RailTel Corporation of India Limited (RAILTEL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Post Results Q3 FY '25 Earnings Conference Call of RailTel Corporation of India Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vishal Periwal from Antique Stockbroking. Thank you, and over to you, sir.

Yes. Thanks, Steve. Good morning, everyone, and welcome to the post results earnings call with the management of RailTel Corporation. From the management team, we have with us Mr. V. Rama Manohara Rao ji, Director, Finance; Mr. Manoj Tandon ji, Director, Projects, Operations and Maintenance; Mr. Harish Pawaria ji, ED, Corporate Communications; and Mr. Harish Batra ji, Special ED Finance. So as usual, we'll have a brief on the gone by quarter from sir, and then we'll have the line open for everyone to ask questions. Yes, sir, over to you.

Hello to all of you, and a very warm good morning to all of you. At the outset, I wish you all a very happy 76th Republic Day. And it gives me great pleasure to interact with you all on the RailTel's performance in the backdrop of quarter 3 financial results for financial year '25, which were declared by the company on 27th January '25. The highlights are as follows: The company achieved operating revenue of INR 768 crores in quarter 3 of financial year '25 as against INR 668 crores in Q3 of financial year '24, registering a year-on-year growth of 15%. The Telecom segment contributed INR 338 crores and the Project segment contributed INR 430 crores in company's operating turnover. As regards to the total revenue, the year-on-year growth is 16% with INR 782 crores in quarter 3 of financial year '25 as compared to INR 675 crores in Q3 of financial year '24. The profit before tax in Q3 of FY '25 is INR 90 crores as against INR 84 crores in Q3 of previous year with year-on-year growth of 6%. The profit after tax in quarter 3 of financial year '25 is INR 65 crores as against INR 62 crores in quarter 3 of financial year '24, registering a year-on-year growth of 5%. The company achieved a total income of INR 2,222 crores in 9 months of this financial year against INR 1,770 crores during the corresponding previous year with growth of 26%. Profit after tax during 9 months of financial year '25 is INR 186 crores as against INR 169 crores in the corresponding previous year period with growth of 10%. Earnings per share for 9 months ending on 31st December '24 stands at INR 5.81 against INR 5.26 during corresponding period of previous financial year. Now as regards some of the highlights to mention, I'm pleased to inform that RailTel has received excellent rating from DPE for the financial year '23-'24. RailTel is providing video surveillance at 8 major Maha Kumbh stations with video analytics and face recognition systems. And our order book is strong with a value of about INR 5,280 crores with opportunities looking up in railway signaling, smart city solutions, HMIS, data center and other areas. And importantly, RailTel has inked a 5-year strategic partnership with Microsoft to drive AI transformation in the public sector to advance digital, cloud, and AI transformation in Indian Railways and public sector space. As part of this partnership, Microsoft will support RailTel in establishing an AI center of excellence, making RailTel an AI-first organization and a leading system integrator partner. The partnership includes an organization-wide skilling initiative to train RailTel employees in next-generation digital, cloud, and AI technologies through Microsoft's AI National Skill Initiative and Enterprise Skilling Initiative. The 2 companies will co-develop AI solutions with Microsoft providing technical guidance on product road maps and RailTel bringing public sector experience on board. As we are in our 25th year of our journey in the service of the nation, our progress has been steady and impressive with consistent growth in operational revenue and profits, and we rededicate ourselves in the mission of making the digital India stronger. We remain committed to pursuing growth and creating value for our esteemed investors. We are also exploring new opportunities in order to realize our true potential. I thank you all for your trust and collective vision that drives the future of this company. Thank you very much.

[Operator Instructions] The first question is from the line of Manish Ostwal from Nirmal Bang Securities.

My question first on the order inflow trend in the 9 months versus last year of 9 months. So what is the absolute order inflow this year? Can you give us the figure? And how do you see the growth in order inflow in the coming quarter and the next year, sir?

The order book has been consistent. And it is very consistent in last 9 months compared to previous 9 months. It is of the order of INR 1,960 crores. And previous financial year also, it was around INR 1,900 crores. So total order book is around INR 5,280 crores. And last year quarter 4, we had received very good orders, and we are also expecting the same trend in this financial year. And to be specific, in this quarter 3, we received orders of around INR 790 crores.

INR 790 crores. And INR 1,900 crores in 9 months, right, sir?

INR 1,960 crores is 9 months, yes.

And very similar to last year, right, sir?

It's exactly almost similar to last year.

