RITES Limited (RITES) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. I'm Steve, moderator for this conference. Welcome to the conference call of RITES Limited to discuss its Q2 FY '25 results. We have with us today, Shri Rahul Mithal; Chairman and Managing Director; Shri Arun Kumar Singh, Director, Projects; Dr. Deepak Tripathi, Director, Technical; and Shri Krishna Gopal Agarwal , Director, Finance. [Operator Instructions] Please note, this conference is being recorded. Now, I would like to hand over the floor to Shri Rahul Mithal, Chairman and Managing Director, RITES Limited. Thank you, and over to you, sir.

Good morning, everyone. I begin with 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 materially different, and we do not undertake to update those statements periodically. To begin with, let me give you a brief overview of the quarter 2, and then we leave the floor open for questions. Quarter 2 has been a tough quarter in terms of the execution. Some of our projects in different geographies were impacted due to various reasons, as you are aware of many infrastructure projects across various geographies being impacted in this quarter. We are consolidating and our focus has to be and will be in the coming quarters to continue increasing the execution and the sequential trend in terms of revenue, about 11% to 12% from quarter 1 to quarter 2. That is what we will consolidate upon in the coming quarters, so that the effort is to be able to reach as close as possible on an FY basis as close as possible to the previous FY. In terms of the order inflows, we are quite aggressively moving forward in maintaining our track record of being a one order a day company. And this quarter itself, we got 90-plus orders totaling to about INR 700-plus crores. And this, in 1 quarter was, in fact, equal to the -- more, in fact, much more than even the entire H1 of previous FY. So we need to keep consolidating our order book and also, we will continue to focus on increased execution in the balanced quarters of this FY. With these broad opening comments, I leave the floor open for questions.

[Operator Instructions] The first question is from the line of Shreyans Mehta from Equirus.

My first question is as far as the margins are concerned, if you see, sir, after a long period of time, the margins have actually come down below 20%. So just wanted to understand, are there any one-offs during the quarter? And secondly, in terms of how should we see the margin trajectory going forward? That's the first question.

So in terms of margin, if you see, we are in the range of about just below 20% EBITDA margins, and PAT margins about 15% on a consolidated basis. We will continue to try and improve as execution improves in Q3, Q4. There will be a slight uptick in the margin, but we will remain in this range. If you see H1 also or in overall, our margins -- our EBITDA margin on a consol is about 21% and PAT margin is 16%. So in the range of about 20%, 21% would be the range that is the range of EBITDA and about 15% to 16% of PAT margin moving forward even on an FY basis.

Got it. Got it. Sir, second question is, as far as our export orders are concerned, at what stage...

Shreyans, you can come back in the queue, please. Thank you.

The next question is from the line of Vinamra Hirawat from JM Financial.

So I wonder what is the ratio of the order book where the share of nomination and competition orders will stabilize? We're currently at around 2/3 and 1/3. Where do you see this stabilizing? And are we seeing further margin pressure as nomination orders go up in any of the segments moving forward?

Yes. Vinamra, so, the ratio which you see in the order book is the ratio of the order book. If you see the fresh intake of orders, the ratio of competitive is even higher. It's now in the range of about 70-odd percent plus. And this trend is only increasing from quarter-to-quarter. I see this only increasing. It will always remain, I think, 70% plus in terms of competitive on an average out basis and will only increase. In terms of margin, yes, because of this and continuously trying to get more orders also, there will be a stress on margin. But I foresee, as I told to the previous caller, that on an averaged out basis, I see EBITDA margins hovering around about 20-odd percent and PAT margins hovering around about 15-odd percent on a consol basis.

Got it. Got it. Just another question. Looking a little further out, maybe in FY '27 and further. I want to know how the export scenario looks. Do we still see...

Vinamra, you can come back in a queue for the second question, please.

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

Yes, sir. My question is about exports only. Can you give some color how is all been panning out. I understand we got 3 orders so far and the execution timeline, that's my question.

