RITES Limited (RITES.NS) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. I'm Karthikeyan, moderator for this conference. Welcome to the conference call of RITES Limited to discuss its Q1 FY '26 results. We have with us today, Mr. Rahul Mithal, Chairman and Managing Director; Dr. Deepak Tripathi, Director, Technical and Director of Projects, additional charge; and Mr. Krishna Gopal Agarwal, Director Finance and Chief Financial Officer. [Operator Instructions] Please note, this conference is being recorded. [Operator Instructions] Now I would like to hand over the floor to Mr. Rahul Mithal, Chairman and Managing Director, RITES Limited. Thank you, and over to you, sir.

Morning. Thank you. Let me start with giving the safe harbor statement. The presentation and the press release, which we uploaded on our website and exchanges yesterday, and discussions during the call today may have some forward-looking statements. These statements consider the environment we see as of today and obviously carry a risk in terms of uncertainty because of which the actual results could be different, and we do not undertake to update those statements periodically. So let me give you a brief overview of the quarter 1 results. It's been flat. The results have been flat. The order book, as you see, about INR 8,800 crores, bulk of it, in fact, about INR 3,500 crores from about 300-plus orders was added in the last 2 quarters of the last FY. So now we are at the stage where we have to focus on expeditious execution, which we foresee starting from the latter part of this FY, and the guidance which we gave at the beginning of the FY that we will try and definitely surpass the previous year's performance, we are on track. All these orders are at the various stages of finalizing the design, fixing of the executing agencies. So the revenues will start floating in -- flowing in by latter part of this FY. So that's the opening broad where we have been in quarter 1 and where we see moving forward. And I'll go into more details as I answer individual questions. Thank you.

[Operator Instructions] The first question comes from Harshit Kapadia from Elara Securities.

So just one question right now. On the consultancy side, we have seen the growth coming back. Now have we seen a broad-based growth? Or is the consultancy also seeing growth only from certain sectors? And followed to that would be the quality assurance, is that now normalized? Or are we going to see a price on the quality assurance?

So the first part of the question, yes, the consultancy has shown an overall growth of 7%. And in fact, that is what has helped us see a growth in the EBITDA by about 8%, a focus on the high-margin consultancy orders. So you see the orders which we have been getting in the last -- latter part of the last FY, the consultancy portion of those orders, those have started generating revenue, and those will continue to generate revenue because the initial milestones are in the designs, et cetera. And as the execution starts the latter part of the FY, the other elements of the turnkey and top line will keep adding on. As far as -- and this is across sectors, not only one particular vertical, this is broad-based across -- because since the orders were broad-based, covering all the sectors, about 13 different verticals that we have. As far as quality assurance is concerned, quality assurance has been showing a regular uptick. And the worst to my mind, as I had mentioned in the beginning of this FY also is over. We will definitely keep on growing both not only sequentially in terms of quality assurance, in terms of getting more orders, in terms of revenue realization from the recent orders, which we got in quality assurance from the non -- on the newer clients, the non-India Railway client, so quality assurance will only show an uptick both sequentially and the entire FY vis-a-vis the last FY.

The next question comes from Anand B from Ksema Wealth Private Limited.

Yes. Regarding your export orders, I remember in the previous con call, you mentioned the 10 locomotives by around 70% to 80% of the execution is done and deliveries will be starting from Q1 of this time. So I think in the press release, you mentioned that the deliveries have already started. So is there a confirmation that the deliveries have already started. And can we see a realization of the revenue by this quarter or the next quarter?

Yes. So yes, it's correct. The -- I had mentioned that the 10 locomotives to Mozambique will start -- the deliveries will start. And the first 2 locomotives have got shipped out in the first week of July, early July. So the revenue booking happens when the actual shipping out takes place, the bill of lading. So these 2 locomotives revenue will definitely figure in Q2. And the other 8 locomotives are also on track in various stages in the pipeline. So definitely, in the coming quarters, these will start generating revenue. So yes, they -- the booking of revenue of these 2 shipments did not happen in Q1. They will happen in Q2 because the actual shipment took place about early July. But yes, the shipments have started.

Okay. Okay. And you said like in Q2 or Q3, we'll be able to see realization of the impact in locomotives or just 2 or 3?

No, no, no. These 2, which have already got shipped out, these for sure will get booked in Q2 and each of the balance 8 are in various stages. Successively each quarter, they will -- as the bill of lading gets made, as they get shipped out, Q2, Q3, Q4, we will try and definitely complete the entire order.

