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

Yes. Yes. I've always been saying that in a company of small size like RailTel, quarterly results have to be seen with a lot of study and many times our investors may not be -- so we have to -- actually, you have very good understanding. So we are very much satisfied with our performance. And a small here or there, maybe like expected ECL, suppose, if I say. So ECL can easily affect our quarterly results. But if you see our overall annual results, we are sure that RailTel is going to do a good performance.

No, no, that certainly small numbers for a small company brings a lot of volatility. We do appreciate that.

And we are playing -- we have -- most of the projects are government projects. So payment delays, of course, happens and -- but we are sure that those payments are going to come. But then we made our ECL policy to make it more transparent that things -- the way -- what way the things are happening.

I certainly appreciate that, sir. And one last question. Last quarter also, there was a sharp jump in the receivables from the Telecom segment. Have we started getting that or that kind of an elevated number can remain even for this year?

O last quarter, there was some -- yes, so those -- actually some revisions are happening. Mostly those belong to railways. So some revisions and estimates are happening. Those will come. There's no issue. That was, of course, one-off event. You rightly observed it.

[Operator Instructions] Our next question comes from the line of [ Bala Murali Krishna ] with Oman Investment Advisors.

I just joined the call maybe I would have missed something about the Kavach part. We are partnered with Quadrant Future Tek for Kavach and approval for them is still pending any. Do you have any idea when we can have some update on that so that we can start recognizing revenue?

Let me first clarify that due to Kavach approval, our projects are not getting delayed, point number one. Point number two, your concern is right but the progress is very good and the final testings are underway and approvals are likely to be there any time, maybe this month itself, we are expecting. Since these are the latest Kavach entrants, so there are many modifications are being included, incorporated in this latest Kavach OEM based on the experience of the previous approved OEMs experiences in the field. So that is why some time is, of course, being taken, but it will happen.

Okay. I think earlier we had an indication that even the other OEMs should approach RailTel for this IT integration, and we can get some revenue from that point of view also. Is it happening, sir? Is there any alternative that other OEMs are doing as of now, sir?

See I will not comment on this question right now. But of course, if required sometime in the future, I'll comment on. Right now, we are open. We are never closed. Whoever gives us best commercial for bidding and participating in the tender we are open.

Okay, sir. Lastly, on the margin front, historically, we have 18%, 19% margins. Since last two years, we are at 15%. Being the project revenue is going ahead of the Telecom, the margins are partially down, sir. Do you think this 15% margins range will continue? Or is there any possibility in the coming maybe two, three years, four years down the line to get some uptick in the margins?

I always emphasize on this point. We are actually a group of 2 companies in one company. One is Telecom. The other is Project business. So we are maintaining our margins between 4% to 5% in project. And telecom margins, of course, almost they are already in the range where they were -- they used to be. So this is a simple mathematics. If you plug the 2 margins, you will see the mathematics. If project business certainly which is going because of digitalization requirements of our country, so IT projects will certainly be there, and telecom requirements will be there, but then because of continuous pressure on prices in telecom and telecom becoming something like, I would say, it's like now basic requirement, infrastructure requirement, which earlier used to -- not used to be there. And when some asset becomes -- some requirement becomes infrastructure kind of requirement, its growth is always subdued by the pricing pressures. So that's why telecom we will see -- but one point I want to make it clear here because we being telecom company, we are getting a lot of project businesses. And now we are very much in the data center business, where we have focused in future years, which will certainly be growing. We have a lot of expectation from data center business segment. So we are on the right course. We are diversifying our businesses wherever we require. And I don't see that there is any challenge for RailTel as a business ongoing concern. I would say that investors need not to worry.

Okay, sir. Understood. My question is that, I understood the Telecom has a constant margins and Project business we are having 5%-6% margin. In future, in the upcoming [ bid prices ] and upcoming, if you take any future projects, do you have any plan to uptake this Project margin from 5%-6% to 6%-7% kind of thing? That is the question. And second is, as we were talking about this data centers business segment. So what is the contribution as of, and how do you see this one contributing [indiscernible] thing in the coming four, five years? Those are my last two.

Okay. So that's what I tried to explain because we are -- Project margin generally, if you see in the industry, many project organizations, their margins are 2%, 3%, or 4%. Very few even operate in 4% to 5%. So we will strive to remain in this range. And of course, once its share in the overall revenue will increase, there will be pressure. If you see it on overall basis, the margins will be seen as declining, actually, which is actually not. It is because of some mathematics. Our Project business segment is continuously in the same margin range. Our Telecom margins are also in the same margin. But you club together, it is seen as declining, which is not the truth if you see the 2 segments separately. The next question is on your data center. So data center, we have a lot of expectations. Next, maybe '27, '28 financial year, we should be touching around INR 500 crores of revenue from this business segment. We'll certainly be touching this year around INR 300 crores or maybe around that, somewhere more or less in that range. And the way the global scenario in cybersecurity, sovereignty and in Government of India is also thinking in that direction. So we are expecting good business in data center segment. So I think that is what I want to say in this.

[Operator Instructions] Our next question comes from the line of Vishal Periwal with PL India.

Sir, first is on the -- in terms of our profit and loss account, so there is an exceptional P&L loss that we book it. So time though, the numbers are small, but this is pertaining what line item for us?