Viraj, we started breaking that hiatus of about 3 to 4 years of no export order. We got the first order of about INR 300 crores in Q4. Second order was INR 900 crores in Q1. In Q2, we got another order of South Africa about INR 35 crores. And in Q2 -- in Q3 also, in the 1 month or so, which has happened, we've got another order of about INR 50-odd crores from South Africa. So we are trying and breaking that gap. We are continuously now getting orders. The average timeline and some of these are locomotive and some of them are coach orders, like the Bangladesh INR 900 crores plus is a coach order. They have a finite timeline. What we are definitely expecting is that the first revenues from these orders will start coming in by Q1 of next FY. And most of these orders will generate a substantial revenue if you see the entire next FY. So, the effort of trying to continuously keep on now getting orders, at least our aspiration is to get 1 export order, at least 1 every quarter. And then by next FY, the existing orders start generating revenue.

And sir, regarding export only, how is the Bangladesh export panning out because of the geological uncertainty there?

So it is an EIB funded project, so there is no problem in terms of the funding. All necessary approvals, paper work is in place. The design approvals are going on for the prototype. The setback was only temporary for a month or so. So it has -- the timeline has slipped by about 2, 3 months. So what we were aiming to somehow slip through some coaches by Q4 or early Q1 may slide by a few months, but it's on track.

Next question is from the line of Parimal Mithani from Credential Investments.

I just wanted to know, sir, the reason for quality assurances business is due to the competitive nature? Or how do you look into it, if you can explain that.

Yes. I'm glad you asked that, Parimal. You see, we were doing -- quality assurance was a good margin, high revenue source of revenue for us for last nearly 5 decades. And more than 2/3 of this was from Indian Railways as a client, and this was on a nomination basis with a good margin. Early last year, the work was divided for the first time through an open tender between 4 players. So the volume went down by 30%, came down to about 30%, and the rates came down to about 20% of the rates. So you can see a double hit. And these orders against the new contract, the inspection call started hitting in by latter part of the last FY. And now that is the new rates. So that's why this has given us a hit. Having said that, parallelly, last year itself, from early last year, we started diversifying in to a lot of number of other clients in the QA business. And if you compare from last year, within 1 year, what used to be about 60% plus or 2/3 of IR as a client, in this Q2, it is down to about -- it's become reverse, about 40% as IR as a client and 60% plus as non-IR as a client. So we have taken work across a number of non-IR clients, both domestic and international. We got our first order from Sri Lanka. So with this, in the coming quarters, our aim is to come back at least in terms of the total revenue from the stream to the pre -- early last year levels, pre this tender.

And sir, just a follow-up on that.

Sorry to interrupt, sir. The current participant has been disconnected. The next question is from the line of Manan Poladia.

Sir, just a question, since you said that our split of business from IR to outside business has switched, is that also something that has a bearing on the margins? Were we getting better pricing for the railway business that we're not now getting within the outside business that we are trying to do?

Yes. So Manan, I'm specifically talking of the QA stream of my business, right? We do a lot of other work for IR also. This is QA stream, the inspection stream of revenue, which, as I said, was about 2/3 IR and 1/3 non-IR. And obviously, now that we are diversifying and have been doing it in the last year or so, taking orders across non-IR, the margins have taken comparatively a huge hit. The rates have also gone down substantially. And if you analyze that, that is one of the main hits if you compare Y-o-Y. All other streams of revenue, whether it is project consultancy, leasing, turnkey, et cetera, have been steadily growing, they have reached all-time highs, in fact, in some quarters. The hit has been due to contribution -- different contribution from this particular stream of revenue. And as I mentioned to one of the earlier callers, the export revenue, which has not been there for last few quarters, which is expected to pick up by next FY.

Right, sir. I understand that. Just a second question on the REMCL business.

Sorry to interrupt, sir. Please come back in the question queue for further questions. The next question is from the line of Shreyans Mehta from Equirus.

So sir, coming to FY '25, as you said, probably export orders traction should start from FY '26. So how should one look at FY '25 in terms of revenues, given that export orders wouldn't be there? And second follow-up would be once the export orders start trickling in, will the working capital cycle be similar to what we had earlier? Or would there be any changes?

I didn't get your follow-up. When the export orders keep coming up, I didn't get that.

When the export orders start contributing, say, FY '26 onwards, will the working capital cycle remain the same as we had earlier? How will the working capital cycle work?

