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

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[Audio Gap] and other services we have moved into system integration works, mainly into IT, ICT and digitalization area across various government agencies.

Entering into?

System integration. System integration. So we call them in a general parlance as projects what we are taking up. So now, broadly, we have 2 streams of revenue. If you categorize them, one is Telecom revenue stream another is projects revenue stream. So in Telecom, I already mentioned that NLD, ISP and IP1 and also e-data center business. Into projects, there are many kinds of projects we are taking up. The bottom line is IT, ICT digitalization. So now coming to your questions on data center. We have two data centers, one at Gurgaon, one at Secunderabad. Those two are manned by rental. We have our own team. It is manned data centers. Managed by -- technical manpower also is of RailTel.

Sir, what's the capacity at Gurgaon and Secunderabad separately?

Both the data centers put together, come up to 2 megawatts. And this financial year, I mean, immediately last financial year, '25, our topline has been INR 127 crores out of this data center business which includes data center services as well as allied services in the data center regime. For example, we are providing Aadhaar authentication services, et cetera. They are all linked to the data center activity. And in addition, we are planning to set up 10 megawatts data center newly at Noida. This is with a partner. And we have picked up the partner through open bidding process. And the terms and conditions are that they are going to be investing into the infrastructure part of it. The land is ours at Noida. And RailTel also would be investing to set up the cloud and around INR 50 crores of investment would be going from RailTel into that project. INR 50 crores.

[indiscernible].

[indiscernible].

And this would be towards?

This will be towards setting up of cloud.

This is from internal accruals or?

This is from internal accruals.

INR 50 crores from cloud for 10 megawatt or...

See, there is a need of around INR 500 crores to INR 600 crores of investment for making 10-megawatt data center. So that we have selected a partner through an open process who will invest and we will share revenue with them in lieu of that.

So you need to have skin in the game...

Registration would be 50-50 or...

No, it's not 50-50. Because the major investment is coming from the investor and the partner. They are our technology partner as well as investment partner. But the data center will be in the name of RailTel. It will be managed by RailTel. The revenue will be of RailTel and then revenue sharing will happen with the partner. That is how the deal is structured because we need to have skin in the game, we are actually coming up with, I mean, land into the project and INR 50 crores of investment for the cloud purposes. And also our value proposition is our expertise and experience of managing data center and our -- I mean, the trust factor that we carry with the government agencies. Because this data center is mainly focusing on the data of the government agencies. So this is another data center, what I mentioned. In addition, to meet the demand, immediate demands that are coming up and if we are not in a position to meet that demand from existing data centers, so we have tied up with existing private sector data centers like Anantras, L&T, et cetera, where they have built their own data centers and certain space as a part of MOU we have tie up with them. And as and when the demand arises, we will be trying to accessing that physical space and then build up our racks and then servers and then provide the service to my customer. So this is another model on which we are working. So that way into data center space, we are owning data centers, we are building a data center with the partner. we are actually engaging with private sector parties through a mechanism where as per the demand we will try to access their infrastructure. So this is the landscape of the data centers. so now INR 127 crores what we achieved last financial year, we are hopeful of at least every year additional growth of 30% -- minimum 30% growth in next 3 to 4 years.

Margins also?

Margins are fairly good. It will be double digit, but it all depends upon the kind of service what we are providing. In the data center also we provide different varieties of services. Some of them are like colocation where the customer will be keeping their servers at my location but I am not managing them but I'm infrastructure support. So there the pricing will be slightly different. Margins will be different. And totally managed data center where I provide entire manpower and then technical support also, there the pricing mechanism will be different. But it is averaging out to about the double digit, maybe around 10% to 12% kind of, sometimes slightly encouraging. Depends upon...

So these 10 megawatt what you are putting, what would be the breakup between, say, colocation and the cloud?

It is actually dynamic. We can't fix it up on day 1 because it all -- actually how the customer is viewing. I can't determine how the customer is going to think in next coming years.

So these, INR 50 crores, what you will invest, that will go towards the basic infrastructure or...

See, the partner will build the physical infrastructure building and then power and all other basic amenities kind of thing. And they will put up the racks and servers also. Based upon that, we need to create the cloud where our investment will come...

Active elements.

Active elements.

And all the clients on this 10 megawatt also will be government, that is what you said that [indiscernible].

That is what we are targeting, yes. And if the private sector approaches us, we won't deny that. In any case, business is business for us.

So do we have any tie-up already for that 10-megawatt capacity of data center?

See, this is like a demand arises and immediately need to be met. And if a government sector...

This is a forecast being made by -- you must have seen is so much of demand. But then there has to be -- you have to create -- you can't say you go to a shop, you want to buy a saree. See, if not having stock, how will you buy it?

So by when do you expect the 10 megawatts to be ready?

