Before take-off, railway FDI sees first exit in India

New Delhi: In what could be seen as a major setback to Indian’s effort to bring in foreign direct investment into the railway sector, United Group of Australia has decided to exit and wind up its joint venture with Texmaco Rail and Engineering to make speciality wagons for the export market following continued poor demand mainly in mining and commodity related sector.


“The downturn in locomotive sales in Australia impacted production throughput volume in the UGL-Texmaco fabrication facility in India. UGL is currently exiting the joint venture arrangement under which this facility operates,” the diversified Aussie conglomerate told its shareholders recently.

Messages sent to Saroj Poddar, chairman of Texmaco and Ashok Vijay, chief finance officer requesting comments, remained unanswered.

Formed to exploit India’s low cost base to manufacture railway wagons and locomotives for the coal and iron ore markets, Saroj-Poddar Group-owned Texmaco joined hands with UGL, a diversified group present in engineering, maintenance and facilities management in the rail, water, power and property sectors way back in 2008 through a memorandum of understanding, and the joint venture, after facing some initial hurdles, started operations in the first quarter of 2012-13.

The $2.3 billion Aussie conglomerate then built a world class manufacturing centre for rail industry components using state-of-the-art facilities like robotic welders. The plant, based out of Texmaco’s Belgharia plant near Kolkata, has product line capable of producing platforms and headstocks for passenger and freight rolling stock including diesel and electric locomotives, electric multiple units, coaches and wagons and also flat packed container and other specialist rail wagons.

But shortly afterward, the global commodity slowdown hit Australia hard where mining activity slowed down significantly.

In March, UGL wrote down fully its its $9.7 million investments in its joint venture.

“The unrecognised share of losses totalled $766,000 for the period subsequent to the impairment write off. A liability has been taken up for $766,000 as the group has continuing obligations in respect of the joint venture,” UGL has said in its annual accounts.

The end of the road for the UGL-Texmaco joint venture is more a commentary on the state of resource dependent economy of Australia rather than opportunities in Indian railway sector for the private sector.

And with its key customer, China, showing stronger signals of slowdown, economic growth in Australia, of which iron ore and coal are its largest exports, expanded at a slower-than-expected 0.2% in April-June, lower than 0.9% in the first quarter, Australian Bureau of Statistics has said.