So in terms of FY '25, as I said at the outset, the focus now normally, Q3, Q4 gives the best execution for infrastructure projects. The aim is to really step on the gas and execute all our infrastructure projects. We've got a huge order book now, and we are growing not only in the order book. But as I said, the focus has to the increased execution, both in the consultancy as well as the turnkey so that we come as closer to possible as the previous FY. And as far as the export revenue -- will definitely start coming in by early next FY. And this large order book, which is -- we have now about INR 1,300-odd crores of export orders, plus some orders will come up also. In terms of that, they will start generating revenue in next FY. Working capital requirement for exports has been hardly any. That's been our traditional model, which we have been doing export of rolling stock traditionally. So working capital requirement is hardly -- has been minimal, and it will remain in that range.

The next question is from the line of Vinamra Hirawat from JM Financial.

My question is regarding execution and sales. So can we know why execution has been low across multiple geographies, like you said in the introduction. Is there anything other than the monsoon? And any possibility of our sales having been impacted due to lower government spending than expected in the first half of this fiscal year?

I don't think there is any substantial reason except the reason that you pointed. In terms of infrastructure, there have been certain geographies which were definitely impacted due to the rains, et cetera. But if you see Q1 to Q2 sequentially, we have tried to step on it, and there has been about 11% to 12% growth in the operating revenue. But yes, if you compare Y-o-Y, it is definitely lower, about 7%-odd lower. So we need to -- and as I said, in Q3, Q4, we will be able to definitely -- the visibility is quite clear in terms of execution at the ground level. There doesn't seem to have any major finite substantial reason why they should not get the projects, the execution level should not improve in Q3, Q4.

So it's not because of lower government spending, it's more because of just monsoon in certain geographies?

No, no, no, not at all. We have got all our -- we have about 600-plus orders of consultancy and turnkey across totaling to the INR 6,580 crores. And this definitely is -- these are just in terms of -- you see the factor, which you saw in across certain geographies across the country. And so I don't see any problem at all in stepping up and seeing at least minimum, we've already seen Q1 to Q2 about 11%, 12% growth. I see in terms of execution, even a bigger substantial execution growth moving sequentially.

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

Sir, my question is on the export order only. So you said INR 1,300 crores of the export order would be executed or what period of time, sir, once it starts from FY '25?

You see, Viraj, normally, locomotives take about on an average 18 months and coaches about 15-odd months. These orders are locomotives and coaches, and the coaches one for Bangladesh got affected by about, let's say, 3 to 4 months. So putting that timeframe of about 18-odd months, these orders are already in our city. I think next FY, we have a bright chance of executing a substantial chunk. Our aim would be to, I would say, rather than putting a specific percentage, but the INR 1,300-odd crores, we would like to execute a substantial chunk of it in the coming FY.

And sir, a follow-up on that, the margins on the export orders would be in range of 25% EBITDA and 20% PAT, in to the export orders?

No. In fact, this is definitely, in fact, maybe I've explained that earlier when we've got these orders for the first time breaking hiatus of about 3 to 4 years, most of or -- nearly all the export orders which we have got in the last 4 to 5 decades have been through the line of credit through EXIM Bank tenders, which were primarily more or less on a kind of a nomination mode. The line of credit has completely become dry for export of rolling stock in the last 3 to 4 years. All these orders, which we are getting, are non-line of credit orders through a competitive global tender bidding mode. It is, like I said, the Bangladesh order is an EIB-funded tender, where there was huge competition across the countries. So obviously, those levels of margins are in no way possible moving forward in the export stream. The margins will definitely be better than the turnkey segment, but definitely not in a range of the traditional export 25%-odd margins.

What would be the margin, say, in that case would be in what range would be? Can you give some indicative range?

They would -- it's premature. They see each of these have been built at different margins. And the aim would be to execute them quicker so that we get margins even better than what we've bid at. So it will be very difficult right now to peg 1 figure. Each one of them has different levels of margins. But for sure, I mean, in terms of very clear clarity, they are definitely well below 25-odd percent.

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

Sir, in terms of follow-up to the Quality Assurance business, you launched this thing called VISTAR. So how does it help in terms of -- can you explain that, sir? And is it going to be margin accretive to us?