Okay. The second question on the margin side. So our overall blended margin has declined from 20% to 16.3% on a 9-month basis. So when I look at our segmental reporting, the reason of the decrease is mainly because of the EPC margin has declined from 7% to 4%. If I'm not wrong, you have guided the EPC margin around 4% -- 5% to 6% kind of thing. So any low quality of -- low-margin order work has been done in this quarter, that's why the margin is 4%. And what is your outlook in this line of business going ahead?

As this question is often raised and I mean the management also has been responding almost similar manner, I will respond now. It is a question of basket of projects in that particular quarter, which is contributing to the revenue. And if some of them are good revenue -- good margin projects, then it will be giving a better overall picture. But we try to maintain 5% to 6% overall guidance for the financial year, because we are hoping that some of the profitable projects which are coming up in next, that is quarter 4 will make good the entire percentage.

And the last question on the progress on the railway Kavach program, and it is a very big opportunity for us. So what is the progress on that? Can you update us how things are moving and when we see the big orders coming from that side?

And we are happy to inform our community -- investor community and stakeholder community that we started participating in Kavach tenders in this quarter 3. And many of the tenders -- I mean, almost we have participated in around INR 400 crores to INR 450 crores worth of tenders. And the results are awaited. I mean, tenders are being evaluated by the Ministry of Railways and various zones and divisions. So I will not be in a position to comment upon the end result, but I can assure you that we are in the right track. We have participated in around INR 400 crores to INR 500 crores worth of tenders in Kavach and signaling.

And what is the total value of the tender on the block by the Indian Railway? What is the total size?

That will not be one single tender. It is across various railway zones and divisions. As and when the tenders are coming up, depending upon our suitability and other, I mean, parameters, so we will keep on participating in the tenders.

The next question is from the line of Sanjesh Jain from ICICI Securities.

Congratulations on the partnership with Microsoft. First question again following...

I'm sorry to interrupt, Mr. Sanjesh. Your voice is coming very low.

Is it good now?

Yes, yes.

So first question on the Kavach side. In last quarter call, you mentioned that you are looking for other partner, because Quadrant product is yet to be approved. Now that we have applied for INR 400 crores to INR 500 crores worth of tender, whom have we partnered with this time?

Sanjesh, we have partnered with Quadrant only, and those approvals were in the final stages at that point in time. That's why we were not in a position to commit publicly. But as the days progressed, the approvals have come in time and then we participated along with Quadrant.

And quadrant, the POI and everything is approved, and that is exactly in line with the specification of railway?

Yes, yes. Yes.

Okay. Okay. That's good. Second, on the LTE rollout, is there any progress on that side? Because I think Kavach and LTE will go hand-in-hand for the signaling, right?

And LTE rollout, I think various zones and divisions, they have to float the tenders. And recently, we received I think one tender in Southern Railway for 523 route kilometers rollout, that is around 144 -- INR 142 crores project.

Okay. And then this involves...

And remaining, we need to wait for the rollout of tenders by Railways.

And this tendering is what, for putting out the network, equipment and tower all, right?

Exactly. Exactly.

And this will be managed by RailTel? Or it is a BOT, you build and transfer to them?

No, it is a kind of EPC. And after that, management part will be taken care by Railways.

Okay. Okay. Even tower will be transferred to them?

Yes, yes.

Okay. Got it. Got it. Second question on the Telecom revenue. In last quarter also, you reiterated that we expect to grow that by 10%. This quarter, it appears to be muted. Any particular reason for that?

See always, Telecom growth has been a challenging task. We are actually aspiring to maintain 10%, and sometimes we may be ending at 8% to 10% kind of thing. And some of the -- I mean, as far as the growth is concerned, we are better compared to previous financial year, but we are not reaching to the level of 10%, but that is subjected to the market conditions.

And this market condition is what, you are seeing more pricing pressure, or spending from the customer is lower? Where is the pressure coming from?

In fact, pricing pressure is one, very strong pricing pressure.

Got it. Got it. And on the margin side, even Railway margin -- Telecom margin sequentially has fallen from 24.6% to 20.6%, almost 400 basis points lower. Any cost that has gone up significantly, which is driving this dip?

Not exactly. And actually, this Telecom projects, Telecom stream, we are actually incorporating the data center revenue also. Data center, there has been a good amount of investment and then maintenance activities in recent past. So that could be one of the reasons.

Got it. Got it. Sir, can you provide us the breakup of the revenue between NLD, ILD and IP1 for this quarter?

Yes. NLD is, quarter 3, INR 150 crores; and ISP is INR 111 crores; and IP1 is INR 75 crores.

And this depreciation jump sequentially is also because of the data center, which we incorporated in this quarter?

