Texmaco Rail & Engineering Limited (TEXRAIL) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. I am Bharathi, moderator for the conference call. Welcome to Texmaco Rail & Engineering 3Q FY '20 Post Earnings Conference Call. [Operator Instructions] Please note this conference is recorded. I would now like to hand over the floor to Mr. Kunal Sheth. Thank you, and over to you, sir.

On the call from the management, we have Mr. AK Vijay, Executive Director and CFO; Mr. Hemanth Bhuwania, Vice President, Corporate Finance; and Mr. Ravi Varma, General Manager of Corporate Affairs and Company Secretary. Sir, I will request you to give us some opening remarks, then we'll open the floor for Q&A.

In the meantime, can we know who all are there on the line.

So there are about 35, 40 participants.

Oh God, quite a number. Okay. Okay, let me go ahead with the basic -- this thing. I know very well that the investors are not very happy with the performance which we have given for the last quarter because it has not been as expected. In fact, the performance of one of our divisions has been low, and that has basically brought down the overall performance in the organization. Although we belong to the rail sector, but as per the last year's budget and all this thing, the demand was very robust and a whole lot of growth prospects were there in respect of new tracks, electrification, then dedicated freight corridor lines and also simultaneously then the requirement for the wagons, coaches and other area. But somehow, the government in between found the fund constraint and resulting thing was that, the funds we're not being flowing freely in respect of the projects which were announced and which were under execution. Even we were the worst abrupt -- for the reasons that we required a lot of projects both for WDFC, RBNL, railways and funds were getting blocked into all such projects, which when government were delaying the payment and the process that we were getting into a vicious circle whereby the projects were not progressing as smoothly. As a result, the next billing was not feasible. And then we were dragged into troubles for the funds not being available, we are not able to invest the further money. So that issue was there mainly faced in the Rail EPC Kalindee division. As far as the other divisions are concerned, let me go one by one. My wagon division, although the performance has been reasonable, but that -- it could have been much better, the only reason being this thing that the government was not in a position, railway, in fact, was not in a position to supply us the wheel sets. The wheel set is a controlled item, which as per the railways policy has to only be purchased from the railways own manufacturing unit, which is Rail Wheel Factory in Bangalore. And they were in a crisis because they don't have the axles available to them. That's why plant went under some breakdown and now going for revamping. And ultimately, they decided to import axles. So once the import axles start coming, they'll start sending the wheel set and virtually on wheel set they were rationed, [indiscernible] by allowing wheel sets for the railway sector, but for the private sector, it was absolutely the strict control was there. [Technical Difficulty]

Ladies and gentlemen, please stay connected, while we connect the management team back to the call.

I restart from the area where I stopped at last time and let me conclude on this thing. I was talking about the wagons part. So on the wagon front, because of the problem, which were faced from -- our availability to the wheel set, primarily from the Railway Wheel Factory, which is the sole source to supply wheel sets to the wagon manufacturers, owned by the Indian Railways and they have in turn problem of not having the axles availability to them because of their axle plant breaking down into certain breakdowns. So resultant thing was this thing neither they had the axle nor they could complete the wheel and axle thing and we are not allowed to buy from outside source or import it, and we were stuck and not delivering. Moreover whatever axles they were getting, they were importing the axles and then trying to deliver, whatever axles they were getting, they will give preference for the Railway wagons and not for the private. Our strategy like therefore, both private orders then the railway orders, so we were not able to execute those private orders for nonavailability. We did lot of persuasion with the Railway Minister, Railway Ministry officials. And finally, they could concede to this that, yes, we'll allow you to import wheel set for the orders booked till 31st December. Now we immediately placed orders in China because that is the only source which is available to India who offers the wheel sets. Other sources in India are not viable. We place the order and they start supply. The first lot have actually come in the month of January. Now the second lot which was supposed to come in the month of February because the coronavirus and all this thing, China is totally disrupted today. So maybe one lot we had now dispatched, which has been now come to us from the first week of March only. And the second lot after that, may come amid March end or otherwise in early April. So this all disruptions which has caused, has resulted in our not being able to perform the potential in respect to the wagons for the private sector. Railway [ Freight ] they are importing axles. They have got some imported availability. There also disruptions are there, but they are trying to supply in a rational way to the industry for whatever maximum they can do about. So we are expecting that, yes, we'll continue to get about 150 to 170 wheel sets from the Railways and about 50 to 70 wheel sets from the import, so about 200 to 250 wheel wagons is getting delivered additional to the [indiscernible] wheel sets. We flagged that whatever wheel sets are available... [Technical Difficulty]

We welcome back management team to the call. Please go ahead, sir.

