Touching Bullet Speed: Investment opportunities in Indian Railways

Touching Bullet Speeds

Investment opportunities in Indian Railways

India has the fourth-largest railway system in the world, behind only US, Russia and China. The Indian rail network has 123,542 km of total tracks over a 67,415 km route and about 7,300 stations. The railways run close to 13,000 passenger trains that carry over 23 mn passengers daily. The Indian Railways transported over 109.68MT of freight in November 2020.

Indian Railways is the single largest employer in India and eighth largest in the world; employing close to 1.4 mn people.

• Vision 2024 has been envisaged to achieve targets of 2024 MT freight loading by 2024 • Indian Railways envisages a prospective investment of $190 bn in the next 5 years • Mumbai-Ahmedabad high-speed rail project sanctioned at a total cost of $15 bn • Railway Electrification works completed on a total of 5,782 Route kms during the year

100% FDI allowed in railway infrastructure under the automatic route.

Industry Scenario

The Indian Railways' freight revenues in 2020 were worth $11.8 bn. Coal and Coke had the highest freight revenue during this period.

Indian Railways aspires to add 1.5% to the country’s GDP by building infrastructure to support 40% modal freight share of the economy. The Indian Railways clocked a 3% increase in freight revenue in 2020-21 and the quantum of goods loaded grew by 2%.

Two Dedicated Freight Corridors (DFC), one on the Western route (Jawaharlal Nehru Port to Dadri) and another on the Eastern route (Ludhiana to Dankuni), have been fast-tracked.

The Indian Railways is looking to electrify the entire network by 2025 which will lead to energy savings of $1.55 bn.

India Railways is focused on: • 3,360 km dedicated freight corridors by June 2022 • 700 stations to be fed with solar power in the medium term • The Ministry of Railways has decided to redevelop 90 railway stations into world-class transit hubs • Creating private investments worth $4 bn through

Public-Private Partnerships • 100% electrification of Broad-Gauge routes to be completed by December, 2023

Growth Drivers

• Rising passenger & freight traffic: Increasing urbanization, rising incomes (both rural and urban), growing industrialization across the country along with private sector participation • Increasing freight traffic: Growing industrialization across the country • Dedicated freight corridor: Six high-capacity, highspeed dedicated freight corridors • Freight Business Development Portal: One-stop cargo solution for seamless goods transportation • Diamond Quadrilateral network of high-speed rail:

Connecting major metros and growth centers of the country • Atmanirbhar Bharat Abhiyaan - Self Reliant India:

Special economic and comprehensive package of INR 20 lakh crores towards promoting manufacturing in

India

Investment Opportunities

Project

Manufacturing of Passenger Coach Project

Electric Locomotive Production Project

Private Train Operations Project

Madhepura Electric Locomotive Procurement Project

Approx. Investment States

US$ 16.67 bn 38

US$ 11.15bn 38

US$ 4.11bn 38

US$3.84bn 1

High Speed Rail Corridors

Under Construction • Mumbai – Ahmedabad HSR: 508 km

Planned • Delhi – Varanasi HSR: 865 km • Delhi – Ahmedabad HSR: 886 km • Mumbai – Nagpur HSR: 753 km • Mumbai – Hyderabad HSR: 711 km • Chennai – Mysuru HSR: 435 km • Delhi – Amritsar HSR: 459 km

Dedicated Freight Corridors

Under Construction • Western Dedicated Freight Corridor: 1504 km • Eastern Dedicated Freight Corridor: 1856 km Planned • East Coast Corridor: 1114 km • East West Sub Corridor – I: 1645 km • East West Sub Corridor – II: 195 km • North South Sub Corridor: 975 km

Upcoming Projects/Opportunities

Modernisation of Railway Infrastructure • 33,000 km of railways to be electrified by 2023 at a cost of USD 2bn per annum • Work on tracks over 16,000 km long (Multi-tracking –14,000 km, Gauge Conversion – 2,200 km) to be completed by 2024 at a cost of USD 3bn per annum • Delhi-Mumbai & Delhi – Howrah (total 3,000 km) to be upgraded to 160 km/h through track and signalling investments

Private Participation • Re-development of 50 railway stations through PPP model • Privatisation of passenger train operations on 100 routes with 150 privately procured trains • Establishment of 40 private freight terminals annually at a cost of USD 70mn • Private ownership of freight rolling stock

Metropolitan Transit • 8 Rapid Rail Transport Systems (RRTS) connecting important urban corridors • Metro rail transit system in 50+ cities

Revenue growth of the Indian Railways has been strong over the years. Indian Railways’ gross revenue stood at US$ 24.78 billion in FY20. RailTel, a PSU under the Railway Ministry, which provides fast and free Wi-Fi across the Indian Railways network, announced its highest ever consolidated income of Rs. 11,660.05 million (US$ 158.48 million) for FY19-20. This income figure is a growth of 12.3% over the consolidated income of the financial year FY18-19.