No, no depreciation is not on data center. It is on Telecom infrastructure.

And what we did in that side, CapEx, any particular CapEx we did in this quarter?

I didn't get you. Could you come again?

The reason why there is a sharp jump in the depreciation. If you see, there is an 8.4% quarter-on-quarter growth in the depreciation. What led to this increase in the depreciation number?

During the year, INR 156 crores CapEx is there. That has the impact.

Depreciation, they are asking.

Yes, the CapEx during the year as well as during the last year has contributed to this.

I think the CapEx -- I mean, I will ask my Special ED to answer this specific.

During the year, we had incurred INR 156 crores CapEx. So the impact of the additional CapEx during this year as well as during the last quarter of the financial year.

And out of this CapEx, how much was data center, sir?

Data center is -- during this year, INR 56 crores we have.

In 9 months, it is INR 56 crores. Quarter 3, INR 30 crores.

Got it. Got it. And this is for the larger data center, not that Edge data center which we are doing...

No. Existing data centers we have at Gurgaon and Secunderabad, for them.

For that. Got it. Got it. That's quite clear. And for the Q4, generally, we have a very large execution on the project business. That will sustain, right?

Yes, it will be sustained, yes. Yes, we are hopeful of sustaining that, yes.

The next question is from the line of Rohan Vora from Envision Capital.

So sir, just in continuation to the last questions on Kavach. While we've already applied for INR 400 crores, INR 450 crores, as you mentioned. So what would be our total addressable market in the entire Kavach program? And any ballpark numbers on that? And do you -- so what are the Kavach lined up for us in the pipeline for FY '26?

Kavach rollout is in the hands of the Indian Railways. I mean, how they are spacing the CapEx in the next coming 2 to 3 years is their internal understanding. We will not be having any clue. But as per general understanding, it is around INR 7,000 crores to INR 8,000 crores of Kavach, I mean, rollout in the next coming 3 to 4 years kind of thing. And coming to financial year '26, in the sense, now I mentioned about INR 400 crores to INR 450 crores tenders we have participated, and they are under evaluation. Once they are evaluated, in case the letter of awards are received, they might be in the last quarter of this financial year. So this will go into the execution mode in financial year '26. So it all depends upon the kind of winning what we are going to achieve in this tendering activity. We are hopeful, say, around -- in addition to this INR 400 crores to INR 450 crores, we may be expecting to participate in another INR 500 crores in the next financial year also. So thereby, our order book, we are looking up around -- I mean, not order book, participation into the tenders will be around INR 1,000 crores in the next coming 1 year horizon. So the execution mode will depend upon how much we are going to win in these tenders.

Got it, sir. And sir, while we have a partner on this, so what would be our share of the revenue if we win and we start executing?

Yes, they are our partners and RailTel is forefronting and they are our, I mean, OEM partners with us.

Okay. So we will be booking the entire revenue and the components will be bought out. Would that be the right assumption?

Yes, yes.

And what would be the percentage of bought out components?

That also depends on respective tendering part, because it all depends upon, in a particular tender in how many stations they are rolling out, and what is the component of the equipment and what is the integration part in respect to stations. So it's all bundled. We can say around -- what is the percentage we can...

10% to 15%.

No, no, equipment part, how much?

Equipment part around...

That means equipment will be around 50% to 60% kind of thing. And rollout part will be -- so rollout part is our stake, basically RailTel's prerogative. So we are experts in that area.

Got it. Got it. So the 40% to 50% of rollout is where we have expertise?

Yes. And remaining is equipment, which is OEMs equipment, yes.

Correct. Correct. And sir, just if I may, the last question. Would the margins be in line with our normal business in this?

Yes, yes, they are in the same range. Say around 8% to 10% kind of thing.

[Operator Instructions] The next question is from the line of Harshit Nagpal from YES Securities.

Just wanted to know the division for the order book between Railways and non-Railways.

Order book for Railways is around -- total order book is INR 5,280 crores, about that. And in that, 28% is from Railways, around INR 484 crores -- INR 1,484 crores.

Right. And what would be the division for the project work services between Railways and non-Railways for this quarter?

Railway contribution is around INR 393 crores.

Around 18% on our turnover.

Right. And sir, we were talking about revenue projections of INR 3,300 crores for the year FY '25. Are we still on track for that? Or do we see that we are...

Could you repeat the question? It was not clear.

Sir, revenue projections for the FY '25 were INR 3,300 crores. So are we on track for that? Or do we think it's going to be lesser than that?

No, we are on track.

Right. And sir, the order book division for tender and non-tender, if you could please give that too?

