Indian Railways

Session 3 - NMIMS
July 2016

The Indian growth story has transformed some of the fundamental drivers of our
economy and demographics
2000

2012

GDP : 784 Bn USD

25%

27%
Agriculture

10% 8%

GDP : 1,729 Bn USD

48%
Industry

Export

18%

Service

Service

Import

Population: 1 BN

Urban Population: ~28%

Per capita income: ~INR 16,000

26%

28%

56%

Industry

18%

Agriculture
Export
Import

Population: 1.21 Bn

Urban Population: ~31%

Per capita income: ~INR 61,000

Changing macro-economic landscape has impacted the size and

structure of logistics Industry in India
Logistics Industry in India

2012

2000

Market Size: ~USD 46 Bn

Market Size: ~USD 103 Bn

29

0%

20%

17

41

40%
60%
80%
Out sourced
In-house

100%

Total freight movement: ~1,211 MTPA

484

0%

20%

0%

60%
Road

20%

40%

60%

Out sourced

100%

0%

2,015

20%

40%
Road

60%
Rail

610
272

20%

60%

Non-major ports

80%

100%

406

40%

Traditional W/h

20%

40%

80%

80%

100%

Major Ports

Total warehousing space: 452 Mn Sqft

18

60%

60%

Non-major ports

309

20%

0%

Major Ports

Total warehousing space: 312 Mn Sqft

0%

100%

62

40%

80%

Port movement: ~ 1,016 MTPA

Port movement: ~334 MTPA

0%

100%

In-house

1,085

80%

80%

Total freight movement: ~3,100 MTPA

727

40%
Rail

62

100%

Modern W/h

Share of organized players: ~4%

0%

434

20%
40%
Traditional W/h

60%
80%
Modern W/h

100%

Share of organized players: ~9%

3

Consumption and production clusters in India are dispersed across

geographies resulting in average freight distance of ~ 700 kms per
movement
Key Consumption Hubs

Key Production Hubs

~3000 Kms

Ludhiana

Chandigarh
Delhi

Jaipur

Lucknow

Patna

Bhopal
Ahmedabad Indore

Kolkata

Nagpur

Nasik
Mumba

Sura

Bhubaneswar

Pune

Hyderabad
e
Cochin

Key:
Highly Attractive

Bangalor

Chennai

Coimbatore
Madurai

Kandl
Bharuc

Moderately High Attractiveness

Average Attractiveness
Moderately Low Attractiveness
Low Attractiveness

Meerut &
Rupna
B
g
Chandig
i
Udham
Singh
Baddi
aa
Moga
j Na
Ludhian
Patia
Bhatin
r
r
ngar
a Saharanpur,
l
dGondis
&
h Muzafarnagar
o
a
a
Ghaziabad
r
Gorakhpur,
Balrampur
&
Pilibhit
AlwaGurgaon
Gonda
Lakhimp
r
Lucknow u
Aligarh Bareilly
Gandhi
r
N
a
Bhilwara Kota Gun
Bhind
g Gwalior a
Udaipur
AhmedabDewa a
Sonbhadr
s
Kalol
a r Bhopal
Ankleshw
a
Bokaro
Vadodr
a
Jamshedpu
a d Indore
a
r
Raipur
h
r
Rourkel Kolkata
Silvasa Aurangaba
Nagpur
a
t
Nashik
d
Keonjhar
Mumba
Korap
i
Lonavl
Paradip
u
Rajahmun
a
Pun
Srikakula
Chipl
Daund
t
d
m
ue
Sholapur
r Vizag
n
y
Kakinad
Panaji
a
Hyderabad
Dharwa
Bangalo
Shimoga

Nalgonda
r
Sriperumbud
e
Chennai u
Mysore
r
ErodSalem
Coimbato
eCuddalore
r
Tiruchirapalli
Palakk Manamadur
e
a
a
d
i
Tuticorin

~3500 Kms
Dense Production Clusters
Auto & Auto Comp
FMCG
Pharma
Consumer Durables
Textiles
Metals
Chemicals
Paper
Sugar

Indian Railways is one of the largest rail network in the world designed
to suit the Indian geography and the spread of economic activities in
India
Indian Railways

