Alstom eyes Kernex Microsystems amid growing demand

In a bid to secure its position in the rapidly evolving landscape of railway signalling technology in India, global conglomerate Alstom, along with other industry players, is engaged in discussions to acquire a controlling stake in Kernex Microsystems, a Hyderabad-based company specializing in innovative railway safety solutions, sources have told Business Today TV

This comes amidst the growing prominence of Kavach, an indigenous railway signalling system developed by Indian Railways in collaboration with local companies Kernex Microsystems India Ltd, HBL Power, and Medha Servo Drivers Private Ltd. Kavach, formerly known as the Train Collision Avoidance System (TCAS), has emerged as a cost-effective alternative to imported solutions, significantly reducing the cost of railway line upgrades.

With an estimated cost of only Rs 50 lakh per kilometer compared to Rs 2 crore for imported alternatives, Kavach has garnered substantial attention from both domestic and international railway system manufacturers. Its implementation on locomotives, railway sleepers, and stations enables the transmission of emergency messages, effectively preventing accidents and ensuring passenger safety.

The exclusivity granted to the three Indian companies involved in Kavach's development has posed a challenge for international players seeking entry into India's railway market, estimated to be worth Rs 40,000 crore for the upgrade of 34,000 kilometers of railway infrastructure.

Another source added that Kernex Microsystems, having already secured orders worth Rs 650 crore and aiming for further expansion, has become a prime target for acquisition. With approximately 29 per cent ownership with non-resident Indian promoters and the remainder with minority investors, Kernex Microsystems presents an attractive investment opportunity, particularly due to its focus on Kavach and minimal debt burden.

The proposed acquisition involves the sale of a partial stake by Kernex Microsystems' promoters, granting the new management board control and majority ownership. Additionally, a fresh preferential allotment of 60 lakh warrants is on the table, signaling a significant infusion of capital into the company to fulfill existing orders and support future growth initiatives. 

The discussion on the premium for acquiring controlling stake is under discussion, the source further added.

Kavach, distinguished by its integration of proven technologies such as the European Train Protection and Warning System and its SIL4 certification, signifies an unparalleled level of safety in railway operations, with an error probability of one in 10,000 years.

As discussions progress towards a potential agreement between Kernex Microsystems and Alstom, industry observers anticipate a transformative shift in India's railway signalling sector, with implications for safety standards, technological advancements, and market dynamics on a global scale.