Yes. I'm glad, Parimal, you asked this question. This is a very important initiative from us for getting cutting-edge technology across our areas. And QA being a very important area, this is basically the use of AI for inspections of rail at our SAIL Bhilai. And this is a very good start. First of all, it improves the quality of inspection. It's a very important safety-related aspect. And these are early days. It is to get in this technology to first improve the quality and then be able to use this technology not only in rail but other safety items that we inspect. And then that is the time when we'll be able to capitalize on this, both in domestic and international market that AI-based inspection so that they start generating more and more profitable orders. Right now, these are early days, a very good initiative of try and have a breakthrough in using AI for this safety items inspection.

The next question is from the line of Manan Poladia from MKP Securities.

Sir, my second question was on the REMC business. You had said that we are putting out tenders for the 700 megawatt, I think, plant. I was just wondering if there is any update on that? And if you could also tell me how we are thinking of the REMC business for, say, the next 3 to 5 years going forward, what sort of capacities are we looking at?

So in terms of the REMC business, there has been -- it has been performing well, as you would have lean it has been successfully growing and giving profits. It's giving a dividend of about INR 20-odd crores profit in this quarter, also giving good dividend to RITES and IR. The tender for the -- we finalized 1 tender for INR 900 crores -- 900 megawatts. The 600 megawatts is also finalized. The PPA is being done. As of now, the 695 megawatt is being reviewed.

The next question is from the line of Uttam Kumar from Axis Securities.

Sir, what is our current status of Zimbabwe order that we got around of INR 500 crores. Any update on that?

Yes. So the Zimbabwe, as you would be recalling, the Zimbabwe was an agreement signed last year. It is about INR 800-odd crores. And we did not -- it's about INR 700-odd crores. We did not enter it into our order book considering that this was a clause in the agreement, that it was subject to funding from the Afreximbank. We have been continuously having deliberations with the NRZ and Afreximbank bank. We are quite hopeful that things the way it has been moving forward, they have had some basic in-principal approvals in place. However, we are stepping cautiously. We don't want to expose -- take any liability until the clear funding letter comes from Afreximbank. But the way things are moving, I am hopeful that this should mature in the coming months.

The next question is from the line of Gaurav, an Individual Investor.

My question was on the export front. Like you said, a major chunk of the order book will be executed during this year. So what number can we expect at the end of the fiscal year? And how do you see it going forward?

So as I said, Gaurav, our order book of export as it stands now is about INR 1,300-odd crores. And we expect that this will start catching revenue by early next FY because in the export stream of revenue, it's only when a sizable lot is manufactured and it's shipped out and we get the Bill of Lading that we recognize the revenue. So the recognition of revenue will start sometime early next FY. And considering an average lead time of about 18-odd months, 18 to 20-plus months for manufacture of locomotives and export and coaches also, I see that the INR 1,300 crores, if you calculate backward would -- as I said, substantial amount would get booked in the next FY.

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

One question on the margins for turnkey. So [Technical Difficulty]...

I can't hear you clearly. I lost you.

Is this better now?

Yes, yes, go ahead.

So on the margin front, for turnkey segment, on a quarterly basis, we are seeing roughly -- clocking in roughly like 1.%, 1.1%-odd. So is that fair to say probably like this is kind of a new run rate for turnkey for us, a turnkey business for us?

You see, yes, turnkey business by itself hovers around about 2% to 3% margin. This one has been substantially lower because most of these projects are now -- many of them are in the final execution stages, especially the IR part projects that we were doing like electrification, et cetera. So at the latter stage, where the execution is there and most of the material has come and the revenue has been booked so margin go down. But then normally, on an overall basis, certain key projects would hover around about 2-odd or 2% to 3% maximum.

Okay. So this first half run rate of 1%, 1.1%, I mean, is expected to move up to roughly to 2%, maybe like 3%. Is that fair to understand?

As the older lot of turnkey projects finish and the new orders that we have get, as they start their execution, and there is some overlap also of some of the earlier projects coming into Q3, Q4, it will definitely creep up slowly. And on an average basis, if you see turnkey projects, they would hover around about 2-odd percent.

So if I may ask one more. I think you did mention your order book has 63% on a competitive bidding. So on a segment wise, I mean, like how exactly we will share where we have a nomination, where exactly the full order book is competitive bidding, so between turnkey export and consultancy?

