RITES Limited (RITES) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. I'm Pelsia, moderator for this conference. Welcome to the conference call of RITES Limited to discuss Q4 FY '25 and FY '25 results. We have with us today, Shri Rahul Mithal, Chairman and Managing Director; Dr. Deepak Tripathi – Director Technical and Director (Projects) Additional Charge; Shri Krishna Gopal Agarwal Director Finance and Chief Financial Officer. [Operator Instructions]. Please note this conference is being recorded. [Operator Instructions]. I would now like to hand over the floor to Shri Rahul Agarwal, Chairman and Managing Director, RITES Limited. Thank you, and over to you, sir.

Good morning. I think by mistake; she mentioned Rahul Agarwal. I'm Rahul Mithal, CMD RITES. So, morning, everyone. To begin with, let me give you the safe harbor statement. The presentation and press release, which we uploaded on our website yesterday and discussion during the call today may have some forward-looking statements. These statements are considering 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, with that, let me give you a brief overview of the performance in quarter 4 and the FY overall. You see the performance in Q4 is in line with our two-pronged business focus strategy of improved execution and aggressive order inflow. If you recall at the end of quarter 3, we had given a guidance that we'll make all-out efforts in quarter 4 to try and peg back and come as closer as possible to FY '23, '24, and we'll try and get the revenue dip to below 10%, profits dip to below 20%. The operational efficiency and the focused approach in Q4 helped us achieve on an overall at the end of the FY dip in revenue of 8% and PAT dip in 14%. Further, the aggressive order inflow, we maintained the strike rate of more than 1 order a day, the strike rate of one export order a quarter. We got more than 150-plus orders totaling to INR 1,400 crores in Q4 and ending the FY with an all-time high order book of nearly INR 9,000 crores, INR 8,900 crores. So that, in a nutshell, is the performance of Q4 and the FY in total. I leave the floor open for questions.

[Operator Instructions]. The first question comes from Anand Bhaskaran from Prisma Wealth Private Limited. Please go ahead.

So, as per the screen, for Q3, you mentioned that some of the orders, like the supply of 10 locomotives to Mozambique and 200 number of broad coaches will be complete in 2029, but here it is mentioned in the quarter of FY '26. Is that still on the plan?

No, I didn't get your question. You see, let me again clarify there are 2 orders, one is 10 locomotives to Mozambique and 200 coaches to Bangladesh. What we had said in Q3 is that starting this FY, that is FY '25, '26, the deliveries will start and aiming at least that from quarter 1 latest or beginning of quarter 2, both these deliveries the locomotives will start and the coaches will start from the balance from the latter part of the FY. --And that's still on track...

Deliveries will happen, but you also mentioned the realization will start taking place in Q1 as well.

Yes. So, the way it works in export orders is that, number one, the realization takes place of revenue only when the actual bill of lading is made at the ports. So even if the product is ready, it is shipped and the day it is shipped, we get the revenue. So that is still on track. As I said, we are aiming to maybe latest by end of Q1 or early Q2, the locomotives delivery will start out of the 10 part deliveries will start because there has to be a minimum number of quantities, which is also when you get the berth in the shipping -- in the ship. And the coaches, we are aiming by latter part of the FY out of the 200 coaches, some basic initial lots of coaches will start.

And you also mentioned the revenue guidance for the top line and line bottom guidance for the next year. You have a sense of what will be the revenue mix for FY '26?

Yes. So, I'll answer this question, but I'll request you that, as I said at the outset, we'll answer one question at a time. You can come back in the queue. But the first question, I'll answer that. You see, as we said at the end of Q3, and we maintain that also at the end of the FY, that having now completed the FY with the highest ever order book of nearing INR 9,000 crores, INR 8,900 crores, we are aspiring to reach the highest ever revenue, reach the record of highest ever revenue in the coming FY. And then we are aiming to get about 20% growth in the top line and commensurate growth in the bottom line. And that guidance which we were aiming for at the end of Q3, that gets substantiated. We are still on track on the same guidance in view of the continued order book inflow in Q4 as well as the operational efficiency, which we demonstrated in Q4.

