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

Ladies and gentlemen, good afternoon, and welcome to Texmaco Rail Q1 FY '21 Earnings Call organized by Batlivala & Karani Securities India Private Limited. [Operator Instructions] I would now like to turn the conference over to Mr. Kunal Sheth. Thank you, and over to you, sir.

Yes. Thank you, Yashaswi. And I would like to welcome the management of Texmaco Rail on the call, and thank you for giving us this opportunity. From the management, we have Mr. AK Vijay, Executive Director; Mr. Hemant Bhuwania, Vice President, Corporate Finance; and Mr. Ravi Varma, General Manager Corporate Affairs and Company Secretary. Sir, I would request you to give us some opening remarks. Post we will open the floor for a Q&A. Over to you, sir.

Yes. Good afternoon, everyone. Unfortunately, this is the worst time we have seen in our lives. The pandemic is not coming to any stop even until now. And I don't know whether it is peaking or it is yet to peak and where will we reach and how will we reach. And most unfortunate part is, there, in our families, in our known people, in our circle, we are now getting left, right and center COVID cases, which is quite worrisome. Of course, the only positive point is the sting of COVID is not so severe as it used to be there in the month of April and May, so that's one good point. As a result of this thing, people are recovering fast, and people are -- most of the people are basically recovering. This said, but then disruptions are -- got low. Every now and then, especially in our kind of environment where we are working in a brick-and-mortar company, the workers, the supervisors, the managers are running shoulder to shoulder to get -- to ensure the job is being completed and jobs are being -- regularly being done. We run a very, very high risk of infecting people with COVID. And that is why number of precautions we have to take, even at the cost of reduced production and control production. Until now, God willing, it is -- the effect is not so severe, although I myself suffered this COVID and rather back just 2 days ago. But then others in the shop floor and other areas, there are isolated cases, but still it is manageable levels. So this is the general scenario, which is going on in India, and we don't know how long it will go on, but work has to go on. So with that, my results for quarter 1, which we shared with you day before yesterday. Unfortunately, because the plant was not operating for the whole of April, it was also not operating for almost whole of the May, although the lockdown was currently -- partially lifted and government allowed partially to operate in all this thing, but the kind of conditions which we have put, it was impractical and impossible for any plant to run at that particular point in time. We started in a skeleton manner, whereby whatever the ready material was available, also semi-finished material were available to us, we made sure that, that material at least can move out, we can make some billing and can bring in some liquidity into the company. That is exactly the strategy we adopted and very, very limited resources and all these things. Sorry. So May, June, our focus was how to liquidate the inventory, bring in the liquidity into the company and a little bit production, which is necessary to do the balancing and all these things. We continued that so that on billing the focus remains. As you're all aware, we work on basically 3 divisions: Heavy Engineering, Steel Foundry and Rail EPC, which is for -- comprising of Kalindee and Bright. All the divisions are badly impacted. And as a result, the company has to suffer cost, which was avoidable cost. Like let us take the example of our Rail EPC business. We have so many sites where people are working and all these things. And some people they went back because they were considering risk. They went back to their native places. Some people, they remained at site. We had a moral responsibility to take care of them, their fooding, their requirement and also they are coming for the work, so some wages also to pick them. So these kind of challenges we faced, although we are not getting any job done, but we were incurring cost on the labor, we were incurring cost on the salary. And we were not in a position to utilize the resources in a gainful manner whereby any substantial progress could have been achieved. Similar situation was there for our foundry and heavy engineering, that is the Rolling Stock division, where people were partially attending, gangs were not getting formed because the key persons may not be available. And since we cannot deprive them of their livelihood, we are paying them salary, wage, although -- albeit at a reduced rate to make sure that at least no one feels the pinch or no one sees the pain of this COVID-19, whereby their families are also getting impacted because of financial reasons. So that -- the company has basically kept that motto [Foreign Language] all the employees basically, being big part of the family of the company, they should be taken care of even during the difficult situation times. And whether company is making any business or not, but their families should be taken care of. With this objective, we actually carried on last year -- last quarter. And as a result, you see the last quarter, our total turnover is hardly about INR 224 crores. On that turnover, naturally, with the kind of cost, which we incurred or the fixed costs which are there, including heavy interest cost, we were actually -- if you see our cash loss itself, it's close to almost about INR 30 crores, of which about INR 22 crores belongs to interest alone. So operational wise, we lost about INR 8 crores because of the infructuous costs, which we incurred on salary, wage and