India Railways in 2017 has projected for 92% Operating Ratio, on the back of optimistic revenue assumptions and containment of fuel expenses. The budgeted Operating Ratio also captures impact of implementation of 7th pay commission. Considering optimistic revenue assumptions, we expect Railways miss its next year milestones. The biggest positive from the budget is 42% increase in Railways capital outlay to Rs1.17 lakh cr. Gross Traffic Receipt growth assume optimistic growth in passenger receipt Railway budget assumes 10.7% growth in FY2017 gross traffic receipts to Rs184,820cr. Freight segment (67% of GTR), is expected to grow by 5.4%, which in our view is attainable. Budget also assumes 13.0% increase in passenger segment receipts owing to increase in the count of passengers originating and dynamic pricing. With no rate hikes announced, we expect this assumption to be optimistic. Implementation of 7th pay commission to put pressure on operating ratio Budget assumes 13.2% decline in the fuel expenses to Rs23,084cr. Budget also assumes growth in staff costs and pension liabilities for FY2017, on account of implementation of the 7th pay commission. Accordingly, the total expenditure is budgeted to increase by 12.6% in FY2017 to Rs171,060cr. As a result Operating Ratio is expected at...