See, again, as I mentioned, 63% is the current order book. The fresh orders are all about 70% plus on competitive bidding. As I mentioned to one of the previous callers, all the exports are all on competitive. The consultancy also is hugely on a competitive basis. So they average out around about 80% of these are competitive basis. Where we may be still getting some orders on nomination is in our leasing business where, traditionally, there have been some clients who continue old PSUs where we've been working some. But that's also opening up, and that is now about 50%, 60% competitive. So on an average, it is -- fresh orders are all about 70%, 75% on a competitive basis.

The next question is from the line of Vinamra Hirawat from JM Financial.

So sir, your breaking your export orders hiatus, it's been great news. I want to know how exports order inflows will look 2, 3 years down the line. Are we still going to see close to INR 1,000 crore order inflows like we have this year? Or with our push on competitive orders, can it even go higher in a couple of years out order inflows than it has been this year, which is the first year we've broken our export hiatus?

Thank you. I'm glad you asked this question, a very favorite pet area of mine because it's required a huge lot of effort to do a lot of business reengineering to be able to compete in the global market and get orders for the first time in 5 decades on a global tender basis. And having broken that and now tasted blood, we are moving forward and trying to get orders, whether big or small, in every quarter. So subsequent to that, we got some orders INR 30 crores, INR 40 crores from 2 orders from South Africa. And these were for in-service diesel locomotors, which had to be modified to their gauge and exported. There's a huge potential in that for a large number of in-service locomotives lying with Indian Railways where we are looking for markets to export them. And with now seeing the hand of how to market intelligence for global tenders, I definitely see this picking up again because we have reengineered the way we are tackling the export business and not only waiting for the line of credit opportunities, which have hardly come in the last 3 to 4 years. There have been no line of credit exporter of rolling stock opportunities. So I see this growing on a steady basis in the coming years.

Got it. And you said you expect margins to be around 20% on the segment, right?

I didn't mention any margin for exports. I mentioned an overall margin that we are aiming at the current levels of EBITDA of around 20-odd percent and PAT around 15-odd percent. That's our aspirational target, and we hope that even though with the changed business scenario and the extreme levels of competition, which within 1 year, the fresh orders, we used to get about -- the year itself has changed from about 50-50 to about 70% plus on a competitive basis on an overall across my vertical. So that's the level of margin that we are aiming that we should be able to aim to secure.

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

Yes, sir. With all these agreements and export orders all coming in, what would the FY '26 look like? Any guidance what that would be?

You see we -- this year was that -- is and will be the toughest year for us, as we had said at the beginning of the FY. It's a year of consolidation. We are trying to increase and improve the execution in Q3, Q4 to come as close as possible on an FY basis to the previous FY. With that, you correctly said, with the export stream contributing in FY '26, I definitely see a double-digit healthy growth vis-a-vis the current FY in the next FY.

You mean in terms of revenue, right, top line, with double-digit growth?

Yes, definitely in terms of top line because that's -- as you see, the order book from export itself will contribute a substantial amount with literally a 0 contribution in this FY in terms of export. So that itself -- and other streams have been continuously growing. Project consultancy has been growing. Turnkey has been growing. So in terms of FY '26, we should see a substantial, healthy growth vis-a-vis FY '25.

And sir, color on Etihad. The MOU with Etihad will be for what?

Viraj, I request you to come back in the queue for the next.

The next question is from the line of Harshit Jitendra from Elara Capital.

I know, sir, we are having some difficult times at this point in time, and I think you are doing a very good job feeling through this difficult time. Just a question from my side. Is the worst over as far as quality assurance is concerned, as far as in terms of growth? And if you can also give a number for the quarter in terms of what is the quality assurance number compared to Y-o-Y last year?

