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Wagon makers in the country are on track to achieve 20 per cent growth in revenue this fiscal, riding on healthy order book, a report showed on Friday. 

Logistics cost accounts for 14 per cent of India’s gross domestic product, significantly higher than 8-10 per cent in the US and some European countries.

To bridge the gap and improve efficiencies, the central government plans to increase the share of railways in transport. The cost of rail transport is half that of roads and increasing wagon availability is a step in that direction, according to the report by Crisil Ratings.

Additionally, improved scale of operations will propel operating margin 100 basis points (bps) leading to higher cash accrual. That, along with modest capital expenditure (capex) plans, will keep the credit profiles of these companies stable.

“Private players, particularly in industries with large freight movements by rail, such as steel, coal, cement, automotive and logistics, are also procuring wagons through the Liberalised Wagons Investment Scheme floated by the government,” said Rahul Guha, Director, CRISIL Ratings.

This has given an additional boost to the operating performance of the wagon industry as private orders comes at a premium of 10-15 per cent due to less competition.

The report looked at wagon manufacturers accounting for 65 per cent of the industry capacity of 40,000 wagons per annum.

“The order flow is likely to sustain as the government aims to increase the share of rail transport to 45 per cent by 2030 from 27 per cent currently. The setting up of dedicated freight corridors is also adding to the demand for wagons.

The order books of wagon makers were 2.3 times their revenue last fiscal.

Consequently, the industry, which used to operate at less than 50 per cent capacity in fiscal 2021, is expected to operate at 90 per cent this fiscal, the report mentioned.