What is the expected revenue mix.

Mr. Anand, you would need to come back in the queue, please. The next question is from Nemish Sundar from Elara Capital.

Congratulations on a very good set of numbers during the quarter. Margins saw impressive rise during this quarter, so around 30%. So, how would we see this run rate going forward on a sustainable basis with exports kicking in from FY '26?

You see the margins in Q4, I would not advise you to see them in isolation. The margins, if you see on an overall FY give you the real picture; in an overall FY the EBITDA margins are at about 23% and the PAT margins are at about 18%, and moving forward, as you see the split in our order book, more and more, it is tending every passing quarter to have more orders on the competitive basis. And as the higher margin orders start reaching their completion, moving forward, as I've been indicating in the previous quarters also, on an overall FY basis, we feel that the expected range of EBITDA margin would be about 20-odd percent and PAT margins would be about 15% to 16%.

The next question comes from Uttam Kumar from Axis Securities.

Sir, currently, at the orders of 1,360 crores, so how much [Indiscernible] we see in FY'26?

So the 2 orders which make the bulk of the INR 1,360 crores is the Mozambique order, as I said sometime back, about 10 locomotives and 200 coaches from Bangladesh. The locomotives delivery, we are aiming to start by, as I said, definitely by end of Q1 or early Q2. The coaches, the designs are getting finalized and prototypes, there are about 5 types of coaches, the prototype manufacturer will start, and we are aiming to start delivery by latter part of the year. So, I mean, both our clients, both the Bangladesh coaches and the Mozambique locomotive, both our clients want that, irrespective of the contractual large delivery period, they want it as early as possible. We are also keen. So, let's see how it pans out in the coming months, but we would try and maximize the revenue out of these 2 orders in this FY. So, it will be too premature right now to peg a number. I can only say that out of the 10 locomotives, we will try and give maximum number of locomotives, try and achieve at least about 70%, minimum 80% of the order. And coaches, as I said, the designs are getting finalized. And as the delivery starts the latter part of the FY. We see in the coming months how much we can expedite it.

The next Question comes from Shreyans Mehta from Equirus Securities.

Congratulations. My first question is on margins. So, as you said that this quarter, we have noticed higher margins, so is it sustainable in the long term or we can have a [ guidance] of 20% margin?

Yes, as I said, the margins viewed on a particular quarter, quarter 4, may not give a real overall holistic picture. The margins, which we have been seen preempting in my earlier guidance, is also and as we see the order book that we have, the mix in the order book, as I said, most of these orders, both the export as well as domestic, are on very tough competitive margins. So, we are aiming, and we would see that a realistic EBITDA margins on an overall FY basis would be in the range of about 20-odd percent and PAT margins would be about 15% to 16%. On a particular quarter due to a certain change in the mix of inflow, you would see some ups and downs in the margin. But on an overall FY, in the coming FY '25, '26, we would see 20% and 15% to 16%...

The next question comes from Viraj Mithani from Jupiter Financial.

I just want to reconfirm you are saying that we will grow at 20% from this year, and the EBITDA margins would be in the range of 18% and PAT will be 15%.

So, just a correction. I said that we are aiming to grow in the top line of about 20%. The EBITDA margins will settle down somewhere around about 20-odd percent, and PAT margin is about 15% to 16% in the coming FY.

Is it because of more of the turnkey projects taken when I see the comp of the order book, the turnkey is higher than any other segment of...