other expenses, maintenance and all. And finance cost we got INR 22 crores and depreciation was another INR 10 crores. That's how basically the structure is going on. It was -- as if the pandemic, COVID, was not enough, Bengal and especially the Calcutta suffered the most severe cyclone ever in the history of Calcutta which was Cyclone Amphan. Now Cyclone Amphan basically came and it was concentrated in Calcutta. As a result, all the open areas, all the big shops, where the open areas we have established about, they suffered the most of damage. Fortunately for us, our equipment and all these things, we are protected, not very damaged and all these things, but our sheds were extensively damaged. And the sheets and all these things went flying resultant thing, and then the monsoon and Calcutta rains were heavy this time. It's continuing to be heavy till now. So the repairing was also taking its own time. And due to the open roofs, the water was seeping inside the factory and all these things. So production was also, time and again, disrupted for that. We have to do a number of layoffs on -- virtually every week, at least 1 lay off, we were doing, 1 to 2 layoffs, only to make sure that the water, which is locked in the shops can be cleaned and workers are safe, no electrocution takes place. The machines, all power is disconnected. And everything is [Foreign Language] reset so that when we start the operations again next day, there is no risk factors. So that's how basically in this kind of situation, we worked the first quarter. Second quarter also till now, not much, but yes, compared to first quarter, a major improvement is there. And what company basically is hoping and working, banking upon, is the quarter 3 and quarter 4 were the best performance, which we're trying to achieve, to make sure that whatever gaps we have lost in 5 months, that is first 5 months, to some extent, that partially is made up apart from the -- reaching the target for those quarters. This is how basically the plan goes on this. Now coming back to the scenario of the business. Rolling Stock, we have sufficient order for the year. There's no challenge as far as the order is concerned. Production is a challenge where we need to do. The problem of the wheelset, which we explained even in the last meetings was -- is continuing to be there because although 1,000 dia wheelsets are now presently available for railway production and all these things. But for freight production, what you need is the different kind of wheelset, 840 or so, that still is a challenge. Although Rail Wheel Factory is trying their best to improve their production, ensure this thing that it is available to the wagon builders, but the challenges are there. They cannot produce that much as is required. Imports, with much of our efforts, we could get government to convince and allow that situation sometime in the end August. By time the order was placed and the material made ready and delivered, 2 lots came in thereafter. Because of COVID, no shipment from China took place. With the aggravated situation with China and COVID still persisting strongly in India, we are not very hopeful that very large quantity can come from there. So we have to basically rely again on the Indian manufacturing, that is Rail Wheel Factory, to supply even the other sizes of wheelsets they are putting there. And accordingly, we can be meeting the requirement for third parties. So of course, there will be challenges, but these challenges, anyway management has to overcome. We are insulating ourselves from these challenges, trying to work out with Rail Wheel Factory as well as the import segment so that our feeding to the material to the shop for getting out the wagons in production is maintained. Now coming back on the Steel Foundry side. Although my export business is, by God's grace, intact, we are able to supply them regularly and this -- but domestic business got impacted because of the reason the factories were not operating properly, the demand from industry falling down because they don't -- they were not manufacturing goods and all. So as a result, the domestic demand came down. But nevertheless, our target is that in last 2 quarters, we made up for the losses and come closer to what actually we achieved in last year. So the Steel Foundry, I can assure you that we will be able to meet targets and maybe there may be some shortfalls, but it will be insignificant and very small ones. Considering the condition, it will be a very good improvement in case we achieve those things. Now coming to the Rail EPC business, it was -- virtually no operations were going on sites. People were there, and we employed not less than -- we employed 2,500 people. 2,500 people at sites. Most of the people are idling, very little work was going on. But now it has started. But in between because of monsoon, disruptions have taken place. But then, yes, people are now mostly -- but most sites are available. And we are putting our full force to make sure that the running projects are now expedited, whereby, we can reduce the cost also and complete the jobs as well as bring the liquidity also. Because all these EPC contracts are milestone-based contracts and where if we don't achieve the milestone, in spite of our spending so much money into it, we don't get the money. So those kind of efforts are already on. And hopefully, now things started showing signs of improvement. And second quarter will show some improvement, and third and fourth quarter essentially should be the best quarters for this year as far as the operator works thing. These are the basic features, which we have over here. And now I'll first like you to ask some questions if you have. And then during the course of answers, the other aspects can be covered. Thank you.