See, 10 megawatts, it is a gradual development over 2 phases kind of thing. And we are hopeful of -- by financial year '27 year-end, we will be able to generate some revenue out of this initial revenue kind of thing, but it will not be full capacity. It will take 3 years of phasing we have planned for that completion.

3 year phasing of full utilization?

Full buildup of the entire infrastructure. And coming to your question again, ma'am, you were asking whether tied up. Tying up is not practically possible in the sense that it is a commodity kind of thing, which is immediately you need to supply. And I -- nobody will wait for me for next 3 years. If the demand arises, I need to supply immediately. But the trend in the data center business is a bit and especially in government sector because the need is going and adequate supply mechanism is not in the -- I mean, it's not available as of now. So we are generating capacities now, and we are hopeful of fulfilling the demand.

My question was because if we know some part where is that demand coming from, then colocation and managed services, we can probably try to think how can the split be between the two of them.

That is where we have a partner who can bring speed to it. Had we been doing procurement ourselves, it would have been slower. So we will bring certainly speed. [Foreign Language] So it happens like this. Nobody wants to wait.

My question is that if you let's say colocation out of and the managed service out of, [Foreign Language].

No, no, no. This is because government [Foreign Language]. We would have seen a trend that government PSUs data is using data center. [Foreign Language]. Have you done any analysis on whether they are using colocation or they are using cloud. Because that's probably 10 megawatt, we can split between the colocation.

Actually, there is no serious difference in terms of infrastructure when I'm providing either colo or managed services. It is the same infrastructure. It is only a thing that I'm managing with my technical staff and then taking full responsibility as far as the managed services are concerned. And if you insist that there shall be a kind of how much managed services and how much colo, it is very difficult to analyze that way because it is part of the moment, the particular organization take a call, whether to go for a colocation or to go for a managed service depending upon their comfort level, their technical requirements at that point in time. But as a trend, if you want -- I mean, we can't categorize it that way, we can say 50%, 50% to answer that. But it is not the right approach from our understanding.

What is the arrangement between RailTel and the partner in terms of -- on the revenue side and then minimum threshold in terms of that so much capacity utilization will happen. So the first right on the revenue would be -- so how does it work out? Because assuming on the third year, the 10-megawatt data center is ready and if it is partly utilized or fully utilized, how will the economics work?

Actually, in a data center, the building part and the power, we need to take care initially because we can't keep changing that dynamically. And the remaining part of servers, racks and servers and then building up the cloud, it is dynamic in nature. As the demand comes at a sharp notice, the turnaround time is very sharp between 2 to 3 months of thing. It is depending upon the procurement cycle part of it. So that's how it keeps on ramping up. So initial investment part which gets locked or front loaded would be about the building and the power licensing, power approvals part of it. But utilization part, it is a ramp-up depending upon the demand where actually the combined exercise of the partner [indiscernible] for the demand and also the RailTel comes into picture.

So what is the revenue share. If generally assuming a full cloud service or managed services, what we hear is INR 150 crores per megawatt.

For colocation services, it is 11% revenue share to RailTel and for managed services, it is 13% revenue share to RailTel.

13%, okay. So under managed services, onus is on us to manage entire. So the cost associated in terms of employee and other will be borne by us.

No, there are 2 parts to it. So when you talk of passive infrastructure housekeeping, maintenance of the building, electricity bills, security and all those things, they will be borne by the partner. And when you talk of management of the active elements, that has to be controlled and managed by us, provisioning of some services to somebody, all that will be done by us.

So, data centers and this the same or different?

No. I missed that part in the data center space. The edge data centers also we entered into a partnership. And initially, it was thought of rolling out over a period of time at wherever the railway land is available, railway land or building location-wise across the country. We plan for 100 edge data centers. They are all very small capacity data centers, about 20 kV kind of thing. And the idea is the data center, edge data center need to be closer to the data generating points. And immediately in this financial year, we are hopeful of rolling out 3 to 4 such data centers, because initial hiccups were there, land related, et cetera, they are all getting solved because it is not at one location across Indian railways planning across various railway zones and divisions, we need to interact with so many authorities. So that is also on revenue share model.

So how much is the CapEx per data center?

See, the CapEx also is going to be from the partner only.

So for this edge also you have...

A partner, yes.

And in the MOU work you've signed, [indiscernible] and other players, how will the capacity commitment or offtake and revenue sharing?

As of now, we have not committed any capacity kind of thing. And it is a broader level of understanding at this point in time. I don't know whether I can say this or not, but they also are having excess capacities at this point in time. So there is no immediate compulsion on the part, but it is a general understanding. And the idea is for those agencies, they are also looking for business stream from public sector data kind of thing. So that is the meeting point for both the agencies.

Going ahead, where do you see more traction coming for edge colocation or managed returns? Where do you see India moving towards which kind of data?