That is also -- I mean, tender is around 72% and 28% on nomination.

The next question on the Edge data centers. We were talking about 8% to 10% margin, and we'll roll out around 102 data centers in the next 1.5, 2 years. Is there a particular number that we have rolled out? Or are we still in progress with it on how many data centers?

Yes. Actually, we have identified, for immediate execution and implementation, around 20 locations. And in all those 20 locations, various activities like site survey and the feasibility reports, et cetera, they are on cards now. Right now, they are going on. And a few of them are reaching a maturity of finality where, along with the partner, we will be in a position to approach for certifications. So to roll out the data center, we need uptime certification, which gives Tier 3 certification kind of. We are going to apply for Tier 3 data center certifications. So they also will take some time to, I mean, assess and then finally give the certifications, which will make the data center ready to go into business mode. So these are all actually taking slightly -- I mean, they are all at different locations, et cetera, and a lot of coordination is involved. So initial level, it is taking longer time than expected. So we are now actively working on around 20 sites.

Right. And sir, like we are not CapEx heavy in this side; we'll be running the data centers and maintaining it, right? That's what we are going to do? And the other partner is going to set it up? Is that what it is?

You're right.

And sir, the RailGuard ARPU for this quarter, if you could...

It is INR 490 crores?

INR 496 crores, to be specific.

Right. Also, sir, just a question on the margin. So the top line is the 8% to 10% of the Edge data center that you're running at, or that is the final margin for us on it?

See, last time also I think this question was asked. I mean, my CMD sir was mentioning that these are all contract-specific details which can't be divulged. It is in the range as per the market trends.

The next question is from the line of Shubham Kadhi from 3A Financial Services.

Last con call, you gave a guidance of 30% year-on-year. Are we still maintaining that?

Yes, we are still maintaining that. Normally, quarter 4 will be slightly heavier compared to remaining quarters. And as of now, we maintain 26% growth rate year-on-year. So reaching 30% is not a challenge as per our understanding.

And sir, I can see, quarter-on-quarter. revenues have dropped. So is there any particular reason? Or was it just a one-off quarter?

It is one-off quarter. There's no specific trend kind of thing or any big event kind of thing. See, when we are actually clocking consistently of the same range and then maintaining year-on-year 30%, quarter-on-quarter, there can be here and there, I mean, fluctuations depending upon various factors.

Okay, sir. And sir, the total order book, you mentioned, is over INR 5,000 crores, INR 5,280 crores to be exact. So when can we expect this to hit the top line and how much?

Last year also -- I mean, the guidance what we had given for projects is around INR 1,800 crores to INR 2,000 for this financial year. So it would be of the same kind of burning of the order book resulting in turnover. It will be of the same order.

So it usually takes around 1 year to do INR 2,000 crores worth of orders?

Yes.

[Operator Instructions] The next question is from the line of Vishal Periwal from Antique Stockbroking.

Sir, in terms of order inflow for the project segment has been pretty robust. I think it is actually a consistent number that we are seeing. So any particular sector where we are getting this traction, or it is segregated across sectors? Any color will be helpful on that, sir?

I have already mentioned that we are getting good, I mean, show up in signaling area, Railway signaling. We have been actively participating. And as on date, our order book from signaling is around INR 330 crores. And data center is one area which we are actually actively working on. And various other, for example, HMIS additional rollout within the Railways is also another area. So all these areas are contributing. And new area, which was not so significant in earlier years, earlier 2 to 3 years kind of thing, is the signaling one which is looking up.

Okay. Got it, sir. Sir, in terms of work-wise also, are we targeting anything outside India for our railway in the project side, sir?

We have been consistently making efforts to get some good orders on international business also. We are closely coordinating with Ministry of External Affairs. They have been kind and then supporting the public sectors, including RailTel. And as of now, no order has been received, but we are within the striking range. But not in signaling as of now, but various other system integration works right now.

Okay. And will it be possible, sir, vis-a-vis domestic market, I mean, like how the size differs when we do it in international market?

In international market, to be specific, you are talking about signaling part, no? Signaling is -- many of the railway other PSUs are also active in that area. So that is one challenge. We need to coordinate with our own railway other PSUs who are doing signaling activities in other countries. And as far as, for example, system integration works, we are hopeful of getting good orders. So I think we are well within the striking range. We'll be breaking the news as early.

Okay. Okay. Sure, sir. Just one last thing, more like a clarification, sir. So there is a component of nomination in our order book. So is it fair to say the incremental orders in the last 2, 3 years that we would have got, so they are more like competitive bidding. These are like previous -- I mean, before that, these are like we are just concluding or finishing those orders. That's why they are in the book. Is it fair to say?