Freight earnings in FY20 stood at US$ 16.24 billion. Passenger earnings for Indian Railways was estimated at US$ 7.25 billion in FY20. Freight remains the major revenue earning segment for the Railways and accounted for 64% of its total revenue in FY20, followed by the passenger segment. On July 27, 2020, the average speed of freight trains was 46.16 kmph, which is more than double as compared to last year on the same date (22.52 kmph), and total loading stood at 3.13 million tonnes.

In November 2020, Indian Railways freight loading stood at 109.68 million tonnes, compared with 100.96 million tonnes in the same month last year. The Indian Railways earned Rs. 10,657.66 crore (US$ 1.44 billion) from freight loading; this increased by Rs 449.79 crores (US$ 61.13

million) or 4% compared with Rs. 10,207.87 crore (US$ 1.38 billion) in the same month last year. In November 2020, India Railways announced that 40% of dedicated freight corridor (DFC) will be opened for traffic by endFY21, while the entire 2,800 km route will be completed by June 2022.

Passenger traffic was valued at 8.10 billion and freight traffic at 1,208.34 million tonnes in FY20.

The punctuality performance of Indian Railways for mail and express trains increased to 75.67% during AprilDecember 2019 compared to 68.19% during the same period last year.

Under the Union Budget 2021-22, the government allocated Rs. 110,054.64 crore (US$ 15.19 billion) to the Ministry of Railways. FDI Inflow in railway-related components stood at US$ 1.12 billion from April 2000 to September 2020.

Under the Union Budget 2021-22, the government allotted Rs. 1,803.01 crore (US$ 249.07 million) for gauge conversion, Rs. 3,000 crore (US$ 414.43 million) for doubling tracks, Rs. 6,815.36 crore (US$ 941.51 million) for rolling stock and Rs. 2,448.30 crore (US$ 338.22 million) for signalling and telecom.

With increasing participation expected from private players, domestic and foreign, due to favourable policy measures, both passenger and freight traffic is expected to grow rapidly over the medium to long term.

Govt. of India’s focus on infrastructure is a major factor which will accelerate growth of railways. Railways infrastructure plans to invest Rs 50 lakh crore (US$ 715.41 billion) by 2030.

In FY20, 15 critical projects of around 562 kms track length worth Rs 5,622 crore (US$ 797.56 million) were completed, out of which, 13 were commissioned by railways. Railways completed electrification on a total of 5,782 route kms during the same year.

Indian Railways completed eight major capacity enhancement projects by taking advantage of the coronavirus lockdown. These projects included three super critical projects with a combined length of 68km, three critical projects with a combined length of 45km, upgradation of the entire 389km railway line from Jhajha in Bihar to Pt. Deen Dayal Upadhyaya junction in Uttar Pradesh and a new 82km port connectivity line to Paradip.

As a part of the Railways’ plans to upgrade its network, the Ministry announced that all non-AC sleeper coaches will be replaced by AC coaches for trains running >130 kmph. This move has been taken as a technical necessity for highspeed trains with the bonus of improving passenger experience.

Indian Railways is also looking at other areas of revenue generation such as the following: a) Change in composition of coaches so that it can push the more profitable AC coach travel; b) Additional revenue streams by monetising traffic on its digital booking IRCTC; and c) Disinvesting IRCTC.

In January 2021, Hyundai Motor India Ltd. (HMIL) has announced that it has exported 125 cars to Nepal via the Indian Railways. The export is claimed to be eco-friendly and the first-ever by the company. With this step, the company is aiming to reduce carbon footprint by 20,260 tonnes.

On November 26, 2020, National High-Speed Rail Corporation Limited (NHSRCL) signed an agreement with L&T to design and construct 47% alignment works for Mumbai-Ahmedabad bullet train project.

In November 2020, Indian Railways’ Rail Coach Factory (RCF), in Kapurthala, rolled out a semi high-speed doubledecker coach. Equipped with the modern amenities and design, the coach can run at a top speed of up to 160 km/h. In February 2021, Indian Railways called for ‘Request for Qualification (RFQ)’ for redeveloping New Delhi railway station under a public-private partnership, with an estimated project cost of Rs. 5,000 crore (US$ 690.75 million).

Railways is leading India’s fight against climate challenge and is taking significant steps towards meeting its ambitious goal of being a net zero carbon emissions organisation by 2030 and meeting India’s Intended Nationally Determined Contributions (INDC) targets.