So it's not really because, first of all, let me clarify, as I have said in repeated times earlier also, we are a pure consultancy company. We are not a construction company. What you see as INR 4,200 crores in the as a turnkey in the order book, that's not really a construction, I mean, not like an EPC construction company. These are primarily our role is still as a consultant, only thing the revenue passes through us. So instead of, let's say, a consultancy fee of INR 4, instead of the order value being INR 4, the order value is INR 104, INR 100 plus INR 4. So that's the only difference. Our work, our content, our scope of work is exactly the same. So, we are not deviating from our core strength of being a consultancy company. Having said that, the impact in margins is primarily due to a mix of factors. And one of the key factors is if you see compare our mix of order book every year in the last 2 to 3 years, especially, the shift now is a majority on the competitive basis and on the nomination basis. And even the orders which are on nomination basis, I wouldn't really call them nomination. They are primarily kind of more or less single tender kind of orders given to us more because of our capability and experience, where it is based on a very tough negotiation on deciding the rates, et cetera. So, with all those factors and the competition around, that's contributing by and large to the margins. So, the erstwhile margins which have been there 3 to 4 years back, are not possible to be achieved. And that was what makes us feel that we will be in the range of about 20% in EBITDA and about 15% to 16% in PAT.

My next question is, will you maintain the same dividend policy?

Dividend, yes. Dividend, as you have been saying, as you've been seeing, our dividend payout ratio in '23-'24 overall was 95.2%. In '24-'25, we maintained that level, we are about 95.4%. So, with that, we are assuring that since because our business model, as we have been very firmly, unequivocally saying in the last few or 2 years, we are a low CapEx company. We are not going to give you any surprises. Our business model remains we are a consultancy company. So, the dividend payout ratios will be appreciably in the same trend.

[Operator Instructions]. Next question comes Parimal Mithani from Credential Investment.

Congrats for a good set of numbers. Sir, the question relates to consultancy business. So, if you see over a period of time, you highlighted earlier also, we are shifting more towards the competitive bidding landscape. Is it fair to assume that, sir?

Yes...

We'll be able to achieve consultancy revenues of INR 1,200-odd crores, which we had a couple of years back in this landscape sir. Highlight that...

Yes. So, as you correctly said, pointed out, the overall trend in all consultancy across all areas of infrastructure, 13-odd verticals are shifting and both domestic and international are shifting to competitive mode. And that's why, however, if you see the growth in actual consultancy revenue, even if you see sequentially there has been a substantial growth Y-o-Y, if you see in quarter 4, there has been a growth of 11%. And as these recent orders in the last 2, 3 quarters, which we have received as they start generating revenue in the coming quarters both in terms of fresh inflow of consultancy orders as well as revenue coming from execution of these orders received in the last FY, you will continue to see a growth in consultancy. So, consultancy being our core bread and butter strength, we will continue to grow both in terms of order inflow, domestic and international as well as revenue realization from the order book.

And sir, a follow-up to that question. Can you highlight your, the update on the RITES and DNV JV, Norway based company, in terms of Assurance business, how it is going through which we have.

Yes. So, we have -- as we have diversified in our QA business in the last 1, 1.5 years, we are partnering with a number of QA entities both domestic and international. And that is why if you see the QA business in kind of a huge hit this year, the hit of QA business to our revenue and profit both combined have been in the range of about INR 40 crores to INR 50 crores, which is a huge hit. And so, the ratio in this FY, this was the first FY where this diversification of taking on fresh clients has really borne through due to these various partnerships both in the competitive mode. We started getting our first international consultancy order in Sri Lanka Railways. And today, our diversified QA inspection vertical is taking on orders has got a majority now of about 55% to 60% of nonrailway QA business also. So as the pie expands, the ratio also in diversification is expanding. And these partnerships are not only this but other partnerships also that we've done in QA has helped us in this diversification.

Just a follow question.

Parimal can you come back in the queue... The next question comes from Abhishek Kapadia from Emkay Global Financial Services limited. There is no response. We have a follow-up question from Anand Bhaskaran from Prisma Wealth Private Limited..

I just want to ask about what will be the revenue mix for the upcoming financial year.

