Titagarh Rail Systems Limited , a leading rail systems manufacturer, is grappling with significant financial uncertainty as its auditor has identified a potential risk of losses exceeding ₹173.00 crore related to the company's Italian subsidiary, Titagarh Firema SpA (Firema).

Financial Impact and Ongoing Crisis

The exact financial impact of this risk remains uncertain at this time. However, the company's latest financial statements reveal that Titagarh Rail Systems has:

• Investments with a net carrying value of ₹69.95 crore in Firema
• Other receivables from Firema and Shivalik Mercantile Limited (SML) totaling ₹60.98 crore

Firema has encountered significant operational and financial difficulties due to an ongoing dispute with one of its largest customers, severely impacting its liquidity position. In response to these challenges, Firema filed for protection under the Italian Crisis Code - Composizione Negoziata della Crisi (CNC) on May 14.

Legal Proceedings and Protective Measures

The Court of Naples admitted Firema's CNC filing on May 27 and subsequently confirmed protective measures against potential actions by creditors until September 23. An independent expert has been appointed to evaluate the possibility of restructuring and revival under the CNC process.

Government Involvement and Potential Solutions

The Ministry of Enterprise, Government of Italy, has been actively involved in finding a resolution to Firema's problems. In a meeting on May 5, the Ministry indicated the possibility of:

• Inducting new equity investors
• Potential acquisition of a majority stake in Firema by private and/or governmental entities, such as the State Railways of Italy

Impact on Titagarh Rail Systems

Despite these developments, Titagarh Rail Systems reported:

• Consolidated profit of ₹30.94 crore for the quarter
• Share of loss from joint ventures and associates at ₹11.03 crore for the same period, likely influenced by Firema's situation

Management's Response

Titagarh Rail Systems' management stated in its financial statements that pending the final outcome of the CNC process and ongoing discussions with the Ministry of Enterprise, it is not possible to ascertain potential impairment, if any, on the direct and indirect investment into Firema and other receivables.

As the situation unfolds, stakeholders will be closely monitoring the developments at Firema and their potential impact on Titagarh Rail Systems' financial health and future operations.

Titagarh Rail Systems Limited , a leading player in the Indian rail manufacturing sector, has reported a significant decline in its financial performance for the first quarter, yet its shares gained over 4% following the release of results.

Financial Highlights

• Consolidated net profit declined 54% to Rs 30.86 crore, down from Rs 67.01 crore in the same period last year.
• Revenue decreased to Rs 679.00 crore from Rs 903.00 crore in the previous year, marking a 24.8% decline year-over-year.
• EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) fell to Rs 72.55 crore compared to Rs 102.00 crore in the prior year.
• The company's EBITDA margin slightly declined to 11.08% from 11.28% in the corresponding quarter.

Operational Performance

The company's performance was significantly impacted by supply chain issues, particularly in its Freight Rail Systems segment:

• Wagon dispatches stood at 1,628 units, a sharp decline from 2,073 wagons in the corresponding quarter last year.
• The decrease in wagon production was attributed to extremely poor supplies of wheelsets from Rail Wheel Factory, Bangalore.
• Despite the setback, the company maintained its leadership position in wagon deliveries to the Indian Railway system.

Order Book and New Contracts

Despite the challenging quarter, Titagarh Rail Systems secured several new orders:

• New orders worth Rs 2,092.00 crore were booked during the period.
• The overall order book now stands at approximately Rs 26,000.00 crore, including its share in joint ventures.

Market Performance

• Shares traded at Rs 808.00, up 4.10%, outperforming the NSE Nifty 50's 0.17% gain.
• The stock has declined 43.53% over the past 12 months and 26.07% year-to-date.
• Seven out of eight analysts maintain a 'buy' rating with one 'hold' recommendation, with price targets suggesting a 41.5% potential upside.

Future Outlook

The company remains optimistic about its future performance:

• Titagarh Rail Systems expects to recover the loss of production in the balance quarters.
• The company aims to align its wagon deliveries with the previous fiscal year's performance.

Umesh Chowdhary, Vice Chairman and Managing Director, commented that the drop in production during the quarter was only a temporary setback. He expressed confidence in returning to normal production within the next quarter, driven by improved wheelset supplies from Indian Railways.

As Titagarh Rail Systems navigates through these challenges, the company's strong order book and market confidence position it for potential growth in the coming quarters, particularly in its rail systems business.