Alstom, a leading sustainable mobility provider, has successfully manufactured and delivered the 100th electric locomotive to Indian Railways on May 3, 2021. The delivery is part of the contract worth €3.5 billion (INR 25,000 crores), signed between the ministry of railways and Alstom in 2015 which led to the creation of a joint venture for the project and the largest foreign direct investment project of the Railways. The company will be supplying 800 fully electric high-powered double-section locomotives of 12,000 HP (9 MW) for freight service, capable of hauling 6,000 tonnes at a speed of 120 km/hr.

Government initiatives

Few recent initiatives taken up by the Government are: • Under the Union Budget 2021-22, the government allocated Rs. 110,054.64 crore (US$ 15.19 billion) to the Ministry of Railways. • In February 2021, Minister of Railways Mr. Piyush

Goyal dedicated 88 Railway projects to the country worth Rs. 1000 crore (US$ 138.14 million) in the states of Kerala, Tamil Nadu, Madhya Pradesh, West Bengal and Karnataka. • In February 2021, Indian Railways called for ‘Request for Qualification (RFQ)’ for redeveloping New Delhi railway station under a public-private partnership, with an estimated project cost of Rs. 5,000 crore (US$ 690.75 million). • To boost rail infrastructure and make the Indian

Railways network future ready, Indian Railways has identified 56 projects across the country in various zones to be completed by Feb-Mar 2021 and FY22. • In July 2020, the Ministry of Railways has invited

‘Request for Qualifications (RFQ) for private participation in operating passenger train services across 109 Origin Destination (OD) routes. As part of the plan, the railways will introduce 12 trains in FY23, 45 in FY24, 50 in FY26 and 44 more in the next fiscal, taking the total number of trains to 151 by the FY27. The project would entail private sector investments of about Rs. 30,000 crore (US$ 4.09 billion). • In November 2020, Indian Railways developed anti-

COVID-19 coach to prevent the spread of coronavirus.

This anti-COVID-19 coach has hands-free water tanks and flushes; copper-coated handles and locks. • The Railway Minister, Mr. Piyush Goyal, announced on November 29, 2020, that tea will be sold in environment friendly 'Kulhads' (earthen cups) in place of plastic cups at all railway stations in the country.

Currently, >400 railways stations serve tea in

‘Kulhads’ . This strategy will be the contribution of the

Indian Railways towards a plastic-free India. • As of October 2020, the Railway Ministry issued a policy to develop goods shed facilities at small/roadside railway stations aimed at augmenting terminal capacity through the participation of the private sector. Private parties are allowed to develop a goods wharf, utilities for labourers (resting space, drinking water, etc.), approach roads, loading and unloading docks, and other related infrastructure. • On September 22, 2020, Indian Railways sanctioned a feasibility study for seven bullet train projects - all open to PPP investments. • In July 2020, The Ministry of Railways decided to create a special cell, Project Development Cell (PDC), in the railway board to increase investments and inflow of foreign direct investment (FDI). • Dedicated Freight Corridor Corp. of India Ltd (DFCCIL) is already building the first two freight corridors - Eastern Freight Corridor from Ludhiana to

Dankuni (1,856 kms) and Western Freight Corridor from Dadri to Jawaharlal Nehru Port (1,504 kms) - at a total cost of Rs 81,000 crore (US$ 11.59 billion). • The Government is going to come up with a ‘National

Rail Plan’ to enable the country to integrate its rail network with other modes of transport and develop a multi-modal transportation network. • A 'New Online Vendor Registration System' has been launched by Research Designs & Standards

Organisation (RDSO), the research arm of Indian

Railways, to have digital and transparent systems and procedures.

Road Ahead

Indian Railway network is growing at a healthy rate. In the next five years, Indian railway market will be the third largest, accounting for 10% of the global market. Indian Railways, which is one of the country's biggest employers, can generate one million jobs, according to Mr Piyush Goyal, Union Minister for Railways and Coal.

The government has announced two key initiatives for seeking private investments-running passenger trains by private operators across the railways network and redevelopment of railway stations across the country. According to Indian Railways, these projects have the potential of bringing an investment of over US$ 7.5 billion in the next five years.

Indian Railways is also looking at other areas of revenue generation such as the following: a) Change in composition of coaches so that it can push the more profitable AC coach travel; b) Additional revenue streams by monetising traffic on its digital booking IRCTC; and c) Disinvesting IRCTC.

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 from 140 MT in 2016-17.

As part of the National Rail Plan for 2030, Indian Railways is expected to create a future-ready railway system by 2030 to bring down logistics cost and ensure 100% electrification of broad rail routes by December 2023.

[Data Source: National Investment Pipeline (NIP)]