The next question comes from Shreyans Mehta from Equirus Securities.

Sir, my first question is, can we expect -- is it fair to assume in terms of margins the worse is behind us because now we are talking about export contribution to kick in. So hopefully, that will also add to our margins going forward?

Yes, you are correct in your assessment. If you recall in the guidance which I gave at the beginning of this FY, I was saying that we -- the worst seems to be over, especially in terms of execution coming in, in this FY from the export orders also. And we have said that we'll aim at overall, on an annual basis, an EBITDA margin of about 20-odd percent and PAT margin of about 15-odd percent. And in Q1, because of the uptick in the consultancy contribution, in fact, has been higher both in the EBITDA and the PAT margin. And so I think, yes, definitely, we should be able to maintain those levels on a minimum on an overall annual basis.

Great. Great. And sir, secondly, if you can help us with the cash on the books as on date?

The cash balance is about INR 800 crores, and client fund is about INR 2,400 crores.

We have next question from Viraj Mithani from Jupiter Financial.

My question is, what would be your guidance for this year and next year since things are -- like you're saying the worst seems to be over. Can you give some color on that?

So work has just started. We have got the orders now. We have to really expedite the execution, these are very young orders. As I said, out of INR 8,800 crores, about INR 3,500 crores are very young. So these are young orders, which need to be executed. And yes, in terms of the only sequentially uptake and on an annual basis, whether in terms of which I had given the guidance at the beginning of the year, definitely, we will surpass by a substantial amount the top line vis-a-vis last year. And as I said, we'll be able to maintain, on an annual basis, EBITDA margins of about 20% and PAT margins of about 15%.

[Operator Instructions] We have a follow-up question from Harshit Kapadia from Elara Securities.

Just wanted to check on the margins on the consultancy side. They have been something above 40, 45x (sic) [ 40%, 45% ] if you look at last 2, 3 years. Now we are in the vicinity of 35%, 40%. Now should we look at this to be a more sustainable number? Or is there a possibility that we can move towards 45% margins?

No. I think you see, you must appreciate that these 40%, 45% margins traditionally included the QA contribution, quality assurance contribution also, which was definitely earlier on a much higher contribution. So the levels of about 35% is what is -- now especially a large percentage of our orders now across verticals are on a competitive basis, and there's huge competition. Even in our international consultancy orders, which we are getting, if you compare the trend of margins in that vis-a-vis earlier international orders are definitely much more competitive. So realistically, the 35-odd percent range, anything between 30% to 35% is what on a consol basis, on a consolidated basis, the consultancy margins would settle down over a period of time. And that is what is contributing to the overall EBITDA margins of about 20% and PAT margins of about 15%.

We have the next question from Vishal Periwal from Antique Stockbroking.

Sir, in terms of our Bangladesh order, can you give some color like where we are in terms of design and approvals? And second, related to that, like when that order can enter into revenue recognition stage?

So Bangladesh is a complex order in the sense that there are different types of coaches. There are about 7 different types of coaches. And now in the last few months, there has been a very substantial progress in that in terms of regular meetings, interactions with the manufacturer and the Bangladesh Railway to finalize the design. Most of the design elements are getting finalized and the ordering of the detailed subassembly for the prototype has started. So we are foreseeing that definitely the first rake of 20 coaches, we are aiming that before the end of the FY, we should be in a position with because it will require earlier individual prototype approvals of each type of coach and then the mass manufacturer will start. So our assessment is that we are aiming that the first rake of 20 coaches definitely before the end of FY, we should be aspiring to send it. And so that's the time when the first revenue bookings we are aiming for in quarter 4 from this order.

Okay. And this order will conclude by when, sir, tentatively?

So the -- once the mass manufacture starts and considering that we have a huge manufacturing capacity, that's not an issue. I -- if we are on track in the first rake, we are able to push through in quarter 4, then we should be able to definitely aim to complete the entire order in the next FY.

The next question comes from Uttam Kumar Srimal from Axis Securities.

Sir, currently, our turnkey order book stands at INR 4,209 crores. So sir, what is the execution paid for these orders, time frame?

