Govt.needs to strengthen Railway finances

Govt needs to strengthen Indian Railways’ finances: Kernex

The new government needs to work upon the Indian railways very seriously as it is literally in a hand-to-mouth situation, says Colonel LV Raju, Managing Director, Kernex Microsystems . Kernex is engaged in the business of manufacturing, installing and maintaining of anti-collision systems as well as conceptualizing, designing, and developing certain railway safety and signal systems for Konkan Railways Corporation Ltd.

Raju says the railways needs a stable government to create better infra in the country and also to attract foreign direct investment (FDI) in the sector.

“Infra has to cope up with the economic growth. The new government has to concentrate on building a good road, rail network,” adds Raju. Raju further explains that capital needs to infused in railways by hiking rates, attracting FDI or by borrowing from the market.“Building a robust finance reserve is a must,” he adds. On the road ahead, Raju expects FY15 to be better for the company than the year gone by. Below is the verbatim transcript of the interview.

Q: Do you think a new decisive government can meaningfully change things on the ground and are you hopeful that something like that will happen over the next two-three years?

A: As far as Indian railways are concerned, it is a big network and one of the biggest in the world and we require a very stable government to create the infrastructure. We must be able to support the economic growth in the country in the form of rail network, broad network and ports and harbours. So, the infrastructure has to cope up with the expected economic growth. Therefore, with the new government coming in, they have to focus on railways. Railways is the biggest carrier of goods and passengers and therefore they have to concentrate on that. The economy basically depends on the movement of goods. Therefore, the government has to concentrate on good road networks and good railway network and ports and harbour. It is a big necessity for a new government, if they want good growth, they have to concentrate on Indian railways.

Q: While that point is taken, once there is a new government that comes on board, what is the first-to-do-list according to you that they should implement for railways?

A: Firstly, the railways have to stabilise their finances. Today the railways are literally hand-to-mouth. They have to build reserve finances through increasing the fares or borrowing from the market or from the foreign direct investment (FDI). In case they don’t have any funds, it will only be a hollow dream that we can create infrastructure. First thing is that they have to plan on the funds capital required to create that. Coming to the other micro infrastructure, we have dedicative freight corridors but they are behind schedule. We need to create bullet trains, intercity expresses. There are a lot of things to plan, especially replacement of tracks and the replacement of rolling stock, a lot of issues are there. For all this capital is required. They have to work on this.

Q: I was looking at your numbers last quarter, you had a good growth in your topline but there was very big pressure on the margins and the net profits slipped into a bit of a loss compared to profit, do you think that kind of trend is likely to continue?

A: We expect next year to do better because we have two projects in offing. We have the Egyptian railways abroad and in Indian railways, we have a couple of projects rolling out so we definitely expect to do very well in 2014-2015.

Q: You did speak about FDI being one important factor in railways. If in case a stable government does implement certain important key points which are required for the railways do you then think that FDI would still be necessary?

A: FDI is still necessary because one million lakh crore of money is required to modernize Indian railways. That much money will not be able to generate out of your revenues or the local borrowing or from the grants that the central government gives the FDI is a must. We must bring the FDI. But they also carry big baggage along with that. If the FDI comes abroad, the prices of freight fares, everything will go up automatically because after all when foreigners bring the money, they expect good margin to return, it has to be a win-win situation.

Q: What is your current order book that you are executing? Are you executing more orders in the export markets?

A: Yes, at present the Indian domestic market is not doing well. We have to go abroad and then export there. We are working with Egyptian railways and we are doing a pretty good job there. We had a bad time in the last one year due to political uncertainty in Egypt, now things have settled down and we are able to do a good job and we are doing pretty well and this year we expect to perform very well.

Domestically, we are developing product for Indian railways that is called Train Collision Avoidance System. It should be through by about October-November. We expect this project rolling out big way and we have a good market share expected.

Kernex Micro stock price

On April 22, 2014, Kernex Microsystems (India) closed at Rs 43.50, up Rs 1.90, or 4.57 percent. The 52-week high of the share was Rs 53.45 and the 52-week low was Rs 28.15. The latest book value of the company is Rs 104.09 per share. At current value, the price-to-book value of the company was 0.42. (Courtesy CNBC)