Yes. So on the rail front, I've explained you, this problem although is there, but to some extent under control now, and that is why you will see in the quarter 4 improvement in the performance of wagons [ accuracy ]. As far as the foundry is concerned, my export business is going on well. We are moving at the target. And it is -- we also developed one new product, which is [ cable sourcing ] and stabilized production something around 100 in numbers levels at this point of time. Our target is to go up to 250 to 300 numbers in the coming year. And on that, we are working already about this thing. So there is added product which will support foundry in view of lesser demanding for the bogies due to nonavailability of wheel sets. The market also fluctuates depending upon how the variant demand is there. And when the demand is low, the market tend to go low, when demand in high, the market tend to go high also. So those again are there in the market. We are balancing it out, but foundry has been doing reasonably well. And as we are pretty confident, yes, it will also continue to do well, basically because the export support and the new product line which we have developed for the [ crossing ]. So at the third divisions which are there, which is the structural SME and bridges. This division was also laggard, but now has started picking up. And in fact, turnover in quarter 3 and quarter 4 has already shown signs of improvement. The order book is also becoming healthy. We have recently backed another order for about INR 98 crores from [ North American Railways ]. And there are other tenders, which we have participated, we are well placed. That business should also come aboard. Similarly, we have participated in the business of exports, where we are well positioned for Africa. And hopefully, that order should materialize in our favor, may be in another month or a couple of months' time. So that will also be giving us lift in the next year, which will be enhanced order book position. Today, my order book position including all the situation, is close to [ INR 4,500 crores, ] and we are now targeting selectively booking orders. Wherever the money blockade is more, we are not booking such orders. We are only doing orders when liquidity position is [ great ], so that company doesn't come under stress. Because of liquidity problem, the area where we suffered most was the funding. We have to finance from market also and resulting thing in my finance cost has shot up in the last quarter, and ultimately, it won't be a impact this year's profitability as well because there is the heavy finance cost. So generally, this is what basically on the brick-and-mortar side, on the rail fiscal in the -- as far as price is concerned, I'm not so badly impacted there in finance front. But company -- that unit is doing reasonably well. Turnover value, we are maintaining the -- what we have projected about INR 280 crores or so. And also -- fund-wise also, we are able to collect. We are not -- they are putting additional funds to ensure the things -- where business continues on a regular basis. So the problem areas we identified is basically in the Rail EPC Kalindee where the -- in the track front, the funds are not going in. The other front, we had to recall additional wheel sets into our production and supplies at lower numbers. And all other segments, basically, we are doing reasonably as planned. This is the scenario of the company for the 9 months period, which we have presented before you. Now I'd like to have your questions. In case, you have some queries on this, I'll definitely be happy to answer all.

[Operator Instructions] The first question comes from Renjith Sivaram from ICICI Securities.

Good set of numbers, given the overall environment. But the only, I think, the disappointment was this Rail EPC. So the last quarter in your balance sheet breakup you have given out the short-term debt as INR 637 crore, so how much is that short-term debt currently? Has it gone up? Or is it in that INR 650 million range?

Yes, it has gone up, and it was significantly. And exit numbers, unfortunately, Hemanthji is tied up with some other meeting. So he has not being able to join us. But if I remember correctly, the short-term debt has gone up by INR 100 crore, INR 150 crore.

Okay. So should be around INR 800 crore?

Yes. It is initially it was INR 100 crore, INR 150 crore. Rest, which was there already, [ that is held up above ]. So something around, I think, INR 640 crore or INR 700 crore in short-term debt.

Okay. And sir, just on the receivables side, how are the receivables? Have they started coming down? Or still you see a pressure? And which are the major exposures we have in terms of receivables? Is it DFC? Or is it Indian Railways? Or is it some Metro?

It is basically not at home -- the mostly the outstanding primarily comes from 2 things: Indian Railways and RVNL. And mainly -- mostly, it is there in the tracks of project, which we have undertaking with them, where they don't have much of the funds. WDFC also, there's some outstanding. I don't think that is because of fund, but the reason we're seeing that where we are partnering with Hitachi and documentation, et cetera are a huge requirement there. We are yet to do -- freely converse with that. In fact, in February, it will we have to submit about 800 pages document in hard copies. So those compilation and then that goes to Japan to Hitachi who is basically, pass it on to Mitsui and then Mitsui submit the final bill and then the payment is made. This whole process actually delays the payment process. We are trying to streamline this. As of now, we have not been able to. We have called for a meeting between Mitsui, Hitachi and ourselves to streamline this process, so that the bills can be going to them within 10 to 15 days and then we collect money within month or 45 days. So this is what we did all. Today, it sees everything that once we complete the job, by the time the payment come, it takes 3 to 4 months, which is also putting pressure on my finances. So this is basically scenario there. The signaling and telecommunication, which is there, they are normally we can take but then the problem is the last 10%, 20% payment gets stuck because projects until it's handed over to the Railways or Railways takes over the project, that payment they don't release, but supply portion and erection portion, they are getting the payment. So that is not that grave a situation as in the track what is there where the funds are totally not there.