So Anand, it would be safe to say if you see the order book mix, so if you see, as I mentioned the export orders, we are definitely aiming to maximize the INR 1,350 crores out of that the maximum we can get. The consultancy, which is a healthy INR 3,000 crores and even the turnkey, which is INR 4,200 crores as I explained, these are primarily consultancy itself except the method of accounting. So, primarily the export will bounce back after a gap of nearly 2 years. This year, the export revenue was nil. Last year is about INR 100 crores. So, these 2 years, if you have taken a hit export you will see a bigger contribution in both the top line and bottom line. And consultancy and turnkey will continue to see a growth that has already seen a sequential growth, healthy growth Q3 to Q4. Y-o-Y Q4 has shown about 11% growth in consultancy revenue.

Sir you mentioned that consultancy and turnkey which we maintain in the long term order book growth?

Yes...Yes.

A follow-up question from Shreyans Mehta from Equirus Securities.

So my next question is on the export orders. So, can you share the new export orders where we are currently L1 but the order converted into the company's book? And concerning our new export order since we are expecting in FY'26. And what revenue we are targeting from the export orders we have nearly INR 1,300 crores as on date?

As far as L1 is concerned, we will declare it as a minute. We are L1. We don't like to speculate with the works in progress. We are engaging in a number of bids for export. One, only one old agreement which is not included in our order book which we signed about 2 years back with the National Railway of Zimbabwe for wagons and locomotives. That is yet to be converted into an order because they are still waiting for a funding confirmation which they are trying. So that's as far as the order book of export is concerned. In terms of realization, as I explained, the locomotives order of 10 locomotives to Mozambique which is totaling to about INR 300 crores. The deliveries will start in the next few months, as I said, maybe end of quarter 1 or beginning quarter 2. [ Break ] And we in this coming FY. It's too early right now to predict an exact number. I can only say that we are trying to maximize the out of all of these, the entire order. The coaches 200, which is again a huge order of about INR 900 crores. The designs are under final approval. There are 5 types of design with Bangladesh railway. And we will aim to get the prototype manufacture and get it approved and start deliveries by latter part of the FY. So, in the coming few months, in terms of exact numbers, more clarity will emerge. But safe to say that in the first, this is the first year after a gap of nearly 2 years that you see a substantial contribution of export revenue in both top and bottom line.

Sir, another question...

Go ahead...

Yes. Just you can quantify the export -- new export orders what we can expect in this financial year.

So again, that is speculative, right? As I said, we have maintained in the last 5 quarters successively the aspirational target that we have said for export order a quarter. We will try and continue to maintain that. The exact details will be speculative at this stage.

Sure. Thank you.

Next question comes from Saurabh Jagirdar, an individual investor. Please go ahead.

Good morning, sir. I have one question. Can you shed some light on the consultancy scenario, the present orders, what is the quantum? And how does the future look like? Thank you.

Yes. So, you see our biggest strength in consultancy is that we see both domestic and international, we are tackling all areas of infrastructure, except oil and natural gas. So if you see, I'll give you a flavor of the type of orders which we got in the last few months in quarter 4, so whether it is rail infra orders, whether it is study of new high-speed corridors, the feasibility study, the DPR, whether it is study for sidings by various, whether it's an oil company or whether it is a mineral company, whether it is DPRs for Jaipur Metro, whether it is orders for leasing of locomotives, whether it is the orders for operation and maintenance of the mini rail systems that we run for the various PSUs. So, you see a mix of all these orders across, whether it is building consultancy orders, third-party highway, large number of highway third-party and safety and quality inspections. We have got orders across states, including Northeast. So, whether it is bridges, tunnels, highways or all areas of infrastructure, we continue to get orders and maintaining this strike rate of more than one or literally more than one order a day. As I said, quarter 4, we got 150-plus orders. We will continue to get orders in consultancy in the coming FY.

That's really great. And what is the quantum, quantum of international orders as an absolute number? And any specific countries we are targeting we have in mind?

So in consultancy, we have today an export order book of about INR 1,350 crores and a consultancy order book of about INR 400 crores, international consultancy. You will see in this FY, and that's our focus. That's the next milestone which we are trying to achieve besides growth in export order book, definitely growth in the international consultancy order book. And whether it is the African continent, whether it is the Southeast Asian countries, whether it is Latin America, we are doing, got a recent order of highway in Guyana, whether it is the Middle East countries, we've got an order in Jordan. So, we are targeting these geographies and obviously aspiring to even go to some of the G7 countries to try and get international consultancy orders, building up on our strength.