Yes. Harshit, thank you for understanding the tough fight, which our entire team was giving. And I think whether it is in quality assurance or export or in terms of all our streams of business, it is only upwards now, which we have been aiming at the beginning of this FY. Sequentially, as you see, we've been growing about 11%, 12%. And that definitely we will -- sequentially, growth will be higher as we move on to Q3 and Q4. In terms of quality assurance, this was quite a substantial business. It's part of our consultancy revenue. So it's not fair for me to break it down separately and be able to give you the figures. But our internal analysis shows that the worst in quality assurance is over, in terms of the fact that the new regime of orders, as per the revised rates from Indian Railways, has kicked from latter part of last FY. So the last 2 quarters, 3 quarters, which revenue from IR we are getting, we are getting as per the new rates. Parallelly, all our efforts last year of diversifying into non-IR clients, we have tipped the balance. And as I said, 2/3 plus now is non-IR clients in terms of our revenue as well as order book and vis-a-vis early last year where it was the reverse. So our effort is that the levels of QA revenue which you are seeing, which has now come, this will only increase now. We are getting -- we've got our first revenue international QA way from Sri Lanka. Our revenue from PM Vishwakarma, revenue from GeM, and a number of non-IR across states, whether it is [ Jariji one ], whether it is solar energy, whether it is various other infra from various municipal corporations, which we are doing process and product inspection, this is only adding. And the QA revenue is also on an upward swing now starting from this quarter itself.

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

Is it fair to assume that what the work has to be done is over with in terms of quality assurances, export and other line of business, and the traction ahead is going to be more, especially in exports?

Yes, for sure, Parimal. And I'm not saying it only just to -- out of thin air. It is in terms of numbers that speak. The worst in export is in terms of the number that we have now about INR 1,300-odd crores of order book, which are the first of these was received in Q4, which is already now about 7, 8 months -- sorry, about 10 months old. So these have -- and considering even the most conservative lead time of delivery from 18 months plus, these will start generating, these orders will start generating in the coming FY. And the strike rate of getting export orders is not only 1 order, which was in Q4, which was the first order after a gap of about 3 to 4 years. The orders, they have been flowing in. So as far as export is concerned, as I said, definitely, the numbers speak for itself, the worst is over. In terms of revenue realization, yes, they will start generating revenue only next FY. In terms of QA, as I explained to Harshit just now, in terms of diversification of the order book, that effort has borne fruit in the last about 3 to 4 quarters. And these new non-IR orders have started generating revenues. And in Q3, Q4 onwards, the QA contribution is only go on increasing. Yes, obviously, not at the levels of margin which have been there traditionally for 4 to 5 decades, but in terms of total volume, this is now only an upward trend in the coming quarters.

And sir, just to follow up, in terms of exports, if we get the Zimbabwe order, it would be at INR 2,000 crores by the end of the year, right, if you get that -- to that entire thing?

The value of that was about USD 50-odd million. So let's see in terms of when -- as I said to one of the callers, that we are pursuing. It is moving on the right track. But we will only add it to our order book when the clear funding letter comes from [ Zimbabwe NR ], which we seem to be making a headway, but it is moving. Hopefully, in the next few quarters, it should mature.

The next question is from the line of [ Vivek Rathi ], an individual investor.

So just looking at the presentation, I see the consultancy, as you mentioned also in the turnover, the conversation, that it has gone down revenue. But I see more steep fall in profit compared to revenue. I think revenue is somewhere down around 7.4%, but profit seems to be down around 20-odd percent. Is this because, as you said, non-IR consultancy revenue is less as we got compared to last few decades? Is there any other reason?

Very correct. You see, consultancy has been shown in the presentation. So the terms of contribution from Indian Railways declined, both in terms of value as well as in terms of margin. As I said, it got divided between 4 players. So that went -- our revenue came down to about 50% from what it was about a year back from IR. The rates came down to 20% of what was the earlier rate. So that's a double hit in terms of revenue as well as rates. And the deployment for inspection across the country for the various orders remains more or less the same. So that's why a hit on the bottom line also from this stream of business. However, as I said, having said that, we have managed to generate a large number of non-IR clients and our first international order also on QA. So to that extent, that has been the hit in the consultancy both in the top line and the profitability in the -- if you see the overall consultancy figure.

Yes. Just a follow-up, so I mean, as you said, you're going in the right direction. So do you have any timeline or an expectation where the margin will revert to the previous figures, or that is not really currently we can foresee?

So not only in QA, but in overall, because of the various factors which I pointed out, like the huge increase in competitive bidding, both domestic, including our export, competitive global tenders, the current levels of EBITDA of about 20-odd percent and PAT margins of about 15-odd percent, that is the realistic levels of margin, which are -- which we see a visibility, which is what we aim for.