Network

64,456 km of route network

7,133 railways stations

Traffic

7,651 million passengers carried annually

Around 1000 Mn tons of Cargo transported

Challenges

Trunk routes of the railways comprising merely 16% of

the network carry more than 50% of the traffic

Speed of freight trains has stagnated to around 25

km/h

Average congestion of around 108%

Expansion plans

Add 25,000 kms of new lines by 2020 supported by

government funding

Development of dedicated freight corridors between

key cargo clusters and gateway ports

Modernisation of coaches through transfer of

technology to make India an export hub for modern
passenger coaches

4 high-speed rail corridors (elevated or at-grade) for

speeds up to 250-300 km/h

Although movement of freight in India has grown at a CAGR of ~810%, the share of railways has consistently declined
Freight movement in India

Reasons for decline in rail share

5000

4,450

4000

Congestion of Network

Track length of ~65,000 km is still insufficient (track

length per unit area in India is 30-50% lower than the
global average)

Certain key
utilization

3,100
Mn Tons 3000
2000
1,211
810

1000
56

121

209

1951

1961

1971

337
1981

0
1991

2001

2011

face

over

100%

capacity

Scarcity of wagons

Total number of wagons is ~200,000. The number of

wagons per km track length is 30% lower than the
global average

There is a scarcity of innovation for movement of

specific commodities and high tonnage payloads

2015

Percentage Share of Road Rail in cargo traffic movement

corridors

Marketing capability of Indian railways

Despite of having a countrywide presence, Indian

Railways share in modern industry inputs and outputs
is limited

Last mile road options have been limited and road has
taken away cargo with a door-to-door delivery promise

There have been policy and operational thrusts to improve the

share of railways, which will translate to further investments in
track and rolling stock

Indian Railways in recent past opened up sector sectors for private

sector participation to address some of the gaps
Private Sector participation in Indian Rail Sector

Rake operations
Indian
Railway
s

Signaling and ancillary

support

Terminal
Development

Tracks

Private Sector participation in India

Category

Private Sector Participation

Terminal development
and operations

Private container operators are allowed to develop private terminals (There are around 10 such terminals currently operational in
India)
The new Private Freight Terminal policy allows players to develop terminals where they can handle private container trains of
Indian railways trains

Tracks and signalling

Tracks are owned and developed by Indian Railways. However, the contract of construction is given to private players

Train operations

Under the container train operations policy, private players are allowed to own and operated container rakes. However, locomotives
are owned and provided by Indian Railways
The new SFTO (Special Freight Train Operations) and AFTO (Auto Freight Train Operations) policy allows players to own and
operate specially designed wagons. The policy is applicable for certain categories of cargo

Recent regulatory changes encourage private sector participation in

freight operations
Size of opportunity
(2015)

Container Train
Operations
(CTO)

Special Freight
Train Operations
(SFTO)

License granted to 16 players for operations of container trains

Around 350 container trains are operational and around 250 additional trains

would be required in the next 5 years to cater to EXIM and domestic demand

USD 1.5 BN

License cost ~US$ 10 million

Indian Railways has introduced SFTO licenses for movement of specialized

freight like Alumina, Edible Oil, Molasses, Acids and Alcohol
This would require induction of cargo specific wagons and rakes by Indian
Railways

USD 6.5 BN

License cost ~$1 - $5 million

Automobile
Freight Train
Operator
Scheme

This scheme is being finalised for rollout of Automobile specific rakes for
movement of cars in the country

USD 1.2 BN

The overall production of cars in India is ~ 6 Mn units per year

Supply of rolling stock for urban transport

Passenger
transportation

Operations of luxury passenger trains on selected routes such as Palace on

Wheels, Deccan Odyssey and other privately run passenger services
Station building and track work

Project
specific

CTO demand, currently at 2.7 mn TEUs is expected to grow at a CAGR of 17-20% p.a.
on back of increased trade and favorable growth drivers
Multimodal demand in India

7
6

5
MN TEUs
4

The increase in demand would result in an requirement of around 550

rakes in India by 2015
The current rake supply in India is around 350

2
1

2.76

0
2011

2012

Demand drivers for Container Train Operations (CTO) in India:

Terminals: development of terminal infrastructure in key cargo hinterlands to capture catchment cargo
Quality of service: better services offered by private players, including addressing demand in hitherto underserved routes, offering cargo safety
and pilferage protection and last mile bridging
Containerisation: rising containerisation will reduce instances of break-bulk form transportation of cargo by road since the availability and usage
of containers on road transportation is limited
Infrastructure: longer term drivers such as development of Dedicated Freight Corridors (DFC)s and the Delhi-Mumbai Industrial Corridor
Regulations: especially around favourable haulage charges that create economic incentives for customers to shift from road to rail (currently
unfavourable for domestic cargo)

