RITES Limited ($RITES)

Good morning, ladies and gentlemen. I'm Karthikeyan, moderator for this conference. Welcome to the conference call of RITES Limited to discuss its Q4 FY '26 and FY '26 results. We have with us today Mr. Rahul Mithal, Chairman and Managing Director; Dr. Deepak Tripathi, Director Technical; Mr. Krishna Gopal Agarwal, Director, Finance and Chief Financial Officer; and Mr. Prem Singh Meena, Director of Projects. [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.

Good 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. Let me start with giving you a brief overview of this quarter and the financial year. The most reassuring thing for us is that the performance of this FY was in line with the road map and the strategy that we had laid down during the beginning -- at the beginning of the FY, and we had been watching it and updating it at every quarter. We had aimed for a double-digit growth and a growth in profit. We -- while keeping our margins secure, we broke the -- first the gap of about 2 years in our export income, about INR 300 crores, after a gap of nearly 2 years, a very important milestone, which we had to achieve. We continued the steady order inflow rate of 1 order a day and 1 export order a quarter. So -- and despite the high execution in quarter 4 of about INR 750-plus crores, we ended with the highest ever order book on 31st March of INR 9,416 crores. So all of these are -- were in line with the road map, which we had set and have set us a platform to leverage on this. And as we have been giving the guidance, for a substantial growth -- further substantial disruptive growth in the coming FY. What is also reassuring to us is that the years -- the last 2, 3 years of business reengineering followed by a year of consolidation, we were aiming for FY '26 to be a year of growth, and that has moved in the direction which we had planned strategically. So these are the broad overview on a bigger picture on the overall performance, and we'll come to specific numbers as each one of you ask specific questions. Thank you.

[Operator Instructions] The first question is from the line of Parimal Mithani from Credential Investments.

Can you hear me properly?

Yes. Yes. Parimal, go ahead. I can hear you.

Sir, I just wanted to know, you've been mentioning the disruptive growth in your press releases since the last 2 quarters. Can you highlight the reason for this optimism in terms of considering the geopolitical headwinds right now? And also, if you can give a highlight across your businesses, how do you see it going forward? Starting with consultancy, sir, will be really helpful for us.

Yes. So why we are saying this is that the order book profile that you see, and if you see the trend of growth of order book in the last 7, 8 trailing quarters, it has been showing an upward swing. And there's been a substantial increase, especially in the last 18 months or so. There's been an incremental jump in a big way. So the order book currently of INR 9,400 crores, a substantial portion, more than 50% of it, is very young, which is about, as I said, 12 to 18 months old. And these are the orders which will start generating revenue in this year, in this FY. And that's why, in fact, in the last quarter of FY '26 also, you saw an increased revenue of INR 750-odd crores. So that's why the young order book, normally an infrastructure project, has a time span of 3 to 4 years. And this is the second and third year where it starts generating more revenue. So that gives us the confidence across all our streams of revenue that we will start generating revenue, whether it is consultancy, where we get a percentage fee of the infrastructure cost, whether it be turnkey, where we get the entire revenue in our top line or whether it is the export order book, which has been an all-time high of INR 1,700 crores plus, which despite the INR 300 crores execution in this last FY, will generate more revenue because the Bangladesh delivery will also start in this FY.

Okay, sir. And sir, we expect to maintain this margin going ahead, which we have maintained for this entire year?

No. The margins, these -- as these competitive orders, which I said will start generating revenue, if you again compare every year ending the mix of the order book, in fact, now it's ended this financial year on 31st March, at 63% on competitive. That's a breakup of the order book. If you count the fresh order inflow, it is about 70% plus. So the margins all across our streams, the margins on the new orders are much lesser. So as these new orders generate more revenue in the mix of the total revenue, the margins will definitely go down. Yes. But as we have been giving a guidance that the red line of PAT margins 15% and EBITDA margins of 20%, that in no condition will we allow that to be breached by suitably monitoring the high-margin orders.

[Operator Instructions] The next question comes from the line of Lakshmi Narayanan G.K. from KSEMA Wealth Private Limited.

Sir, you able to hear me?

Yes, go ahead.

Sir, could you throw some light on turnkey construction projects, sir? I see the PAT margins are very low for it. So I just want to understand the nature of this business because I'm new for covering the company.