Yes. So Uttam, the -- as I mentioned, a large chunk of these orders have come in the last 2 quarters and more so also recently and even in this quarter. So if you take an average time span of any infrastructure of about 2.5 to 3 years, the first about 6 to 9 months goes in the design and fixing of the executing agency. So we are very closely trying to ensure that the actual physical construction in most of these orders starts in the next 3 to 6 months, so that by quarter 3, when the actual construction at the site starts, the revenue booking in Q3, Q4 starts. So that's the broad -- on a bigger picture, you see bulk of the turnkey order book, the revenue booking should start coming in from latter part of this FY. And on an average, these projects have a time span of about 3 years.

Sir, can you quantify how much we can book in this year for turnkey in terms of revenue?

That is -- that will be kind of -- it's too -- I don't want to give figures wherein it's, as I said, giving a mix of the orders, depending on the time frame, definitely on an overall basis, what we will aim is that they contribute -- the turnkey segment contribute substantially so that this guidance that we surpassed by a substantial amount, the revenue vis-a-vis last FY, that we will definitely ensure. But what will be the figure, I think that will be speculation at this stage.

We have a follow-up question from Anand B from Ksema Wealth.

So I just want to know like what would be your estimated segment breakup between the different sectors like consultancy, export, turnkey and leasing in terms of percentage for FY '26?

Sorry, your first sentence, I lost you, sorry. Could you repeat, please?

I'm asking for like a segment breakup between the verticals, the consultancy, export, leasing, turnkey in terms of percentage for FY '26. Do we have an estimate?

Yes. So you see, if you look at -- let's work out reverse. If you can see order book, consultancy is about INR 2,900 crores out of INR 8,800 crores, which is roughly about nearly 30% plus. So the turnkey element, which I mentioned in the last response, will start generating revenue by latter part of this FY. The export revenue definitely will start picking up as I answered. So to my assessment, we definitely aim that the high-margin, the contribution, which is primarily consultancy and export [Audio Gap] of the mix. And the balance would be picked up by turnkey. So the -- on a nutshell, the consultancy, export and leasing elements, which are primarily the high-margin contributors, that we would definitely aim to be at least 60% plus, so that we have a safe margin level that we have been guiding at. And then turnkey contributes to about 30-odd percent.

I'm really sorry, in between I kind of lost you. Can you just repeat in terms of breakup or consultancy, leasing and export?

So that is -- again, as I said, would vary on a quarter-to-quarter basis. And again, what would be the element of each one of them, again, export, as I said, 10 locomotives would go, we would definitely aim at one rake from Bangladesh. So again, giving a mix of each one of them right now is not -- I would call it too speculative. Yes, definitely, we would keep tweaking with an overall aim at keeping the EBITDA margins at 20%. So focus -- as the quarters evolve, focus on the high margins even within the export, consultancy and leasing, so that at least 60% plus remains the mix of these and turnkey doesn't [Audio Gap] so that the hit on the overall margin is not substantial.

The next question comes from Sundar from Elara Capital.

This is Nemish Sundar from Elara. Sir, I just wanted to understand the payment realization from the Bangladesh order? So would it be milestone-based or would it be at the end of the project? And have you received any advance for that?

Yes, we have received the advance and the -- like in all export orders, the revenue book -- is booked in the -- as the bill of lading gets made. So whether it is the Mozambique order or the Bangladesh order. And revenue realization normally is not an issue in them because all of them are covered by LCs. So -- and for Bangladesh order, we've got the advance also.

Okay. And sir, any update on the Zimbabwe export order?

The Zimbabwe order is, as I said, we have not added it still to our order book. It's about INR 700-plus crores, it's not part of the order book because we were very clear, even though the agreement is signed, the funding is not fully in place. So while they are pursuing with us and the Afreximbank, it is yet to be fully in place. The term sheet is yet to be fully accepted. So we are still hopeful that it's been quite a long time, more than 2.5 years, that it sees the light of the day. But as of now, it's not part of the order book.

We have a follow-up question from Viraj Mithani from Jupiter Financial.

Yes, sir. Can you give some color on our export? How are we doing on those fronts?

Sorry, Viraj. Could you repeat?

Color on the export side, since you said we'll be focusing on exports this year. So how are we doing on this front? And sir, a follow-up to that, we have signed so many MOUs. So when the benefit of this MOU will come to us?