[Operator Instructions] We have a question from Mr. Manish Kayal from Nippon India Mutual Fund.

Sir, my question is related to the structural changes that government has brought in the sector, and we have heard some news though in the past couple of months. So I want to get your sense on that. Because as far as I know, we are not into passenger trains and this privatization of passenger trains, wanted to understand what kind of opportunity that can give us? Wheelsets we have already mentioned. So on wheelsets part, wanted to know is there any clause in the contract with the private clients that, if this gets delayed, is there any leeway that we can have, I mean any monetary penalty is possible on that? Because the imports was mostly for private wagons as far as I understand. And any change in strategy? So Sandeep Fuller was heading the company earlier. Now with the new leadership, if there is any change in strategy broadly versus 6 months or 7 months ago when he was there? So these are few of my questions.

I would like to answer you before the other questions come, so that these many questions can be eliminated in the next session. The first question which you asked about private train, and that's why basically you talked about the private wagons that what will be the impact of this thing and the -- whether there will be financial implications on the company for delays and deferred supplies and all these things. You see all contracts do contain conditions for LD as well as conditions for force majeure. So most of our clients have understood the ground reality and pandemic COVID-19 is considered to be an force majeure condition. So they have been accommodative, and correspondingly we are getting the reschedulement of deliveries in almost all the cases except in for couple of cases which are -- parties have not agreed to, so that would not be a challenge. So we will certainly be able to get amendment done from the parties for suppliers and this thing, so there is no financial implication on that. The risk of financial, which is there, which was not there till yesterday, but then tomorrow can be there, is the control on prices. If the prices start going northwards, that control becomes a challenge because not in all the cases of private party, where the small orders are there, the conditions for price variation is existing. So that will be the only challenge which we'll be looking into. And we will make sure that our at least purchase procurements and factories is maintained in a manner whereby this impact, if it comes through, can be managed within manageable resources. So this is what basically on this thing. The second question you asked about was the management changes. After retirement of Sandeep Fuller as the Managing Director, then who is the person concerned, who is looking after the scenario and all this thing. So we have already notified last time that in fact, before Sandeep actually was -- resigned from the company or left the company, we already identified a very qualified and with proven success record, Mr. Indrajit Mookerjee as Managing Director. He is -- I am happy to share with you that he has also joined the company effective from April 2, the days -- the next day Sandeep actually got down his office. So Mr. Mookerjee is there in the helm of affairs. He is the current Managing Director of the company. He has an illustrious career and very, very highly commendable track record. He was the past Chairman of -- Chairman and Managing Director of Praxair, a American company; basically, a qualified engineer from IIT Kharagpur; having done his management degree course from U.S. and has worked for 20 years in U.S.; and from there, then he came and established Praxair over here and brought Praxair from 0 to today's level. So that is his success record. Of course, he retired from Praxair, and then only he has joined with us. He's very well socially and politically connected, from a very renowned family from Bengal, and he is guiding the company today to make sure that the company gets back to its own glory, which it used to enjoy. And whatever the commissions or whatever the side effects has come in the company over the last 1 year or so can be really left aside. And company, again, goes back into the growth mode and bringing new culture in the organization. So that is how basically the culture in the organization is there. He is not only looking into the softer side of management, but he is also looking at the harder side of management, which basically is that -- what strategy should be adopted? Whether we should bring in new partners? Whether we should bring in new technologies? Whether we should introduce new products, like the opportunity is coming in the field of private trains? So whether it is a worthwhile idea to get into this field because it will be used -- it will be run by the private players, who will be looking for some different kind of product than what Indian Railways normally produce in their own plants. So all these areas, we are looking into possibilities and feasibility and working on this thing. Similarly, in the engineering side also, we have, under Mr. Mookerjee, given charge to Mr. Dulal Mitra and Mr. Mohan Kumar. They are the 2 people. Dulal Mitra looks after certain businesses, which are basically in the eastern side, so entire eastern area business, including the Eastern Dedicated Freight Corridor or analyze exports or Northeast Frontier Railway, all these are being looked after by Dulal Mitra. And the other side, that is the Western Freight Corridor and Bangalore Metro or Mumbai Metro, they are being looked after by Mr. Mohan Kumar. That is how we have divided to make sure that the operations are not impacted in any manner, and rather it is more focused. So this is how what the -- management approach has been taken. Thank you.