Yes, yes. Fairly, you can say that. So I mean, major nomination works are only -- I mean, contribution into the order book is around 28%. And these are all mainly the earlier works only. For example, video surveillance system on entire Indian Railway rollout, that kind of projects are still going on. So that is what you are also saying the same thing, yes.

The next question is from the line of Viraj from Jupiter Financial.

I joined the call late. So I just want a clarification that you said 26% top line growth, right, year-on-year? That's what the guidance you gave, right, sir?

Correct. That has been the achievement in the last 9 months.

So 30% -- 26% to 30% would be the growth range, which could be taken for analysis, correct?

Yes, yes.

And sir, the net margins would be in the range of 10%, or the margins will improve going forward?

Net margins always has been a, I mean, point of discussion as we are growing in projects which are very competitive and many of the public sector undertakings are also participating in very tough competition. So we have been giving a guidance of, say, around 9% to 10%. So it will be somewhere around, but it will be slightly -- depending upon the basket of projects in that particular financial year, it could be around 8% to 10%.

Okay. And sir, any update on Kavach would be...

I have already mentioned, Viraj, and it's a good news that we started participating in tenders. And in Q3, signaling and Kavach together around INR 450 crores to INR 500 crores worth of tenders we have participated and we are awaiting the final results from the railways. The tenders are getting evaluated.

Sir, what will be our total addressable size in Kavach project?

This also I have responded. And what I mentioned was that it all depends upon how the railway is rolling out the Kavach project. And across various zones and divisions, they have their own plan of rolling out and outlay for the Kavach. So in next coming 3 to 4 years, we are expecting around INR 7,000 crores is the overall rollout from Railways. But these figures are our understanding. And the actual thing will be known to internal railway system.

Okay. So our addressable market size would be INR 7,000 crores, right, as per our understanding?

Yes, yes.

[Operator Instructions] The next question is from the line of Vishal Periwal from Antique Stockbroking.

Yes, sir, one clarification. If one has to understand the total bid pipeline that we have, do you compile, any number that is there? Like this is the bid pipeline that is there for us? And one parallel question to this is like when in the third quarter, we have won almost like INR 800 crores kind of order. So what is the total bid amount that we have placed orders for and we got eventually INR 800-odd crores? Just wanted to understand like how the win ratios are.

Very interesting question, Vishal. Actually, it all depends, because internally, we keep on mustering various tenders that are afloat across various ministries and railways, et cetera. And that will be a big pool. But it all depends upon finding out partners, finding out right OEMs, and our eligibility criteria, our bid capacity at that particular point in time. So it's all so many parameters that go into that, which finally make us to final bid. So it is very difficult, and this number is always dynamic on a daily basis, because so many new orders, new tenders keep floating, et cetera. So that is the pipeline as such this much, we can't say. But one thing I can mention is that it could be somewhere around 4:1. If I participate in 4 tenders, if I get 25% winning rate also, it is an extremely good marker. But that is not the case with many of the public sectors, because everyone is competing for the same pie, similar kind of projects. So somewhere around 15% winning rate, striking rate is a very good decent marker. We are striving for that. This much I can say. And once again, to the organizers, I just wanted to inform you, Sanjai Kumar sir has just reached. Obviously, he was on travel. He rushed from airport to attend this call to wish you all. I will just hand over the call to Sanjai Kumar sir, our CMD.

So very good morning, everyone. I'm sorry, I could not attend this call from beginning. But I'm sure that our Director of Finance must have satisfied all your queries. I wish you all a very happy New Year since we are talking for the first time in this new calendar year. Thank you.

The next question is from the line of Parimal Mithani from Credential Investments.

Sir, I just wanted a clarification on Kavach basically. Is it fair to say that Kavach will be bid by RailTel, or it will be through your JV with Quadrant, the contract? Can you just clarify on that?

We have a partnership with Quadrant.

We have an understanding.

They are our original equipment manufacturers, partnership is there with us. So in the tenders, we keep participating along with Quadrant.

Okay. So in addition to the previous -- one of the analysts asked a question, the addressable side for you alone will be INR 7,000 crores or it will be combined both it is INR 7,000 crores. Just a clarification I wanted.

No, this is the rollout by Railways. We are expecting Railway will roll out tenders, say, around INR 7,000 crores in the next 2 to 3 years. That is our expectation.

As there are no further questions, with this, we would now conclude the call. On behalf of Antique Stockbroking, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.

Thank you so much.