The next question is from the line of Vinamra Hirawat from JM Financial.

Sir, you spoke about AI-based quality assurance, which can increase our consultancy revenues going forward. Is this a USP that we have or are our competitors also getting into this? And if they aren't yet in AI-based QA, is there anything stopping them in the future? So like do we have a moat of any sort? Any color on this?

You see, AI is a technology which every entity is using in various assets. There are a couple -- a large number of our competitors in the QA business, and I'm sure they will and are working on AI. We gave a lot of importance and, as a first-mover advantage, started applying this for inspections of rail, which is having more safety-related products. So at our inspection with the SAIL Bhilai plant, we have introduced this. And the experience that we gave, we're already wanting to extend this to other products and key safety processes and products. And I think this early mover advantage will give us advantage. But I'm sure others will definitely offer it. There is a competition in that. But AI-based inspection, coupled with our technical experience of 4 to 5 decades of these, whether it is rails or wheels or many such safety products, this definitely gives us edge in terms of QA business as a whole in terms of our USP.

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

Yes, sir. My question is about this MOU with Etihad Rail. Any color on that in terms of like what -- is this for the EMC corridor? Any color that would be helpful.

Yes, Viraj. So Etihad Rail is now, in the last few years, is very aggressively expanding not only the rail network in UAE, but across the Middle East, whether it is Jordan, Qatar, Oman, et cetera. It's comparatively a young organization. But in the last few years, it is expanding and executing a large number of not only, as I said, UAE, but cross-border rail infra project. So this was a very good, important strategic breakthrough for us. We've entered into an MOU with them for about 5 years for rail infra projects, not only for consultancy, not only in UAE, but across the Middle East, as well as they expand in other geographies also. So I see a huge potential for leveraging this MOU in the coming months.

This is in the field of consultancy, not exports, right?

Yes. This is consultancy for -- so it's an overarching MOU, which cover all areas of our expertise, whether it is consultancy in rail infra network, whether it is export of rolling stock, as their requirement increases because they are expanding -- their rail network is very young. It is, for passenger, there is hardly any rail network. For freight now, they started connecting their key ports for container movement in a big way. So a requirement of rolling stock for both UAE as well as other geographies is also an opportunity, which is covered in this MOU.

The next question is from the line of Harshit Jitendra from Elara Capital.

Sir, just to check, we had -- you tied up with BEML for the Bahrain Metro project, where we were going to do the consultancy part. Any update on that, sir? Where are we in that particular stage?

No. I think there's some factual error in that. We didn't tie up with the BEML for Bahrain Metro. We had done a consultancy for Bahrain Metro. We have an MOU with for BEML for various metro rolling stock projects. We are working closely with them, exploring various opportunities across other geographies.

Okay. And sorry to harp you on this margin question, but if you look at even last few quarters when your quality assurance business was falling, your domestic consultancy margin business was above 40%. But in this quarter, it went down below 35%. So is there any projects on consultancy side on the domestic side which is also moving towards a lower margin? Is that a correct understanding? Or maybe this quarter, some one-off, then from next quarter will again -- may rise to 40% plus?

No. Consultancy -- all streams of revenue, whether it is consultancy, whether it is export and QA, whether it is turnkey, the fact of the matter is, at every quarter, the percentage of bids which we are getting on a competitive basis is increasing steadily. It is now inching up nearly up to 75%, 70% plus. And even this balance, about 25% order that we are getting on nomination from erstwhile clients, even they at -- for every nomination order, there is a huge amount of revisit of the erstwhile agreements for lower rates and lower. So that's why -- and as I said at the outset, we are maintaining a rate of 1 order a day. There's a huge inflow of orders in quarter 2 itself. And even the 1 month of quarter 3, we have got orders of INR 650 crores already in 1 month in this quarter 3. So for being able to keep on expanding the order book, yes, the margins of, even in consultancy, of 40% plus on a competitive mode is definitely not possible to be maintained.

Sorry, sorry. Just on the employee cost...

So I think you come back in the queue.

The next question is from the line of [ Vivek Rathi ], an individual investor.