See, these are based on some basically, I would say, historicity of the debtors based on when the aging of debtors increase, we are counting it in ECL, but this is only provisional. And most of the accounts are -- no, none of the accounts are doubtful. We get all the payments. So some payment if it's getting delayed after, say, 1 year and then 2-year periodicity, we are bringing it into the ECL account just for the sake of transparency. But then none of the accounts are doubtful. So there is nothing to worry. There's no -- these are all routine and payments come and then as our revenues are increasing, so naturally, the ECL size and the debt size is also increasing. We are focusing now very concentrated on the debtors also so that our ECL position is also improved.

Okay. And so when you say ECL, so it is noncash only, that is fair to understand.

Yes, it is noncash.

Okay. Okay. Got it, sir.

And that is why the profit this year, you see that profit has been very flat. But if you not consider ECL, which is actually noncash and it's done. So we are even growing in profit also.

Right, right. Because I think in the same period last year, it was a gain. And this year, it is that loss. So that's why -- I mean the profit...

No, nothing. It can get reversed as soon as we receive those payments.

And second, in terms of our Project side, what is the international order that is there in the Project? And any color can be provided how has been the share incremental opportunities that we are seeing in the international sector?

International orders, if I talk about, so one business we are already executing in Ethiopia, which is around INR 18 crores. It is a small bucket right now. All other orders we have already booked the revenue is already booked like supply of some laptops, some cubes are also supplying. like these cubes, these are the emergency medical kits being supplied by Ministry of External Affairs to various countries in friendly manner in the friendly gesture by Honorable Prime Minister in the time of crisis in those countries. So that is also -- but these are very small numbers. So we are expecting to enter this market cautiously and slowly. We are working out something in Uzbekistan. We are trying -- we are bidding in the tenders also. Uzbekistan, Sri Lanka, we participated, but somehow we didn't get it. Vietnam also, we are trying something Ethiopia, we have now a project office and one project off project director is posted there. The work has started in Ethiopia data center project.

Okay. Got it. And in terms of data center, though, you we did clarify, I mean it's looking pretty healthy in terms of revenue looking also INR 300-odd crores this year and then moving to INR 500-odd crores. So operationally, in terms of -- I mean, like megawatt, what all we are commissioning any operational aspects can be provided, sir?

This year, we are expecting by -- no this year, by May 2027, 10-megawatt facility should be commissioned in Noida. That was the first target. maybe even earlier maybe a month early than May. So next year, we will have this 10 megawatt. Two edge data centers are already commissioned, Mumbai and Gurgaon. They are small capacity data centers. We are also expanding but very marginal capacity of 500 kilowatt in Hyderabad. Noida, we will operational very small capacity in the same place because requirement is there. That is also 500 kilowatt. So these all small additions, whatever we can do. But then we have tie-up with Anant Raj, Adanis and a few other facilities we have visited. Those data centers, we are taking from them and then we are getting empanelment in name of RailTel. So our data center is the first priority today for us, and we are working very consciously, expeditiously to make our presence in this segment.

Okay. Okay. But sir, from a business point of view, when we are putting our data centers, so we are providing the services. But when we, say, do a tie-up with Anant Raj, Adani, then how the business changes vis-a-vis owning the asset and growth.

They are the passive infrastructure we have taken there. But data center services as such will be ours. They are the passive infrastructure where we are taking from them.

[Operator Instructions] A follow-up question comes from the line of Sanjesh with ICICI Securities.

Sir, just to clarify on this data center piece, when you say that you are taking passive infrastructure from the -- some of the passive players, we are actually providing the cloud services, right? We are putting our own server and then we are selling the capacity on the server. We are not actually renting the data center, correct?

No, no. Yes, you are right.

So we are providing the managed and the cloud services. We are not actually providing the data center service there.

We are providing managed services, yes.

We have provided managed services, that's the right way to put it out.

Data center, we have our own and we have -- we are taking on lease also from others like these 2 players and then operation becomes us.

Correct. And then we do the managed services. We set up our own servers and then we lease it. Are we planning to go into the GPUs as well? Or we are right now only on the normal...

We are in the process. We are in the process. And you will see something in news. We are working very hard on this.

For the AI services...

Yes, yes. AI also, we have started working. We are working on a project which is likely to come from railways on their AI requirement. So we are also working in AI. You are rightly and very pointed out this fact that AI also we have entered and we are working on a few use cases.

Got it. So we will be building SLMs or the SLMs will belong to the railways?

See, it is up to the customer. If they want to retain the -- these will be certainly SLMs, not the LLMs. And so it depends. We are in discussion. I would -- it would be too premature to say anything. But even if it is there, so because railway use cases will not be usable anywhere else. Indian Railways is a different organization. It's very complex structure. So those use cases may not be used elsewhere.

Got it. So it will be...

And they will be completely air-gapped. Air gapped-system, not the public cloud, not those kind of things.

[Operator Instructions] Thank you. As there are no further questions from the participant, I would like to hand the conference over to the management for the closing remarks. Thank you, and over to you, team.

Once again, thank you, all the investors who have participated in our investor call. That is all I want to say. Thank you very much.

Thank you so much, sir. Ladies and gentlemen, on behalf of PL Capital, thank you for joining us, and you may now disconnect your lines.