Company along with its subsidiary: TFA, had signed the first contract for design, manufacture and supply of 34 trains of 3 coaches each for Pune Metro (Maharashtra Metro Rail Corporation Limited). Under this contract, the first 3 trains are to be built in TFAs plant in Caserta, Italy and the balance 31 trains will be manufactured in the Companys plant in India. The first train manufactured for Pune Metro was flagged off from Italy on 30^th July, 2021. The Company has already upgraded its plant at Uttarpara, West Bengal, by the middle of April, 2021, from where the first train from India is expected to be rolled out within this financial year. The Company is planning to bid for upcoming metro projects in Tier II cities based on its award of Pune Metro order.

"Make in India" initiative coupled with launch of Dedicated Freight Corridor (DFC), metro projects across all major Indian cities are expected to boost wagon and electrical train manufacturing industry in the country. The Company believes that going forward in the coming year and the year after, the DFC wagons should definitely contribute to revenues.

The collaboration of the Company with ABB India Limited (ABB) is for the growing business of propulsion equipment (traction converters) for the Indian railway EMU/MEMU market and trade propulsion. According to the agreement, Titagarh and ABB will work together to design, develop and manufacture state of the art 3 phase IGBT based propulsion systems for EMU/MEMU which would be manufactured in Titagarhs plant at Uttarpara, West Bengal, with certain components being supplied by ABB. So, apart from having a good market potential for the propulsion business, the same is also very strategic for train production business.

The Company has also participated in several shipbuilding tenders wherein it is very well placed. While the previous orders were executed, the new orders are expected to come to the Companys way and the same shall be reported in near future as soon as they materialize.

The Company has also been awarded a contract worth about Rs. 30 crore in the Defence sector, for which the production is being carried out at Bharatpur, Rajasthan. The Company is also participating in larger tenders for similar or equivalent type of defense equipments.

(c) Overseas Operating Subsidiary: Titagarh Firema SpA, Italy (TFA)

The Financial year 2020-21 was certainly one of the most complex since TFAs incorporation. The pandemic that began last February has severely affected its performance, resulting in periods of total suspension of production activities and other slowdowns with the use of double shifts at production sites. Such a situation has significantly affected TFAs production levels and overall efficiency. At the same time, TFA had equipped itself with a set of indirect structures that enabled the company to regain full control of the various phases that make up the cycle of its activity. On the market side, the pandemic has led to slowdowns in tendering and contracting processes, or even in the awarding of additional contracts as envisaged in the context of framework contracts already awarded.

During the past financial year, TFA has seen substantial changes to its organisational structure with the induction of new management team from similar industry experience with the objective of reshaping the entire value chain aimed at re-launching the operations towards greater development and growth.

Economic performance was affected by the effects of Covid-19. Due to the measures adopted by the Government, TFA had been forced to close its production facilities, with a corresponding reduction in direct production hours from 16 March to 20 April 2020. This situation led to a postponement of activities and caused delay in the delivery of some products, which remained on the production lines. TFA has initiated all the necessary procedures required by the extraordinary provisions adopted by the Government. The situation triggered by Covid-19 did not lead to any cancellation or reduction of orders, so TFA only experienced a shift in business.

TFA has drawn up a detailed strategic plan that takes into account the effects of the pandemic on the market, while confirming the growth trend expected over the next five years. The growth factor, although impacted by the situation described above, already showed its effects in 2021 with a significant increase in turnover. The year ended had to contend with the negative effects deriving from a number of orders, which are however destined for definitive completion in the current year.

Significant improvements are foreseen during the current financial year in terms of both profitability and turnover compared to the previous year, owing to the start of production on new orders and a general increase in productivity, which is evident from the analysis of hourly costs, which have already benefited from the review of certain business processes and the policies for revising operating costs as a whole.

The situation described above is accompanied by an order backlog that places TFA, for the financial year 2022, in a situation of substantial overall coverage of the revenue forecasts assumed. The total value of the order backlog is €307 million.

The main activities which took place during the year under review were:

• the technical consolidation of the TFA order with a consequent increase in reliability parameters and a declared appreciation by the customer Trenitalia;

• the launch of the Catania Metro order (54 trains for the Circumetnea railway), the design phase of which is at an advanced stage and production has started on schedule.

• From August 2020, following the award of the Indian contract for the construction of the Metro Coaches for Pune, production of the first three complete trains and the flatpacks for further trains is underway

• deliveries of the "T21" order have restarted and delivery times have improved thanks to the approval to put trains into service;

• an important milestone was the resumption of collaborations with major international players.