That's really great to hear. Thank you so much.

The next question comes from Viraj Mithani, from Jupiter Financial. Please go ahead.

Sir, my question is since we have so many JVs with so many renowned companies in the world, can you give some color on what kind of orders or what kind of business we're getting from them?

So you see, Viraj, our basic strategy, whether for domestic or international consultancy is depending on the kind of sector, you cannot have all possible resources under one roof. That is not cost viable and the complexities of the consultancy in various sectors require some skills to be complemented. So, all of these, number one, none of these are JVs. These are all MOUs, memorandums of understanding for partnership and collaboration of supplementing each other's skills to take on opportunities. So, for example, we signed an MOU with Etihad Rail a few months back in UAE. And now we are empaneled with them and we are getting some work. We started getting some work in Jordan. So, this collaboration and partnership in supplementing either working for them or joining them and working together with them for a third-party opportunity, both kinds of MOUs exist.

Okay. And sir, you said about...

Please join the queue.

A follow-up question related to the same thing.

Okay. Go ahead Viraj.

We talked about JV -- sorry, MOU quality assurance business. Any color on that in terms of growth this year number would be that that's a very big business for us.

Yes, we have grown and this sustained effort in this FY and this partnership has got us orders for ISA of Vande Bharat, which was in partnership with another company. We got an order. We are now, as I said, diversified in so many areas of quality assurance inspection, whether it is the solar area, whether it is other infrastructure, whether it is the state government whether it is vendor assessment for the GEM portal, the, whether it is for the National Solar Energy initiative. So, all these are initiatives which is helping us these partnerships, these MOUs and supplementing our skills with the skills of these partners has helped us grow, and we are confident that the way we have grown in this FY, we have weathered the hit by the QA business change in dynamics. And by end of the coming FY, at least in terms of, we are aiming to reach back the same levels of business in terms of it.

Thank you.

Next question comes from Parimal Mithani from Credential Investments. Please go ahead.

Hello?

Yes. Go ahead.

I just wanted to know in terms of the RMC business, what is the way [we should understand it.]

Yes. So, RMC has been, as you're aware, doing 2 things. One is traction procurement, which has been growing in terms of because nearly 100% electrification and the growth in traffic. The second is the net zero initiative, which is doing consultancy for Indian Railways, which also it is playing a huge role. So, the growth in RMCL has been steady. There has been, it has been paying us a huge amount of dividend to both Indian Railways and us it's a subsidiary for us. So, we got a good dividend for about INR 40 crores in this year. So, I see the growth continuing and what we are now doing in the last few quarters and definitely, you will see that coming forward in the coming FY, it's RMCL skill in renewables, which is collected and accumulated in the last 10 to 11 years to be able, it's already started doing consultancy work in the renewable sector and started getting orders. And those I see growing substantially in the coming FY.

Next question comes from Abhishek Kapadia from Emkay Global Financial Services Limited. There is no response. [Operator Instructions] Next question comes from Uttam Srimal.

What will be our current guidance for FY '26 - FY '27.

See, we are at very low CapEx company by our business model. And the CapEx would be very minimal. It would be definitely not exceeding about INR 50 crores to INR 75-odd crores. So definitely well below INR 100 crores, I can say. Our resources are manpower, skilled manpower. So, we don't really see changing.  As I've been reiterating, our business model is very clear. We won't come up with any surprises. We continue to grow in our consultancy field, both domestic and international. So, with that, I don't see any major shift in the trend of CapEx. In fact, it remains in the range of about INR 50.

The next question comes from Viraj Mithani from Jupiter Financial.

Quantify what kind of contribution will be there in this coming FY.

