Rail Vikas Nigam Limited (RVNL) Earnings Call Transcript & Summary

What would be your EBITDA margin expectation for this FY '26 full year and also for FY '27?

'27, okay? Right now, we cannot predict exactly, but we hope to maintain the momentum and our EBITDA margin will be in the range of whatever the industry standard for the infrastructure industry, that is roughly in the range of 4% to 5%.

Okay. And if I see our cash flow generation for the first half, I see operating cash flow has turned negative for the first half. There is a large negative cash outflow in the line item called other financial assets. What is the nature of this cash outflow?

Unbilled revenues. See, basically, this is on account of reduction in unbilled revenue.

Okay. So this is -- sorry, I didn't hear you properly.

Yes. At each reporting date, we calculate the contracts for which the project has been made, but the invoice has not been raised to client. So that varies from quarter-to-quarter. So this current asset difference is only mainly on account of that only.

Okay. So what would be the net working capital days at the end of September? Like core net working, which is receivable days plus inventory days, less payable days?

Basically, payments are linked to milestones and on completion of each milestone [indiscernible] payment. So now the working season has started. Actually, the rainy season was a lead period for construction business. And now the construction has started in full swing, and we are hopeful that the revenue -- this cash flow will improve from 15th of December.

So with a large order book of around INR 90,000 crores, what is the average execution period for this INR 90,000 crores? Can we expect this to be executed over the next 3 years or 2 years? How is it?

Yes, I'll tell you, these projects are of varied nature. Some of the projects, they will be continuing for the next 3 to 4 years. Some of the projects are shorter gestation period projects. They will be completing in next 1 year or next 2 years' time also. So average, you can consider this order book considering our growth trajectory is adequate for the next 4 years' time.

Okay. So then the growth expected in execution in FY '27 will also be, say, around 10%?

Yes. We hope to maintain this in the coming financial years. And obviously, if company has to grow, this growth trajectory has to be maintained. If we -- in this financial year, we will be closing our revenue of around [ INR 22,000 crores ] to INR 20,000 crores. So certainly, we will make an effort to increase it by at least 10% in the financial year '26, '27. In addition to that, we are getting a new project also. And some of the projects has a lesser gestation period. So getting the new order and executing them in a shorter period will also give me the momentum and better turnover of the company. So getting the -- completing the INR 90,000 crores order book, getting in new orders and getting them completed in a faster way is also the motto of the company. So this order book and it will keep on changing. We will keep on performing and giving the engineering value to our projects, monitoring and getting the better -- much better output and outlook to the company. This is our aim for the future.

The next question is from the line of Vishal Periwal from Antique Stockbroking Limited.

Yes, sorry, sir. So I was saying, sir, in terms of our -- previously, the historical tax rate has been in the range of 25-odd percent. This time, we are seeing a line item of deferred tax also. So how do you see and what is the reason of this deferred tax? Will this be a continuous phenomena and anything that you can provide?

Yes. It's a very pertinent question. First thing first, no, it's not a continuous phenomena. We don't expect any further increase in the deferred tax. On each quarter end, this is basically a timing difference thing, a timing difference between the income tax and what has been done in the company. So there was issue realize that this period is -- it coincides with our tax audit. So during the tax audit, we realized that one of our assumptions needs to be updated, and that has been done. And moreover, if you see deferred tax more of [indiscernible] because it gets liquidated in the future period. But to your question very specific, no, we don't see any continuous [indiscernible]. This is the maximum that we expect, as of now, whatever the visibility is there for us.

Okay. Sure, sir. And I think though you did clarify on the margin front. I think you did allude that the mix of the order book is changing toward competitive bidding and that is the reason like margins are lower. So is that fair to understand the earlier margins of 5.5%, 6% EBITDA margin that we are making, probably the trajectory will be in the range of -- now will be in the range of 4% to 5%. So will that be a fair understanding to have as directionally?

Yes. As per the order mix, the legacy projects, which were on a fixed composite management fee model, there, it was -- the margins can be predictable. But in case of the projects, which we have won through bidding, market bidding, the margins varies across the sector. Some of the sectors having a better margins and the larger projects, they are on somewhat not so good margins. But now we are changing our strategy also. We are focusing on projects where the margins are better, and we are focusing towards the projects which are on HAM model or other things where the competition is not so high. And simultaneously, we'll be focusing on projects abroad also where the margins are certainly better as compared to the domestic projects. In line with the industry standards, the established infrastructure giants, they derive at least 50% of their revenue from the global operations. So we hope to substantially improve on our global operations in the coming financial year so that our revenues margins we maintained at the range of the 5% to 6% in future.