Yes, sure. So let me be clear, we are not a construction company. We are a project management consultancy company. So what you see in a -- while the order size in a turnkey is large, and that's why it is a large portion of the order book, our scope of work remains the same. To be able to explain to you as an example, let's see, our -- let's say, our fees is 5%. So if in a INR 100 crore project, our fee is INR 5 crores, in a consultancy mode, the client gives us an order of INR 5 crores. In a turnkey mode, he gives us an order of INR 105 crores, our scope of work remaining same. So we are -- our role remains the same. Certain clients, like educational institutions, et cetera, primarily building projects, like to deal with a single window. So they give us in the turnkey mode. That's why the denominator being large in turnkey projects, while the scope of work and our revenue -- the revenue remaining same, the margins are much lesser in turnkey. But to be able to reiterate the key point, our role is that of a consultant, whether the mode of order is in a consultancy mode or a turnkey mode. It's just a difference in the method of accounting.

We have the next question from the line of Darshika Khemka from AV Fincorp.

I have a couple of questions. Firstly, could you help us with the impact that the competitive projects will have on the working capital position of the company? Would it in any way dilute the working capital position or it would not have an impact?

So ma'am, our working capital requirement is barely minimal. That's the way we structure all our orders of consultancy. So there is no really going to be impact -- significant impact in any way because as a business model, our working capital requirement is hardly any.

All right. And apart from that, do you see any raw material-related headwinds impacting the margins going ahead apart from the competitive portion already having a minor impact?

Again, the contracts that we give for execution of the -- see, we have about 700-plus live consultancy orders that we are executing. The contracts that we give for execution, they -- all of them or most of them have a price variation clause where -- for the execution agency. Our fee as a consultant is a percentage of the infrastructure cost. So in terms of the impact on fuel or raw material costs, et cetera, we don't see any major risk coming to our margins or our revenue.

And there is no execution related to...

Could you come back in the queue, please? Sorry?

Would you expect any execution risk as well?

Not really. Not really. The infrastructure construction projects across our various -- we have 13 different verticals. We don't foresee any major risk in any of the sectors in terms of execution. We just have to keep a watch on the -- some of the costs, like travel costs, et cetera, because being a consultant, and as I said, 700-plus live projects, we have -- travel cost is an important cost, both for our domestic and a lot of international projects also. So that's the only element, which we have to keep a close watch on to keep a close watch on the margins.

[Operator Instructions] The next question comes from the line of Viraj Mithani from Jupiter Financial.

My question is the other expenses have gone up in this quarter and the year. Why is that? What is the reason for that?

Which specific figure are you referring to?

Other expenses, other expenses, when you see the numbers.

So basically, yes. So there are 2 major contributions to these other expenses. One is the -- we have moved these 10 locomotives of Mozambique, right, and especially if you see 6 in the last quarter. So the logistics for this movement is also an important tool. Similarly, for the warranty provisions, which we make. So these are 2 important elements, which are the related execution of our export order. And since these 10 locomotives, the entire order was executed in this FY, this has seen a comparison Y-o-Y, which has seen -- yes, did you get that?

No, [indiscernible] comparison Y-o-Y, I couldn't hear after that.

Yes. I said because this entire 10 locomotives Mozambique export order was executed in this year, that's why these 2 elements, which are related to an export order execution, see an increase Y-o-Y.

Okay. So will be the same [indiscernible] going forward also, the expense will be higher or maybe plateauing down this year?

So -- because the execution of export orders will be much higher this year, there will be a slight increase, but we will -- since Bangladesh, the major quantum of export contribution this year will be primarily from Bangladesh orders, which will have lesser logistics cost because it has to move by rail. So to that extent, it may get slightly neutralized, the increase will not be substantial, even though there will be an increase in the export revenue.

And sir...

Viraj, sir, I am very sorry to interrupt. Could you please join back the queue, sir?

Yes. Okay. I will do that.

The next question is from the line of Harshit Kapadia from Elara Securities.

Congrats, sir, on a good numbers on revenue terms. Just a few questions from my side. So on consultancy, sir, can you give us a breakup between quality assurance? And what is the consultancy because it was flat in this quarter? That's the first question.

Harshit, thank you. So the overall consultancy Y-o-Y has seen a growth of 6%. And this is a year of real redemption for us in our quality assurance vertical. We have crossed -- we have reached when this hit of the competitive quality assurance for the railway sector of business started in -- started hitting us in the year '23-'24. We reinvented the entire business, and there has been a 16% increase in our QA business within this overall consultancy. And we touched an all-time, again, revival and came back, crossed the figure of the QA revenue, quality assurance revenue, which were there in '23-'24. So all in all, the contribution of QA has come back to the same levels, which it was at the beginning of '23-'24.

So that would be, what, INR 70-odd crores, sir?

No. It is much, much more. It has different elements. It gets interspersed in the various consultancy verticals. So it's very difficult to give a separate head-wise breakup of the entire -- because consultancy revenue of total INR 1,185 crores comes from 13 different verticals, but the accounting of our various orders from our quality assurance vertical has shown that we have come back to the levels which we were there, at least in terms of revenue contribution, even with a tighter margin, where the hit started about 2 years back.