The significant increase in revenues compared to the previous year, of approximately €30 million, is mainly due to the start of production on the new contracts acquired: FCE - Catania Metro, SEPSA (Ente Autonomo del Volturno), PUNE (Pune City Metro) and TAF (Ferrovie Nord Milano) for the revamping of 25 trains.

However, as mentioned above, the 2021 result was mainly impacted due to the Covid 19 pandemic and the loss arising out of the legacy contracts which would be executed in FY 21-22.

(d) Operating subsidiary in India: Titagarh Bridges and International Private Limited (TBIPL)

TBIPL was originally formed as a Joint Venture Company (JVC) pursuant to joint venture agreement between Matiere SAS, France (Matiere) and Titagarh Wagons Limited (TWL), where each was holding 50% of its paid-up capital. Pursuant to discussions between the joint venture partners covering strategic aspects of business etc., TWL acquired the shares held by Matiere, representing 50% of the paid-up share capital of TBIPL. As a result of the above, the shareholding of TWL in TBIPL changed from 50% to 100% (holding 15,09,764 equity shares of Rs. 10/- each) and thus TBIPL became a wholly-owned subsidiary of TWL w.e.f. 14^th July, 2020. The name of the Company was changed from Matiere Titagarh Bridges Private Limited to Titagarh Bridges and International Private Limited w.e.f. 21^st October, 2020.

During the year under review, TBIPL incurred a loss of Rs. 63.91 lakhs as compared to the loss of Rs. 19.36 lakhs in the financial year ended 31^st March, 2020, mainly due to increase in expenses during the year relating to finance costs.

(e) Order Book position

The total order book of Company on a consolidated basis stands at Rs. 5,601 crore at the end of March, 2021, which is one of the highest order book levels the Company ever had. It is well diversified across Indian and Italian business operations (Italy business constitutes 47% to the total order book) and going forward the revenue mix of the Company will undergo a substantial change with business other than Wagons contributing substantially to the top line. More than 50% of Indian order book is from the non-wagon division which will reduce dependency on the wagon business.

(f) Industry overview of Business Segments

Freight Rolling Stock

Indian Railways is the worlds 3rd largest rail network registered double-digit growth in freight traffic amid the COVID-19 pandemic and recorded a 10 per cent increase in freight loading in financial year 2020-21, compared to the previous fiscal 2019-20. The national transporters total freight loading was 203.88 million tonnes in fiscal 2020-21, compared to 184.88 million tonnes in the financial year 2019-20, marking a 10 per cent year-on-year growth.

Private sector companies are being encouraged to participate in rail projects, which were earlier largely in the public domain. The cabinet approved participative models for rail-connectivity and capacity augmented projects, which allows private ownership of some railway lines.

PPP is being utilised in areas such as redevelopment of stations, building private freight terminals and private container train operations. With 100 per cent FDI allowed in the railway sector by the Government, freight traffic is set to increase significantly due to rising investment and private sector participation. Metro rail projects are being envisaged across many cities over the next ten years with also announcement of two new technologies - metro lite and metro neo - to provide metro services at much less cost with same experience, convenience in tier II and tier III cities.

Growing industrialisation across the country has increased freight traffic in the last decade. India is projected to account for 40 per cent of the total global share of rail activity by 2050.

Outlook

Indian Railways have prepared a National Rail Plan for India 2030. The plan is to create a future ready railway system by 2030 bringing down the logistic cost for industry is at the core of the strategy to enable the country to integrate its rail network with other modes of transport and develop a multi-modal transportation network.

Freight remains the major revenue earning segment for Railways, in 2021-22 Railway expects to earn 63% of the total revenue through the same. Indian Railways is targeting to increase its freight traffic to 3.3 billion tonnes by 2030 from 1.1 billion tonnes in 2017. Indian Railways plans to achieve 2,024 MT (metric tonne) loading in 2024 from the current 1,200-1,300 MT. It is projected that freight traffic via the Dedicated Freight Corridors will increase at a CAGR of 5.4% to 182 MT in 2021-22.

Passenger Rolling Stock

Metro trains are rail-based mass rapid transit systems that operate on a privileged right-of-way - either underground or elevated over street level, separated from all other modes of transport in an urban area. There are currently 13 operational metro systems in India with a total of 678.52 kilometres of operational metro lines and 540 stations. A further 550+ km of lines are under construction.

As per the latest National Urban Transport Policy, metro rail system is to be constructed in every city with a population of 20 lakh or more with Union Government providing financial assistance either directly or through multilateral funding agencies or through a combination of both. The number of metros expected to come up in India is about 50. Since the cost of a heavy metro is very high, various cities have been asked to explore options light metro, tram and monorail.

Metro rail system enables large-scale, rapid and low-cost movement of people while causing very little pollution as compared to conventional modes of transport for thickly populated areas where traffic is a major challenge.