So just a follow-up, sir, on my last question. I mean you said there are now, with the consultancy, will be divided among 4 different entities. Who are the other ones, sir? I mean, now they're new competitors, right? Because previously, it was a nomination basis, not with 4 other entities.

Yes. So it was divided through a tendering process between 3 other -- yes, 4 players. Other players are TUV, Intertek and Bureau Veritas.

Can you repeat it, sorry? It's TUV...

There are 4 players now in the QA business for Indian Railways, besides RITES, which has got 30% of the total pie. It is TUV, Bureau Veritas and Intertek.

The next question is from the line of Harshit Jitendra from Elara Capital.

Sir, just you have recently got an order from DMRC for INR 35 crores for retrofitting of this O&M business. Can you just elaborate on what is this order and what is our scope, and any more future orders expected?

Yes. So you see, we are -- have expertise in design and export of rolling stock. So we have a very strong rolling stock vertical, which has been customizing, designing, rolling stock over the years for various clients. And that's why we leveraged this expertise and experience as DMRC was looking for retrofitment of its first coaches, which were the earlier, about 20-year-old coaches, which came in early 2000. These are about 22 rakes, about 176-odd coaches, which require now midlife refurbishment for upgradation to the latest, whether it is in terms of technology, latest in terms of the interiors, and all over. So that is a very good potential for us. And we have got this through a competitive mode and in partnership with the expertise entities who have certain areas of expertise in the total pie. So our share in this act is about INR 36-odd crores. And we see this as a good opportunity because DMRC being one of the older metro systems, more of their rolling stock will require this midlife rehab in the coming years and definitely, moving forward, other metro systems across India.

Understood, sir. And secondly, on employee cost, we have seen a rise...

Can you come back in the queue, please?

Yes. Sure.

So if there is no one else, then, Harshit, you can come. Operator, is there anyone else? Or if there's...

Sir, there's no one else.

So Harshit can come back in. You were asking a follow-up question.

Yes. So basically, on your employee cost, we have seen a rise. Would that be correct to say that since you're getting more consultancy orders or 1 order per day, you are increasing your headcount? And if you can also highlight which areas are these employees being added to within the 4 or 5 verticals that you have?

Yes. I'm glad again you asked this question, Harshit. You see that's a very strong strategic call that we have taken, that in spite of the tough pressures on top line and bottom line, because we are expanding our order book very aggressively, there's a certain time -- this time that you're holding on. And you need to build up your strength to be able to execute the fresh orders. So if you compare within a year itself, we have inducted about 300-plus people. And besides the superannuation, about 100-odd people, our net addition in employee strength has been about net 200. So this 200-strength, we have increased, obviously, increasing the employee cost, even though there has been, as I said, challenges on the top line and the margins. So these are all the engineers, graduates, post-graduates with areas of specialization ranging from design, from architecture, from town planning, et cetera. And these are primarily very carefully identified based on the order visibility and the future visibility of orders that we have in our order book.

As there are no further questions, I would now like to hand the conference over to the management for their closing comments.

So thank you all. And as I said at the outset, the focus on the H2 is to step on the gas to increase the execution to the maximum, to come as close as possible to the previous FY levels. And then definitely on this platform have a -- see a sizable and appreciable growth in the coming FY. The trend of fresh order inflows is encouraging. As I said in the quarter 3 itself, within a month, we have got orders up to INR 600 crores plus. And this is being possible by our increased partnerships, collaboration, diversification, both domestic and international. So in the last few months, we signed an MOU with Etihad Rail, domestically, arrangements and MOUs with NHAI, NBCC, NMDC, DMRC, SAIL, across the board. So with that, we definitely see, we are confident that we will continue to leverage our strength of expanding our order book on a steady basis. And currently, the order book at INR 6,580 crores has a visibility of about 2.5-odd years. Our aim would be in the coming quarters and the next FY, even with the increased execution, to keep on expanding the order book and aiming to have an order book of at least a 3-year visibility. So that's, in a nutshell, the way forward as we see it. Thank you.

Thank you all for being part of the conference call. If you need any further information or clarification, please e-mail at [email protected]. Ladies and gentlemen, this concludes your conference for today. Thank you.

Thank you.