Right. So as far as export is concerned, there were 2 guidance, if you remember, which we had given. One was that we will aim for getting one export order. I'm talking of export of rolling stock, the Expotech portion and not the international project consultancy. So in the export of rolling stock, we have maintained that. I mean even in this quarter, we've got one fresh export order from African Railway Company. So that's as far as adding to the orders of export, which is about INR 1,400 crores now. In terms of execution, the guidance which we had given that the Mozambique shipments will start by early this year, and they have started. The first 2 locomotives have gone in early July. And we are definitely aiming to execute the entire order in this year. The execution for the Bangladesh order will be, as I mentioned some time back that we will try and start aiming that the first rake starts by -- before the end of the FY. As far as the question on MOUs is concerned, you see each of these MOUs start a collaboration, and these are all nonfinancial, nonbinding MOUs. They set a collaboration process. So giving an example, the MOU, which we signed with Etihad Rail late last year, gave us results, and we have already got our first order with business collaboration with Etihad Rail in Jordan. We are doing a consultancy order -- consultancy project in Jordan. And this collaboration, this interaction has already started -- has opened up a lot many opportunities, which I'm sure in the coming quarters will convert into orders. So each of these MOUs, this is just an example, our strategic collaborative MOUs, which as the opportunity comes up because you're collaborating and constantly in touch with the MOU partner, generate orders.

We have a follow-up question from Mr. Vishal Periwal from Antique Stockbroking.

Sir, on the Mozambique order that we have shipped, so what sort of margins that is looking for the export now for us?

You see one thing is very clear that both these orders -- when we -- after a hiatus of about 3 to 4 years, when we got the first order early in '24, the Mozambique order and then in the quarter 1 of last year, we got the Bangladesh order. These 2 were the first orders in the last 5 decades, which were on a global competitive order, and they were not on the line of credit EXIM Bank EOI basis. So definitely, the margins are -- now you're competing on a global tender are -- the erstwhile export margins, which were about minimum 20%, 25% plus, they are nowhere near that. But yes, they are competitive. And what we will try and maximize is that the more expeditious execution that you do even you inch up by at least 1 or 2 percentages more by the earlier envisaged margins. So I can only say that the overall Expotech margin will be definitely lower, yes, in double digits, but definitely not in the range of 25%, which are historically there.

Okay. So maybe a range wise, if not exact, it will be more like 10%, 15% or higher?

You see every order, Vishal, will have a different margin. But I think, let me put it this way, it will be in a double digit, but definitely not above 20%.

[Operator Instructions] We have a follow-up question from Anand B from Ksema Wealth Private Limited.

I just want to get a clarity on the orders that we got in the last 3 quarters, specifically the Ntokoto Rail Holdings and the Tsiko Africa Logistics, can you shed some light on...

Sorry?

These 3 specific export orders that we got in the last 3 quarters. One is the Ntokoto Rail Holdings, that order, the 2 orders from there. And the Tsiko Africa Logistics, the order that we got in Q2, so can you shed some light on that and when we can get revenue realization this year?

Yes. So Anand, this is a very interesting initiative which we have taken and it opens up a huge potential. All these 3 orders, while from different clients are basically the similar orders. They are orders -- you see Indian railways now has a large number of in-service diesel locomotives, which are available for spare now because of the large-scale electrification. And most of these high horsepower diesel locomotives have a minimum of 15 to 20 years life left at least. And they are at a very good competitive price. The challenge only is that this is on broad gage, Indian Railways is on broad gauge which is 1,676 millimeters. And South Africa is on Cape gauge, which is 1,067 millimeters. So these locomotives have to be modified to be able to run on that network. So considering we took this as a challenge because it's a win-win situation for all, for Indian Railways because these locomotives can go it's -- they're available at a competitive price for the client. So we have started work on that. We've gone into detailed designing on how to go about it. The designs are at a very advanced stage. They've got nearly finalized. We started inventing the requirement for it. So the aim is to at least have one prototype ready. On paper, all the designs are ready and the sourcing has started. But the aim is to get at least one prototype ready and get it cleared by the African Railways by end of this FY. Once the first prototype is ready, then the mass manufacturer in the design win would have been done, and not only opens up these 9 locomotive orders which you've got, but it also opens a huge amount of potential for the more than 100-plus locomotives, which are available to be spared for export.

Okay. And what about the Ntokoto Rail Holdings? Is that...

All of these orders, there are 4 different orders totaling to 11 locomotives, which are including the most recent 2, which we received in this quarter. So now there is 4 different orders of all similar, different clients all in South Africa. And this would not only open opportunities in South Africa, but there are about 11 different countries in Africa, which has the Cape gauge. So all of these -- once the first prototype physically runs on that system and gets all the necessary statutory approvals, will -- then the mass manufacture would not be an issue at all.