In terms of contribution in terms of the quantum which has come up in terms of our consultancy business, I can only say that it is part of the total consultancy revenue. And we were down in '22, '23, we took a hit of about 50% reduction. We have now come back to about 70%, 80% of the levels of quality assurance revenue, which we had margins and contribution in terms of bottom line are definitely much lesser. We have taken a hit of about INR 40 crores to INR 50 crores in both the top and bottom line in this FY, which by the coming FY, as I mentioned, we will try and reach back the same levels of top line in the QA business. Yes, margins being much lesser. The contributions from the bottom line in the quality assurance business will definitely take much more time to come back to those levels, and that can only be achieved as we go beyond the levels of top line on the erstwhile level that we had.

We have a follow-up question from Parimal Mithani from Credential Investments.

Regarding sorry, I just wanted to know is the work over in terms of the consultancy business and from here on, we should see margins being stable there.

Yes. Not only in the quality assurance business, which is a part of my consultancy revenue and the bottom line. As I said, '24, '25 was a good year of settling down at the levels of margin because this was the year where the huge shift took place in terms of the shift to a majority of the competitive orders, whether it is in quality assurance or all areas of consultancy. So, what we see that moving forward, we will settle again, as I repeat on overall the margins of about 20-odd percent for EBITDA and 15 to 16 PAT margin. And the consultancy margin which contribute in this overall EBITDA and PAT margin would also settle in the same range which we are seeing primarily if you analyze the 3, 4 quarters of this FY to be able to settle overall on 20 and 15.

We have a follow-up question from Anand Bhaskaran.

I want to know about the leasing side of the business is that? And what you expect for the future?

Yes. So, the good thing in leasing is that we are continuing to you see target new clients, new areas. It has seen in spite of this sector, again, this is an area which is also now opening up to competition, while we used to be the only player. Now we are still the dominant player, but it has now opened up a large number of smaller players coming in. So, you see a growth if you compare Y-o-Y FY growth in the leasing revenue. However, the competition being more, the margins and profits are more or less flat. But what we are definitely targeting is we have now reached a growth of about more than 20% in the number of locomotives that we have leased, which are owned by us and leased. We have also got huge number of orders from clients who are owning their locomotives, but giving us the wet lease to operate and maintain them. So, moving forward, while as I said, this is one of the recent sectors, which is opening up to competition, but the expertise and the experience which we have in that, I see a sustained growth, we've been able to see a growth in that, at least in the top line and not allowing the bottom line to go beyond the current levels.

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

Thank you. So, at the end, I would like to just pinpoint you see some time back, we put some milestones for us. The first milestone was trying to become a 1 order a day company. We maintain that. We have maintained that in the last 4 quarters, and we will try and maintain that.  The second milestone we put for ourselves was try to get one export order a quarter. We have maintained that in the last 5 quarters, and we aspire achieve to maintain that. These 2, we set ourselves a milestone to grow aggressively in our order book, and we have ended the FY with the highest ever order book at INR 8,900 crores.  In fact, the last entire FY, we got more than 500 orders totaling to INR 5,500 crores which is nearly equivalent to the closing order book of 31st March '24, which was INR 5,700 crores.  So, the third milestone of breaking a record of the highest ever order book we have achieved. As we move forward, we have set ourselves 2 aspirational milestones of this FY trying to reach and break the record of highest ever revenue. We will see how it pans out. But definitely, this is some milestone which we are aspiring for.  And moving forward in the coming FY also trying to break the record of being the highest ever profit. So, we will not only maintain the 3 milestones that we have achieved, we'll try and maintain them in the coming quarters, but also aspire to achieve these 2 targets and milestones that we have set ourselves in the coming FY.  So, thank you very much, and we and our entire team is committed, as I said, to maintain these milestones achieved and aspire to achieve these milestones which we have set for ourselves in the coming years, in the coming financial years, next year and the subsequent years. Thank you.

Thank you all for being a part of conference call. If you need any further information or clarification, please mail at [email protected]. Ladies and gentlemen, this concludes your conference for today. You may disconnect your lines now. Thank you, and have a pleasant day.

Thank you.