March 22, 2016 3:13 am JST

Hitachi's rail business looks to West for massive sales boost

YUTA TAKAGI and KAZUHIRO KIDA, Nikkei staff writers

TOKYO/LONDON -- Hitachi is aiming for 1 trillion yen ($8.94 billion) in sales for its railway business in the medium to long term, up by nearly a factor of six, driven mainly by major projects and acquisitions in the West.

     A prototype of Hitachi's Azuma train ordered by British conglomerate Virgin Group was unveiled Friday in London's King's Cross Station. The cars will connect London to Edinburgh in Scotland in 2018 as part of the 6 billion pound ($8.63 billion) Intercity Express Programme replacing old rail cars. The metro cars with their streamlined design are named for the Japanese word for "east" because they will run along the eastern coast.

     The Japanese company received orders for 866 cars, and the deal includes a maintenance contract stretching 27 and a half years. Hitachi also built a U.K. plant in 2015, where the new rolling stock will be assembled from key components produced in a factory in the southern Japanese city of Kudamatsu.

     The U.K. represents a tremendous opportunity for Hitachi to expand operations, said Alistair Dormer, a senior vice president in charge of the rail systems business. His division long focused on Asia, using bullet train cars developed jointly with the Japan Railway group companies as well as other rolling stock. Though the segment's technology is advanced, sales total around 170 billion yen, making the division relatively ancillary to the Hitachi group's combined enterprise, which approaches 10 trillion yen.

     Outside the British Isles, Hitachi purchased the train-making operation of Italian company AnsaldoBreda in November and folded it into Hitachi Rail Italy. A new rolling stock plant also opened Wednesday in the U.S. city of Miami operating under Hitachi Rail Italy's umbrella. Hitachi will fulfill an order, made to AnsaldoBreda before the acquisition, to supply Miami with 136 passenger rail cars by the first half of 2019.

     Hitachi also made Italian traffic signal supplier Ansaldo STS into a group company. The Japanese company aims to capture new signal system business in the U.S., Europe and Asia, pushing sales for the rail business to 400 billion yen.

     The global railway systems market is growing at roughly 3% annually, on pace to reach about 176.3 billion euros ($198 billion) in 2019, European rail industry group Unife reports. The three major Western companies including Germany's Siemens are grabbing more orders, while China's CRRC has joined the international fray.

     Hitachi will cross swords with Western companies over orders concerning a new high-speed rail system linking London to the central U.K., along with other projects. The Japanese company looks eventually to reap 1 trillion yen in sales from its rail business, on par with Siemens and other Western competitors.

     But Hitachi may face more than a few obstacles. Hitachi wanted to make Ansaldo STS a fully owned subsidiary through a public tender offer, but Italy's securities watchdog in February ordered the Japanese company to raise the bid's price per share, throwing a wrench in its plans.

Hitachi Ltd.

Japan

Market(Ticker): TKS(6501)
Sector:
Industry:
Producer Manufacturing
Industrial Conglomerates
Market cap(USD): 31,451.93M
Shares: 4,833.46M
Asia300

CRRC Corp. Ltd.

China

Market(Ticker): HKG(1766)
Sector:
Industry:
Producer Manufacturing
Trucks/Construction/Farm Machinery
Market cap(USD): 40,234.32M
Shares: 28,698.86M

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