Okay. And what is the breakup of this order book of INR 4,500 crore in terms of Rail EPC, wagons, non-India Railway wagon?

In wagons, we have the models roughly about INR 800 crores.

And this is all Indian Railways?

Come again.

No, this is...

How much will be Indian Railway in this?

Our Indian Railways is about INR 300 crores and INR 500 crores will about private.

Okay. And...

[indiscernible] about INR 80 crores on the commercial side, which has become Railways. As far as also our concern, as I have explained last time also in my [ press meet ] also. Also we have got [indiscernible] from them because it was not feasible to revise the design and manufacture the wagon as per [ loco shells ] as per their design. Resultant for this thing that we requested them to treat the orders canceled and they requested to provide us on these premises where these whole [ locos ] were produced. So we have come with agreement, that by [indiscernible] themselves , we have leased out the premise at a rental about some INR 6.7 crores per annum. And they will produce share of their own. Our contracts stand canceled. So we have no obligation now to supply the loco-shells to us or under the contract. The other rental -- the lease rental which we will be receiving from them, all obligation gets shifted to Alstom themselves. So they've changed the design now. We renewed back the [indiscernible] in certain locations. They already started manufacturing the safe state treasury we're doing and that also has been reduced. So we have an order book over INR 80 crores from Indian Railways to loco shells. Then on the heavy structural bridges which is the HME, we have an order book roughly about INR 450 crores, on home side, we have an order book about INR 200 crore, INR 250 crore. On the [ reengineering ] side, we have an order book about INR 2,700 crore. This is what the order book is reason today as is concerned.

So INR 2,700 crore is Rail EPC?

Yes. That's right.

Okay. And INR 450 crores is heavy machine, wagon INR 800 crores.

Yes.

So then this hydro is still remaining INR 500 crores of slow moving.

No, hydro is now merged with bridges division. So we have [ thermal division ] structures which is hydro mechanical and together, we have an order book of about INR 250 crore.

Okay. INR 250 crores. So we have taken out some of the slow-moving hydro, previously it was INR 400 crores.

So, in fact, you can see that we have exited also. The total execution of the segment will be about close to INR 70 crore, INR 80 crore, but this year, we'll be doing something about INR 120 crores, INR 125 crores.

Okay. And that Alstom model, you told it is -- we had some INR 400 crore of Alstom, so that -- which is getting canceled back to Alstom.

It is total on balance sheet, our order book situation, and we have come to agreement with them. We leased out premises for them to manufacture, that by themselves, those loco shells and they will paying lease rentals.

Okay, okay. That's good. And sir, this rail -- we had taken one Bangladesh order, I think, last year

Yes.

In EPC? So what is the status there? Is things progressing? Or there you are seeing any delays?

Yes, the Bangladesh project is there in the [indiscernible ] passed this order. The -- we already had -- it's already under execution today. We had 2 projects there. One is the Akhaura- Agartala, the other one is [indiscernible] ] is the bigger one. The problem where [indiscernible] is not with us, but with Bangladesh Railways whereby we were not able to finalize -- fine-tune the design, which was submitted initially. So there are other areas where the foundations were required to be changed, modified and lifted. But something [indiscernible] which is of [indiscernible] are going on and that as the result the entire bridge] designs have been changed, the layout design have been changed. So we are in [ discussion ] with them. These changes are taken place, as a result, there is a variation in the contract, and we are now in the stage finalizing for that.

Okay. And because Bright Power -- is the Bright Power order book included in this? Or that is separate?

Yes, it is included with INR 500 crores. It's part of [indiscernible]

Okay, okay. And sir, anything in the pipeline, like, how do you look at in terms of order intake for the next 6 to 9 months? And what's your take on this budget, is there any...

[indiscernible]

Overall, in terms of wagons and EPC, what is our next 6 to 9 months order intake pipeline like?