Okay. So you are back to FY '24 numbers. Okay. Great. There's...

Yes. FY '24 numbers in terms of -- in fact, with the key variation that because of diversification of our QA business, where it used to be about 55% of the IR element in our QA revenue, now it is about reverse the non-IR element is roughly about 60% plus.

The next question comes from Vishal Periwal from PL Capital.

Sir, in terms of our export, can you give some color like how exactly the execution of pending order book will be? Say, for example, we have done 10 -- I mean, like the Mozambique order we have already supplied. So what is pending? And then, for the Bangladesh also, if you can just give some color around that, sir?

Yes. So with this execution of the Mozambique order with the [indiscernible] 1,750 export order balance, one of the key elements of this is the 200 coaches of Bangladesh, and they are fully on track, which, as we have been indicating, the first [indiscernible] of 20 coaches, we are definitely trying to send. The prototypes have been approved. The final production has started. They are in the finishing stage. So the first [indiscernible] should definitely go in about 2 months' time. And with that, the -- once the first [indiscernible] goes, we should be able to maximize as many [indiscernible] with gaps of at least 3, 4 [indiscernible] minimum in this FY, try to step it up after the production rates will increase after the delivery of the first [indiscernible]. And this is -- so this is the main contributor, which is going to be there for the export revenue -- export of rolling stock revenue in this FY. Besides, as I had indicated in the last quarter, we have a very important developmental exercise where we are converting the in-service diesel locomotives or the spare diesel locomotives of Indian Railways and converting them to Cape gauge and proposing to export to African countries. So the first 2 locomotives also, again, the prototypes are ready, and we should be able to push them in the coming few months. Once that -- the first 2 goes, the opportunity for sending more because we have an order of about 30 locomotives for the in-service locomotives, and we should be able to definitely keep pushing them.

Okay. So, sir, just maybe one quantification with that. So the order that we have of almost like INR 1,700-odd crores, so what sort of execution that one can see out of that in FY '27?

You see we did about INR 300 crores in FY '26. And I -- we are aiming definitely much above the levels of INR 300 crores. As I said, it will be premature to peg a real number. But what I can safely say is with the first rake, once the first rake moves out because this is the first rake after approval of the prototype, which happened recently this month itself, it will give a clearer picture in the number -- each rake consists of 20 coaches. So there are about 200 coaches, which have to be sent. In the next 2, 3 months, the exact number of rakes, which we can send in this FY will become a better clarity. So maybe at the end of Q1, I will be able to give a clearer number in terms of the growth vis-a-vis INR 300 crores. But this is for sure, it will be much higher than INR 300 crores.

We have our next question, which is a follow-up question, from Viraj Mithani from Jupiter Financial.

Yes, sir. So now since most of the good amount of orders will be getting executed in this 2 years, what should be the earning trajectory of the [indiscernible] like if you can just give some color on that?

See, Viraj, what we are pitching now for this FY as an ambitious target is to break the records of our revenue. All-time high revenue, we will definitely try, and that's our aspiration for this year. So once we -- but as you would appreciate, the related EBITDA in those years when this was achieved were very much higher compared to what we are now. Similarly, the blend will also be slightly different in this year with turnkey starting to contribute more, which will be lesser margin. So while we will aspire for definitely breaking the record for an all-time high revenue in this FY, the profits while we are aiming to have a growth, but will not be able to break the all-time high records of profit. That may take a subsequent at least minimum 2 to 3 years to break those records because the revenue will have to grow substantially much higher with these lower margins to break the profit records also. So that gives a bigger picture of the next 2, 3 years' time frame.

So the all-time high profit -- net profit of INR 633 crores you had [indiscernible] all-time high net profit for the company in the last 10 years will be INR 633 crores, which I can see from the table here. That will...

The all-time high profit -- for the consolidated profit, all-time high has been INR 571 crores.

Okay. So that will take time to be breaking even because of the competition?

Yes. And definitely, the margins in the blend mix in the total revenue. So while the revenue will definitely, as I said, try and cross the all-time high, but the profits will not be able to cross the all-time high this FY.

But will the profit grow by some 10 [indiscernible] double-digit margins or that will also be [indiscernible] a bit difficult for the company to maintain?

Profits will grow. To give an exact number is too premature, but profits will grow.

[Operator Instructions] The next is a follow-up question from Parimal Mithani from Credential Investments.

Can you hear me?

Yes, go ahead, Parimal.

Sir, in terms of your RMCL business, we have reached around INR 163 crores of revenue, and that is almost close to INR 90 crores. So how do you see this business since in terms of diesel consumption being -- government trying to reduce the diesel consumption, do you think this business will be getting more traction going ahead?