Okay, sir. Okay. And in this INR 90,000 crore order book, as of now, is there any international piece in this, sir?

Yes. International order book is a total of order of around INR 3,200 crores total, out of which some of projects are under execution. And we are also in process of bidding or already bidded for many projects in Central Asia, Middle East or East Asia, even East Europe. So certainly, in coming financial year or in this half of the -- second half of this financial year, we hope to gain substantial traction from the international projects also.

Okay. Okay, sir. And then I think you did clarify on a couple of numbers in terms of inflow. Yes, I think last year was pretty good in terms of inflow. This year, I mean, inflows are a little bit on the lower side, order inflow. So if one has to understand the reasoning for the same, is it the competition is high and then the winning trajectory is commensurate to that is lower? Or I mean, even the opportunity itself is lower. So how do you, I mean, see things in the market?

No. There was -- certainly difference is there have come to last year. Last year, we won a very large project in -- that was a BharatNet project and some of the larger projects were also won in the last year. So that order flow was order -- of order of around INR 18,000 crores last year. This year, other than the competition in the market, what happens, some of the projects, high-value projects, especially in the road sector, they were -- the tendering was repeatedly deferred due to various reasons, be it availability of land or other statutory clearances. So now in coming days, a number of high-value projects are now coming. So our focus is basically on getting the high-value projects where the -- it is a niche sector and the competition is also not that high. A large number of projects are coming in the tunneling sector where RVNL maintains a leadership position in tunneling sector. So in coming days, we certainly hope to improve our winning streak in the projects.

Okay. Okay. And then sir, in this road sector as such, we have seen, I mean, like lack of orders in general, I mean, like we are not seeing major orders that are getting awarded. So I mean, it's not like this quarter phenomena from last 1.5 years. And so anything particularly that is the reason that you can share probably like guide us how things are in the road?

No, we cannot comment on the internal dynamics of the road sector, how the different organizations in the road sector, be it NHAI or state PWDs or other developmental agencies have their own issues because it involves many clearances and many other things. So that may be the issue and they have changed their strategy also. It was earlier only the EPC, then they've changed over to the HAM and then they are coming up with a mix of HAM and BOT projects. So it is an evolving strategy, and then we hope that it will get stabilized.

Got it, sir. Got it. Maybe one last thing from me. I think you did mention like we'll do almost like INR 21,000 crores to INR 22,000-odd crores kind of execution revenue this year. So this actually implies more like a kind of 10% sort of revenue growth. First half has been quite flattish for us, which means like in second half, the number has to be like high double digit. So are you seeing like almost like 1.5 months has passed for quarter 3? So has the pickup seen by us? Or you think probably it will be more like a quarter 4 phenomena for us?

No, no, it is certainly this quarter, the ongoing quarter, Q3, the results -- the execution pace has improved substantially, although the monsoon was extended this year in various parts of the country. And as you know, the civil engineering projects, they are dependent on the monsoon phenomena and there were some disturbances due to the election, also the labor movement gets hampered. But the pace has increased. And as has been the experience in the previous financial year also, Q3 and Q4, there are substantial improve as compared to Q1 and Q2. So we hope that our revenue guidance will be -- is sustainable for this financial year. And we certainly hope to not only complete this revenue guidance, but we hope to exceed it also.

Raja, your line is unmuted.

Sir, you gave some figures on order inflow. So can you please repeat those numbers? Was the order inflow in Q2 INR 852 crores. Is that correct? INR 852 crores?

Yes. The order inflow in the current financial year in Q2 is of order of INR 852 crores.

And in H1? Total in H1 from April to September?

INR 2,000 crores.

INR 2,000 crores. And sir, one final thing. You mentioned that you gave some total order inflow projection for FY '26. What was that number, the order inflow for FY '26, total what you anticipate?

It is of order of around INR 8,000 crores to INR 10,000 crores.

INR 8,000 crores to INR 10,000 crores.

The next question is from the line of [ Arshit Khoti ], an individual investor. We have lost the line for Arshit. As there are no questions, we would conclude the call now. On behalf of Rail Vikas Nigam Limited, we thank you for joining the call, and you may now disconnect your lines.