Okay. Understood. And sir, this privatization of trains -- currently, this -- talking from our side to tap the opportunity there, but...

Your voice is breaking.

Mr. Manish, your voice is breaking, sir. Can you repeat, please?

Yes. Can you hear me now?

Yes, sir. Please, go ahead.

Yes. Sir, my question is on this privatization of passenger trains. So what kind of opportunity that we can see from the existing bouquet of products or services that we offer? Because as far as I understand, we don't have any product in the passenger trains, though EPC is one where we are already working on. So if you can give some idea in there?

I gave you briefly about this thing. You want a little detail about. Private train operators being private one, they will be eligible to buy their own trains, which should be ethically good looking, which should be functionally more proficient and where the rail quality is superior. They're looking for testing, and we see an opportunity over there, and that is why I said that we are evaluating this, that how can we gainfully deploy our resources to get into this thing. Of course, we will be going -- bringing in some partner, either technology partner or otherwise, in other form the partner to bring in the expertise which is there available in the Western worlds to be made available to the Indian system. So we'll not be going like just making something product without the technology base. We'll be going for -- looking for those technology base and all these things. So that is what basically the new MD is focused on and already started working on to this thing. He is interacting with a lot of people to figure out which one can be the more suitable for our kind of operation of this thing. As far as the private trains operator is concerned, it was never being permitted by Indian Railways to produce by any private operator. Only the public sector and the railway themselves were producing this thing. So the BEML in the public sector and all the railway coach manufacturing units, they're manufacturing this railway pass -- private trains. BHEL used to do it much earlier, but they were not doing anymore. So BHEL is also not in the picture now. But the opportunity is there for private player to come in a big way in this. And certainly, every big good player will try to encash on these opportunities. And that is what basically we are also targeting at.

[Operator Instructions] We have a question from Mr. Parvez Akhtar from Edelweiss.

Sir, a couple of questions from my side. First, I mean, obviously, these are very dynamic and challenging times, so probably a little bit difficult to forecast the future. But in our view, what could -- when could we probably see the next wagon tender from Indian Railways?

To my mind, even Railway don't know themselves. They are not clear that when they will come with a tender and all these things. Because of the COVID-19, they were -- focus was this thing that whatever systems available is there, they push, and they are pushing more and more private players to put in their money. So I see, other than the general purpose wagon, which requirement will certainly come down in Railway segment, more and more things will now move to private sector. So with all the new schemes coming up, liberalized General Purpose Wagon Scheme also being now introduced, so people are going -- logistic companies are also coming into play and all these things. So most demand will be actually emerging out of the private players and railway demand will gradually be slightly lesser. But their own types of wagon, which they require for their bus movement of their cargoes, they will maintain them, like coal, like mining materials. Those they will keep to themselves. But all of the material gradually will start moving to the private sector, be it cement, be it fly ash, be it pipe goods, be it refrigerated goods. Whatever is there, basically, will move to this.

Sure. And sir, one detailed specific question. If it is possible to get the breakup of the order book in various key items like wagons, HME, Steel Foundry, Rail EPC, Bright Power, et cetera.

I'll request my colleague to share with you broadly.

Parvez, the total order book is around INR 4,200 crores. If we bifurcate this into wagons, wagons would be INR 725 crores; hydromechanical would be INR 430 crores -- combined HME and bridges would be INR 430 crores; for Kalindee, it is INR 1,950 crores; For Bright Power, it is INR 505 crores; for Steel Foundry, it is INR 250 crores; and other subsidiary, it is around INR 300 crores. So combined together, it is somewhere around INR 4,200 crores.

You said Steel Foundry is INR 250 crores. And what was the last amount? I'm sorry, I missed it.

This was INR 300 crores in subsidiary and other joint ventures.

Okay. And what would be the split of the INR 1,725 crores wagon order book, and so that from Indian Railways and private sector?