See, both are having different purposes. Edge data centers are all closer to where data is getting generated. But the bigger data centers are for bigger applications, centralized applications. For example, even in government sector, the e-office, what we are rolling out right now across various organizations, around 160 organizations, we have rolled out NIC-based -- NIC application of e-office across 160 organizations. So there, the centralized data is the order as of now. But in future, I mean various government organizations who are generating various applications, the data need to be retrieved locally without much travel. So those areas, edge data center will come into picture. We can't simply categorize which one is going to pick up kind of thing. Both are having the need.

Actually edge data center is latest thing and it has come broadly because there are some -- sometimes there are some live streaming or maybe gaming applications where latency is an issue. So there edge data centers are going to play a role. And then second, when government is collecting or emanating data towards the customer-centric applications, there also it will. So it is a new phenomenon. And it will certainly -- in a country like India, it will have impact on deliveries of services, various services.

Gaming and the OTT part, what OTT content what we are accessing. Now if it is locally available in a particular city or smaller area, then the latency will come down, quick access will happen. So these are all the possible use cases.

Kavach?

Yes, now Kavach too. So Kavach, now we are reaching at a critical point with Kavach 4.0 Google has started happening. So now the [indiscernible] has also started increasing and we have exclusive partnership with one of the OEM, Quadrant Future. So at the moment there are 5 OEMs, which are permitted to bid in the tenders. So one of them is Quadrant. So we have exclusive partnership with Quadrant for station area, Kavach.

Those tenders, have they started coming now?

There are two parts of Kavach. One is to be installed on the locomotive and another on the station and along the track. So now those tenders would pick up pace and we've already one tender INR 288 crores, which has already declared [indiscernible] and some other tenders are in advance stage of finalization. There also we are hopeful. And the opportunity size is like around INR 50 lakhs per kilometer. INR 50 lakhs per kilometer is the ballpark figure. It will keep on changing based on the capacity -- supply capacity issues and the competition. And we are there. We will have our share around, say, very, very conservative if you take it will be minimum 10%. 10% to 15% is the conservative figure because out of 5 partners, one is with us.

And sir, what is the revenue sharing with Quadrant?

It is not a revenue sharing. This is a supplier and buyer relationship wherein we are buying from Quadrant and supplying to -- like say, in a Kavach tender, there are multiple components. There can be electronic interlocking, there can be some cables then Kavach component. So we'll buy from the individual OEM and supply to railways and do the system integration, integrating all those components. So integration is the part where our value comes in and we have exclusive arrangement that Kavach -- Quadrant will supply to RailTel and RailTel will buy from Kavach -- Quadrant.

And Quadrant also directly build separately apart from RailTel?

No, unless we allow them.

Actually, I'll add here. I think there are two components and local Kavach where it is into supply and installation. So there [indiscernible] also with our permission, with our understanding. They have gone ahead bidding on their own.

Quadrant?

Because there are no value from our side. Mutual understanding. It's not that...

Whereas station Kavach is concerned where you need to integrate so many signaling systems and station [indiscernible] part, so many things. So our value proposition is that their relation is different.

What is station Kavach?

This is an automatic train protection system wherein it will avoid collision. So it applies brake, if there is a chances of collision. If two trains are on same track and there are chances of collision, then it will automatically apply brake. So there are two components, one is on loco and another is on the station and track side. That is to detect the train's position, et cetera on track side. And for loco application, brake application, information has to be sent to locomotive. So there are 2 components. One is to at the ground on the station along the track and second is on the locomotive. And the information communication happens on a wireless medium. So there's a third component, wireless communication.

Who are players and [indiscernible] players, but how is the market share divided among [indiscernible]?

It is too early to say. The early entrants are 3 major players like those are Kernex, Medha and HPL Power System. They were the 3 early entrants. [Foreign Language]. So they went to Medha and HPL. Now in the latest phase, in this last financial year. And now we have equal chances in them.

What is the execution time line for this, INR 288 crores?

The completion period is perhaps 2 years, 18 months or 2 years, I do not know exactly.

So revenue has started coming into above since we are supplying the [indiscernible].

The project is at the phase of design, then the revenue may start from December onwards.

So we are allowed to participate all in there or is it for particular zone or...

Maybe. We are allowed to participate all India.

And [indiscernible] because Quadrant system [indiscernible].

Why they need to talk about, oh system. Okay. That interoperability is ensured through an open protocol.

That is what is being done by -- when the approvals take place that interoperability...

That is ensured by the specification and the protocol ensured by the railway.