The SFTO licensing policy has opened up a new market for private
players to participate in the Indian Railways sector
Revenue in INR Crore Over the years for Key
commodities

Commodity/ Commodity Group

Revenues (USD BN)

200809

200910

Average
Kms over
which
freight is
carried

Tonnage in
FY12 (in
Million
Tonnes)

201011

Average
Revenue (4
year
average)
(INR Crore)

Coal

3.2

3.6

3.9

412

608.02

3.2

Ores

1.2

1.4

1.8

140

397.61

1.3

Iron and Steel

0.5

0.6

0.6

35

975.49

0.6

0.15

0.18

0.18

15

624.48

0.8

Cement

0.8

0.8

0.9

42

546.25

0.65

FoodGrains

0.6

0.6

0.6

38

1244.11

0.62

0.35

0.36

0.5

45

770.57

0.4

0.5

0.6

0.6

42

686.60

0.6

Stones (including gypsum) other than

marble

0.12

0.1

0.05

8.1

364.54

0.1

Salt

0.08

0.08

0.08

5.1

1440.41

0.08

Sugar

0.05

0.08

0.08

5.1

1219.67

0.06

TOTAL

7.5

8.2

9.1

787

7.95

Commodities other than above

0.8

1.1

80.2

0.8

8.3

9.2

10.2

867

8.75

Limestone and Dolomite

Fertilizers (Chemical Manures)

POL (Mineral Oils)

GRAND TOTAL

Source: Ministry of Railways Annual Reports and Accounts, KPMG Analysis

Note:*Excludes other goods earnings such as wharfage, demurrage, etc.

SFTO categories

The existing penetration of Indian

Railways for these categories is less
than 30%

Private sector can consider entry in this sector by partnering with

existing CTO player or exploring partnerships with cargo owners in
SFTO or AFTO category

Container Train
Operations
(CTO)

Special Freight
Train Operations
(SFTO)

License granted to 16 players for operations of container trains

Around 350 container trains are operational and around 250 additional trains

would be required in the next 5 years to cater to EXIM and domestic demand

USD 1.5 BN

License cost ~US$ 10 million

Indian Railways has introduced SFTO licenses for movement of specialized

freight like Alumina, Edible Oil, Molasses, Acids and Alcohol
This would require induction of cargo specific wagons and rakes by Indian
Railways

USD 6.5 BN

License cost ~$1 - $5 million

Automobile
Freight Train
Operator
Scheme

This scheme is being finalised for rollout of Automobile specific rakes for
movement of cars in the country

USD 1.2 BN

The overall production of cars in India is ~ 6 Mn units per year

Supply of rolling stock for urban transport

Passenger
transportation

Operations of luxury passenger trains on selected routes such as Palace on

Wheels, Deccan Odyssey and other privately run passenger services
Station building and track work

Project
specific

Indian rail sector

Key considerations

+ Growing market - The size of freight market in India is ~4 BN ton growing at a CAGR 9 %. The rail share is currently at ~30%
but is expected to increase due to favourable privatization policies and infrastructure development
+ Private participation in freight movement is increasing The private container train operators have gained market share in the
last five years. Opening up of new cargo categories for private players is expected to have a favourable impact
+

Infrastructure investment by Indian railways- Indian railways has planned significant investment in the sector including setting
up of dedicated freight corridors which is expected to improve the potential of movement of cargo over rail

+ Push by user industry groups Leading automobile, steel, bulk chemicals and liquid bulk manufacturing companies are
exploring potential of moving cargo by rail to reduce overall logistics cost
+

Competition in special freight train market is limited- The SFTO policy is new and there is limited competition from other
participants in this segment. There are incentives offered by Indian Railways for players with capabilities to design and introduce
high capacity wagons

Potential of tying up with Indian players- There are Indian players in container train operations which could be willing to
partner with international player with capabilities and experience in this sector. Also the large cargo owners could consider
partnering with international players to set up a robust and reliable supply chain using rail operations

Competition in container train operations is high- The container train operations segment is crowded with 8 players with
existing operations. There are other 8 players with licenses and no existing operations

Regulatory uncertain- There are uncertainties associated with determination of locomotive (Haulage) tariff by Indian railways.
Also, the process of commissioning of rakes in India is complex with approvals are required from multiple agencies

Operating constraints Operations of train in India require understanding of processesof Indian Railways which are complex
and unique to the organization