However, making available the land for laying tracks, very large project expenditure, infrastructural issues are some of the major threats in Metro segment. The technologies used in various types of metros in terms of system voltages, axle loads etc are also a challenge which need to be decided based on the ridership, city layout and other related parameters.

Outlook

Given rising urbanisation and increasing population levels in India, implementation of metro rail systems will become imperative as mass rapid transit systems are the best way to decongest traffic. National Urban Transport Policy also ensures that metros in some form or the other come up in cities thereby ensuring a steady requirement of metro rolling stock for the future.

Shipbuilding

Presently, the Indian shipping industry is reviving from the impact of the COVID 19 pandemic. One such important step is the Merchant Shipping Bill, 2020 that has been promulgated, with the primary aim of promoting the growth of the Indian shipping industry by incorporating the best practices adopted by other advanced countries like the U.S., Japan, U.K., Singapore, and Australia. Also, Neptune Declaration initiated at a global level in order to streamline and categorize seafarers as "frontline workers" to ensure their well-being.

In Union Budget 2020-21, the total allocation for the Ministry of Shipping was Rs. 1,702.35 crore (US$ 233.48 million). The key ports are expected to deliver seven projects worth more than Rs. 2,000 crore (US$ 274.31 million) on a public- private partnership basis in FY22. Over the last few years, to make the Indian maritime sector "atmanirbhar", there have been concerted attempts by our Government to shift gears with respect to development of ports and expansion of shipping connectivity to our hinterlands in achieving the 5 trillion economy mark.

Outlook

Increasing investment and cargo traffic point towards a healthy outlook for the Indian ports sector. In Maritime India Summit 2021, the Ministry of Ports, Shipping and Waterways identified a total of 400 projects worth Rs. 2.25 lakh crore (US$ 31 billion) investment potential.

(g) Discussion on Financial Performance with respect to Operational Performance

During the year under review, the Company took various operational measures viz. consolidation of the different products in line with the plant capacities which resulted in improved efficiency by turning the plant into a centre of excellence for the particular product thereby re-aligning the Companys business into distinct parts viz. "Freight Rolling Stock", "Passenger Rolling Stock" and "Others". Continuing focus of the management is consistently on undertaking cost rationalization, better manufacturing processes, improved productivity and optimization of resource for improvement in performance aimed at achieving results better than the trend witnessed in the industries in which the Company operates. Viewed in this backdrop, the Companys performance for the year under review is considered to be in line with the circumstances prevailing.

(h) Overall outlook for the current year

In addition to the healthy order book as on date, the Companys focussed approach on fixed cost reduction in terms of consolidating the common functions and reducing duplication of manpower, consolidating its prominent position in the Rolling Stock business coupled with the access to strong technology for Metro Coaches through its subsidiary in Italy and diversified product portfolio, strategy of adopting innovative ways to cater to its customers and preparedness to seize opportunity in products/projects for Metro and defence establishment of India make the outlook for the current year encouraging.

(i) Key Financial Ratios

As stipulated in the Regulation 34(3) of SEBI (LODR) Regulations, 2015, as amended, the Company reports as follows:

(a) Details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios or sector specific ratios, along with detailed explanations therefor:

Sl.	Key Financial Ratios	2020-21	2019-20	Difference (%)
1	Debtors Turnover Ratio (%)	13%	11%	15.52%
2	Inventory Turnover Ratio (%)	19%	14%	38.48%
3	Interest Coverage Ratio (times)	2.18	1.98	9.96%
4	Current Ratio (times)	2.35	2.01	16.75%
5	Debt Equity Ratio	0.12	0.26	(54.55)%
6	Operating Profit Margin (%)	11.63%	8.68%	33.97%
7	Net Profit Margin (%)	6.29%	(6.64)%	194.68%

Notes on significant changes in financial ratios where change is > 25%:

• Inventory Turnover Ratio: It has increased due to procurement made for new contracts for which revenue booking is yet to start.

• Debt Equity Ratio: It has improved due to better operating margin and cash generated from operation being used to repay/prepay the debt.

• Operating Profit Margin: It has improved due to increase in sales and better profit margins on new contracts.

• Net Profit Margin: It has improved due to increase in sales and better profit margins on new contracts.

(b) Details of any change in Return on Net Worth as compared to the immediately previous financial year along with a detailed explanation thereof:

Key Financial Ratios	2020-21	2019-20	Difference (%)
Return on Net Worth (%)
- Before considering exceptional item	5.80%	9.96%	8.00%
- After considering exceptional item	6.30%	(9.79)%	(6.17%)

Notes on significant changes in financial ratios where change is > 25%: Not Applicable.