50-50.

It is basically 50-50.

[Operator Instructions] We have a question from Ritika Gupta (sic) [ Garg ] from Aequitas Investment.

Sir, first, my question is relating to the wagon segment. Sir, you mentioned regarding wheelsets still being a challenge. And we have 50% order book from chassis segment. So what kind of execution do we see in H2?

Yes, we have the challenge. What basically we are trying to -- because there is no such restriction, first thing, for import, but then inspection requirements were there from the Indian Railways that has to be done by an Indian Railways representative, which is their right, and they are not waving those requirements, and we were after them to make some alternative arrangement because it is not feasible. Nobody can travel to China, and they will not travel to China. So finally, now they have relented slightly that for the orders which were already placed on the Chinese party. They will authorize rights to appoint some agency, third-party agency in China itself to carry out the inspection. So that clearance, we have got about 15 days ago. Accordingly, we instructed our Chinese party to supply this thing. So I -- what we are now trying to balance is this thing. Some quantity can come from China until the government put any restriction or embargo on them, and some quantity can be made available by the railway in factories, which they were anyway doing, they are trying to supplement this -- their productions. With balance this thing, we can maintain the private production along with the railway production.

So, sir, what kind of execution for wagons do we expect in H2?

Mr. Bhuwania has given you the numbers, that total order book today is INR 700 crores. Mostly, we'll try that maximum quantity of this be executed within this financial year.

Okay. And sir, can you give us -- we didn't have a call in March. Could you give us the dispatch volumes for March as well as June quarter?

Sure. Hold on for a minute.

Yes.

So for the year ended March, the total turnover from Rolling Stock was around INR 1,040 crores. And for Q1, it was somewhere around INR 100 crores.

Sir, I want the wagon number -- dispatch numbers and how much of it was to the Railways?

Okay. So the total dispatch of wagons was INR 2,030 crores, out of which INR 1,431 crores was to Railways and INR 599 crores to private. And in Q1, the total dispatch was INR 292 crores, of which INR 131 crores was to Railways and INR 161 crores private.

Okay. So this INR 2,030 crores that you gave me was for the full year FY '20, right?

Yes. FY '20.

FY '20.

Yes. Okay. Sir, my next question is, currently, what execution are we having per month of wagons?

Ritika, can you go along with all your questions, so we can answer in one go?

Okay. So sir, I want to know currently what is our execution per month for wagons? I want to know, did we avail of the moratorium? Then, what was the Bright Power revenue? And what kind of execution for EPC do we see in H2? And regarding structural changes, do we also see that because of corporatization of the railways like they've appointed their first-ever Chairman. So do we see any changes coming from there, which might benefit us or the industry as a whole?

Do we answer now?

Yes.

Like current level of production, as Hemant has told you, in the quarter 1, we hardly made any production. It was only about 200-some numbers, which we can dispatch. And that too, basically -- because there a lot of work in progress was there when the plant closed down on 23rd of March, so those we tried to push with limited resources available to our disposal and make sure that these wagons at least are billable, can be billed and this thing. This quarter, certainly, this number will improve substantially, in fact, at least by 50% to 60%. But from next third and fourth quarter, there will be a substantial improvement. Our target will be there to reach closer to the number of our order book. So our order book today is almost spending about INR 700 crores. And we will try to achieve maximum possible for INR 700 crores, if not 100% of this thing, at least INR 500 crores to INR 550 crores, that is the target to achieve. And that is how we are functioning about. The second question of your this thing -- this covers your point on the rate of production. Number two, did we go for moratorium? Now fortunately for us -- can you give me 1 minute?

Yes.

Sorry, I got another call. So now your question is, did we avail any moratorium? See, per se, company don't have any long-term loans, accepting for a very small number, I think INR 45 crores -- INR 60 crores is the one which we have taken a long-term loan with respect of purchasing certain equipment. And that is there only, we have taken some moratorium. Apart from that, we have not taken any moratorium because there were no loans per se. So that repayment moratorium was there, and we have availed of this thing. This apart, they have permitted us to -- for interest deferment, and we have paid already, which we already paid in the month of September. So today, as far is concerned, entire interest deferment is paid, but the moratorium continues because they have extended till March 31...

No. We have paid.