Lot of queries coming regarding Kavach because I think investors are seeing [Foreign Language]. Is that the right question? [Foreign Language] So this is related to passenger safety and you can't play with passenger safety. And it is indigenously developed system, which is new. So those approvals, of course, will take some time. [Foreign Language]. Then there are some glitches then you again go and make modifications to suit the requirements. So that is why now first approval has already come, that is for HPL and others for Medha, for us and they are underway. And we are expecting that before end of this year, maybe another next 2 to 3 months, these approvals, at least we are expecting for Quadrant also will happen. And then rollouts will also start. And we expect that before end of this year, we might book some income this year itself. for this order which already we have backed. And the other tenders which are also under evaluation will also happen subsequently. So I think that time for wait is nearing to be over.

I -- sorry, I would like to add one thing. Sorry, just very, very important. We must appreciate railway and RDSO here because of the technology of the complications directly involving passenger safety and the fact that it started from scratch to [indiscernible] business, they are really very fast. So it may look like it is true. No, it is not the case. It is very fast.

But is it because [indiscernible] coming, the average speed was earlier 20 km, 25 km, now the expected speed is expected to go up. And hence passenger safety came into limelight. Up until now it was running like a bullock cart, so there was no passenger safety.

You are talking about DFC?

Why Kavach is now...

You don't need to use the common network of the railways, the passenger network.

DFC is only catering, maybe...

Now the speeds can go up with [indiscernible]. There is no [indiscernible] required or alteration required.

But safety requirement is always there, right?

I will tell that...

Earlier also it was required.

But the system was [indiscernible].

System was -- [indiscernible] for example...

See, such systems will certainly improve the factor of safety. So that factor of safety is continuously improving.

What is the size of opportunity for us? And how much is [indiscernible] pipeline that we have already [indiscernible]?

Bids are coming by individual -- from individual divisional units for individual sections [Foreign Language] These are very important operation of Indian Rail, [Foreign Language] which should happen once these approvals come, maybe another next 4 to 5 years. That is the kind of one -- I can -- we can assume.

So in 4 to 5 years, INR 20,000 crores, 10% will be [indiscernible].

[Foreign Language] It can be more -- but we are expecting 10% to 15%, we should make.

[indiscernible], any updates on that?

So currently -- again, because of those technological experiments which are happening. So Indian Railways is deliberating whether they should stick to LTE, which is a technology present and the past and 5G, which is new. [Foreign Language]. But in the meantime, these Kavach rollouts should not stuck. So we are using UHF, which is existing technology already being used for Kavach.

And this is as per information available in public domain.

Yes, yes. No, no. There's no official communication by Railway to RailTel.

Sir, which is the current technology you said you will continue?

UHF is the current technology. I think soon they will decide. [Foreign Language].

Sir, question about Telecom. What is our current ARPU [indiscernible].

[Foreign Language] So broadband is the only retail business which we are in. [Foreign Language] It is I think 480 is the ARPU.

How is the competition in the business?

Broadband is very much unregulated. It's not like mobile. [Foreign Language]. So they are all kind of players, all tiers. [Foreign Language] And we have to tweak our tariffs accordingly, share our revenues with our partners. So we are trying to make it possible that wherever, whatever opportunity we get, we get feedback from our partner. We have around 11,000 partners all over the country, mostly they are local cable operators. So it's not easy, but still, we are making our efforts to the extent possible.

Sir, we spoke about Telecom part data center and the Kavach comes under the whole ICT, IT digitization.

Projects.

So Kavach doesn't come under projects?

No.

It is also part of that ICT, IT digitization part, right?

Yes.

Other than Kavach, what comes under the projects?

Kavach is a very small part of it.

So, can you just have a [indiscernible].

We are rolling out now video surveillance system on railway stations and then we have rolled out phase 1 of hospital management information system on 700 railway hospitals and health units. And we have done Pondicherry smart city various internal projects, subprojects within that smart city. So these are all some examples. Based upon our experience in rolling out HMIS in railway stations we won a tender for Brihanmumbai Corporation also for their hospitals to roll out Hospital Management Information System which is about to be completed. That execution is also about to be completed.

Sir, any case of renewal funds for this whatever projects are going on?

As of now RailTel is debt free and the kind of models what we explained, for example, even for data center where huge investment is there, we found a partner kind of thing. So we will take the calls as and when the projects are coming up and as per requirement we will take the price.

[indiscernible] with lower margins, right?

The projects will come with lower margin only. That is what needs to be understood. They can't come with 20% kind of margin in competition. Is it possible? No. So that is why when the project kitty is increasing as an overall thing, so it will certainly bring it down. The two options. We participate in project bids, we may not. But just to keep our EBIT margin higher, should we stop earning? No. Because ultimately, EPS will go up, your profits in absolute terms will go up. So our profits are growing at 20-plus percent.

And with Kavach revenue and data center revenue coming, the margins will remain at these levels or do you see...

Yes. Kavach and data centers will be certainly better than our average. Any other questions? That's all? Thank you.

Thank you. Thank you so much.