Yes. So RMCL, as you correctly said, has grown by 16%, and the profits have grown by 19%. So it's about INR 163 crores, the total revenue, and profit has been INR 90 crores. It's given a substantial dividend to us of about INR 42 crores. You see the electrification having nearly reached about 100% on the Indian railway system, the growth in the consultancy revenue from this stream of power purchase will be limited to only the growth in the volumes of traffic on the IR network. So what RMCL is doing for further charting out a growth in the coming years is already started taking in this FY other consultancy orders in the renewable energy business from different clients and also started taking -- pitching for taking international orders. So in the coming FY, besides the growth -- steady growth from the Indian Railway stream of business, we see RMCL getting revenue from these 2 new streams of revenue that is -- which they have already started getting orders and which will grow as a consultant expert with its experience of about 11, 12 years in the renewable energy business as well as getting some international orders, which we definitely -- we are sure in this FY itself, we will get our first international consultancy order for RMCL.

Okay, sir. And sir, second question, if I can answer -- ask, sir, do you see...

I request to come back in the queue, Parimal.

Next is a follow-up question from Harshit Kapadia from Elara Securities.

Sir, on the macro side, I just wanted to understand. So there has been a decent rise in the railway budget in this year as well. And looking at the macro headwinds, there has been a talk that the CapEx is what has to come down if the government wants to ensure that the country spending remains to be in a healthy situation. So there are other spending which are required. Do you think there would be some delay in spending on railway contracts or railway budget or infrastructure CapEx? Or are you getting a sense from them that it's not going to get canceled, but there could be some delays or you will see second half to be better than the first half, something that you can give a sense about, sir?

So Harshit, our assessment of our order book and the opportunities we are getting, we are -- since we have order book across all various domains, and each one of them, as you said, has got a substantial contribution in the CapEx -- overall CapEx budget of the government, I don't see any major impact on our consultancy, whether it's fresh orders or for the progress of the construction, so that our fee as a consultant, getting the requisite fee from various milestones. So, in fact, if you see, the recent orders which we have been getting, and even in this quarter, in the last 1.5 months, we have been getting fresh orders across, whether it is railways, from various PSUs, private [indiscernible] sidings, Indian railways, from highways, ports, bridges, airports, we've got a recent big order for airport consultancy, another one for shipbuilding cluster from Kandla. So I don't see our strike rate of fresh orders as well as the execution going down. And if the execution is progressing at its normal pace, our related milestone consultancy fee continues to come at a regular rate.

[Operator Instructions] We have a follow-up question from Parimal Mithani from Credential Investments.

Sir, my -- the previous colleague answered the question, so you answered them.

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

So just on the turnkey projects, I just wanted to check, sir, though the decline has come down, but we have still not reached the last year's number. When do you think we'll be able to reach last year's number? So if you can give us a status on the projects where are we? Are they reaching the milestone phase now or they are still some time away?

Yes, Harshit. So the turnkey revenue got -- is lesser by about INR 200 crores. And the order book of INR 4,580 crores of turnkey, substantial portion of it is at the -- now the young stage. It is in the time frame of 1 to 2 years window. And that's the time where the contracts are in place, the execution has started. And, in fact, these 1 or 2, 3 quarters, they will start generating revenue in a substantial way. So since the order book is young, nearly about 2/3 of it of the turnkey order book, and considering, as I said, a time span of 3 to 4 years for a turnkey project, the most -- the real time when it starts generating a revenue is from the second year onwards. So many of our projects, the IITs and IIMs, et cetera, the building vertical, some of our rail infra with siding projects, which we have taken on the turnkey mode, these will start generating revenue in this FY. And we foresee that we should definitely be able to come back our projections based on the execution of each of these big projects to at least the turnkey revenue levels of last year.

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

Yes. Thank you. So as I said at the outset, the foundation for a growth year building up on the growth of FY '26 has already been created, as you can see from the numbers and the breakup of the order book. And the -- one of the strongest signal from the result was you see not just the rise in revenue and profits, but the underlying growth emerging from all the 3 elements of high margin, that is consultancy, leasing being an all-time high and exports. So all of these 3 streams of revenue contributed to the growth, both in top and bottom line. So this FY, while these will continue to grow, and as I summarized in the turnkey segment, which will also contribute, the key focus of ours will be to continue to focus on the -- a mix of higher-margin projects and the turnkey projects so that while maintaining a growth on the top line, we secure our PAT and EBITDA margins as per the guidance that we've given. So we are sure that we will definitely grow in this FY. And our basic model of rewarding our shareholders with a high dividend payout ratio, that model is going to continue. Thank you. Thank you very much.

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