Kryukiv Railcar hits the passenger railcar segment

The Ukrainian government will acquire four passenger InterCity trains from Kryukiv Railcar (KVBZ UK) in 2013-14, Interfax reported on March 25, citing a governmental program approved on Feb. 27 and published yesterday. The potential contract is valued at UAH 666 mln (net of VAT), equally split between 2013 and 2014 and expected to be financed from the sources other than state or local budget. In a separate statement on March 25, Kryukiv said it will sell 49 passenger railcars to Kazakhstan this year with the first batch of 16 railcars already being delivered to the customer.

Roman Dmytrenko: Though the announced contract is double our initial expectations, we are staying conservative on Kryukiv’s order book due to high financing and execution risks. No budget financing for the project implies that Ukrzaliznytsia would have to use its own very scarce resources, or raise additional debt. Secondly, Kryukiv started its InterCity project development in 2011 and so far has only produced and fully tested a single prototype train.

Yet taking a broader view, we are encouraged by the company’s recent steps towards diversifying into the passenger rail segment to offset the impact of effective restrictions on freight railcar exports to Russia and an overall drop in demand for freight railcars in the CIS. We now expect passenger railcars to account for a quarter of the company’s estimated USD 732 mln revenue in 2013.