Yes, I'm seeing the -- wagons segments the price demand is robust. They are getting regular inquires and business is rectified also. And the new segments are opening up, which basically were not there, like seat quality carrying wagon, which was not there in the earlier pipeline. Now has been developed, designed and supplied through Tata. They look in a big way to go into this for the entire supply of quite [indiscernible] to wagon because with transport, with lopsided weightage there. So it's a big problem for them how to transport the material in a road transport. So wagons had to be designed for that. That is already there in the pipeline. Now fly ash is another big area, where demand is coming in a big way. Disposal of fly ash is further challenge. And now we are supplying directly to the cement plant. So that's another demand which has come. Fly ash cannot move by road. So that's another area. So like there are 3, 4 new segments have come up, which demand is robust. Auto car, anyway demand is robust -- that is going in this thing. And now logistics players are coming in big way in the market. So they are trying to build their fleet, both for container wagons and specialized wagons. So there -- that demand is also there. So demand is now in a regular nature, as far as the private sector is concerned. Railway demand, of course, they have not finalized the last thing they did which they issued 6,900. So that delay then is there. And the result I don't think they don't have money. So when they don't have funds, then how they are trying to somehow delay the process. Maybe then from [indiscernible] Railway will also come in the port, that is what they require for next year, and they will try to take it from there.

Okay. And in terms of this EPC, which are the major -- how is the outlook in terms of Rail EPC? You are talking about, new DFCs and metros are there, so how do you see that?

Rail EPC [indiscernible]

Rail EPC, the demand is there, but we are -- as I told you, I'm restricting myself, not putting new orders in respect of the track [indiscernible] which is -- they really become challenges because the government fund collecting is not there. But as for the signaling, and everything [ concerned ], we are going ahead, and we are not having a smaller value contract, where supply portion is more and the initial value is less. That will be little bit hedged because my markets are maintained and I can feel over the past 6 months, 9 months finished about [ 2015]. So my money doesn't remain blocked. And wherever the project fund availability is not there, we don't take up those projects. That's how we are proceeding [indiscernible] offline. So strategy-wise, we have slightly changed.

Okay, okay. And sir, lastly, what's your debt target for the full year?

What is my...

Debt -- what is our debt target for the full year?

That normally because we are not giving this numbers, so I'll not be able to share at this point of time, but it should be better than what we did last year, in spite of all these challenges.

The next question comes from Ritika Garg from Equitas (sic) Aequitas Investments.

Sir, what is our current receivable?

Give me a minute. It was INR 800 crore last year.

Sorry.

It has gone down to INR 700 crores compared to INR 800 crores last year.

INR 700 crores. And when do we expect our receivables from Rail EPC to reduce? What are our receivables from Rail EPC? And when do we expect them to reduce?

Rail EPC receivables are close to about INR 400 crores. And I think from April onwards, it will certainly come down because the funds will be released once. March may be a challenge, although we are putting all our pressure to see there's some money comes in March. But maybe March, that is slightly challenge because government is not finding funds to release.

Okay. And have we received any money from the government in Q3?

Yes. We have received, but the receipts are less than what we are billing. And that could be...

Sir, you are not clear actually -- sir, I'm not able to hear you, what you're saying.

Come again.

Not audible.

Are we audible now?

Yes.

Yes. I'm saying that Rail EPC, we are receiving funds from government also, but they are not commensurate to what we are actually billing with them. So the debtors are mounting. And that's why we are restricting that work on the track side. And as I explained earlier, you must have heard me also. It is only...

No, sir, you were not audible only, clearly.

Still not audible?

Now you are audible.

I'll go slow. In Rail EPC, we are basically stuck in the track work where the -- my debtors are mounting, where the receivables are going up, and already we are finding ways and means to make payment within March. So that's the area of concern. But in other segments like my -- in Rail EPC, like electrification, like signaling and telecommunication, like AFC, there they are still paying because those are competitively smaller values and funds are allocated prior hand. As a result, both railways -- zonal railways who have the fund. And so they are in a position to make the payments. These positions likely to improve by April, but we are trying putting our best pressure on the government to make sure that by March, we'll receive substantial money out of this.

And what are wagons receivable?

They are basically more or less current. In fact, rather they are also gone down, something close to INR 200 crores -- or less than INR 200 crores. The total outstanding on brick-and-mortar is INR 200 crores.

Okay. Wagon receivables is INR 200 crores and Rail EPC receivables is also INR 200 crores?

Wagon introduced foundry, wagon and your HME altogether about INR 200 crores.

Okay. And Rail EPC, you told me was also INR 200 crores?

No, Rail EPC, I told you about INR 400 crores.