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

Good day, ladies and gentlemen. Good day. Welcome to the Texmaco Rail Q1 FY '22 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Navin Agrawal, Head Institutional Equity at SKP Securities Limited. Thank you, and over to you, sir.

Good afternoon, ladies and gentlemen. On behalf of Texmaco Rail and SKP Securities, it is my great pleasure and privilege to welcome you to this financial results conference call of Texmaco Rail & Engineering Limited. We have with us Mr. Indrajit Mookerjee, Managing Director, along with his colleagues, Mr. Ashish Gupta, Deputy Managing Director; Mr. A.K. Vijay, Executive Director of Finance; Mr. Hemant Bhuwania, VP, Corporate Finance; and Mr. Ravi Varma, GM, Corporate Affairs and Company Secretary. We will have the opening remarks from Mr. Mookerjee, followed by a Q&A session. Over to you, Mr. Mookerjee. Thank you.

Okay. Thank you, Navin, so much. And I would like to express my personal appreciation to all of you for sparing your time to be here this afternoon. And I hope all of you are well, doing well and wishes -- and been getting out, coming out of the challenging time that we have been passing through. I have pleasure in announcing to you that we have a new member today in the conversation, and that is Mr. Ashish Gupta, who's joined us from Tata Group. And he's been -- he's my Deputy Managing Director, and he has also been one of the light where -- in trying and making things happening very fast. So that's the -- apart from Ashish, we have Mr. Vijay. Mr. Vijay is our CFO and one of the pillars of the company. And one of -- and all of you, I'm sure, know him because he has been participating, and he would do the initial briefing. Then I think I'll be failing in my duty unless I also mention of 2 of our youngsters, Hemant Bhuwania who heads the Corporate Finance as well as Ravi Varma, who is the Company secretary, are also present in this meeting. I also have to thank Naresh of SKP for being -- facilitating and being with us in this call. So I think we can -- before I hand over to Vijay, I would only like to say that we had a very challenging time, as all of you know, for the month -- for this quarter. And yet, we have been able to meander our process to that. Despite the fact that most of the industrial, particularly manufacturing companies were in real trouble this time, not so much because of COVID-19 pandemic, but more because the entire fabrication industry like ours, depend on availability of oxygen gas, which we didn't have for the time because, as you know, as per the government directive, the government took away all the oxygen, I would say, "they took away" is the wrong expression. So the government decided that medical segment should get priority. So obviously, in the name of the humanity as we -- -- we have no complaints. So -- but we suffered a lot. Now having said this, can I ask -- can I request Vijay to take over from me, please?

Thank you, Indrajit, sir. And you are nicely and very appropriately, in very few words, summarize how things are presently, not only for the company but also on the global scale and how difficult time we have been passing through in the country specifically, resulting in obstruction in the business. And the biggest effect which we got was the second wave of COVID, which really affected not only the business, but the human lives in a way we have not known earlier. So this was a real lesson to all of us. And fortunately, I am very hopeful that all of us will be very careful about the evolving third wave, which is already hitting at certain corners and maybe that it is the -- good thing that India had a grid. And we take care for the family, we take care of our own health and maximum people have taken advantage of the vaccination drive did by the government. And hopefully, we all will be seeing a better future sometime from early next year. So this year, again, we are facing the real -- this challenges will coming on. But the good thing is, is that the economy is looking up. And if you see the overall the economic scenario and all these industrial numbers which came for IIP, 13% plus, we have not been seeing these kind of numbers for ages now. So that's a very, very healthy sign, which we are observing in the horizon. I am personally pretty sure about this thing that India will be actually taking a lot of advantage once it comes out of the COVID situation, and there will be a big boom to the Indian economy coming forward for the next couple of years, maybe another 5, 10 years. There have been -- the whole operation in the industrial environment in India will see a new era. Having said that, let me come straight on my company's performance for the quarter #1, which is the first quarter. And it really, you see that compared to the quarter, which was there in '20, the first quarter of '20 and the first quarter of '21, '22, we are basically actually pretty much in a similar kind of situation. Last year, when the first quarter, we faced the situations, we were not prepared. We couldn't do any activity. We were actually stumped. We didn't know what to do, how to do and how to get out of the situation. As a result, last year, for the first quarter, we suffered a loss on EBITDA level, which has never happened in the company. So that was a mix setback for us. We learned lessons from there. And this year, when the similar situation erupted in the quarter 1, all the measures required to be taken by the company to make sure that operations may not be to full levels. But wherever it is feasible and to vastly feasible, keeping the safety first, we are able to manage and that's how we basically will see. This quarter, our -- although our turnover is not great, we have been able to achieve a turnover of only of INR 330 crores, but it is substantially better last quarter. And that, too, on the background of this thing that the lifeline for any engineering industry, which is basically oxygen, they were not available to us for 1.5 months. And if oxygen is not available and oxygen, basically, is needed desperately by the medical resources, then anybody can understand that is going to impact business and that should be allowed to impact it and human lives be saved first. With this situation and all this thing, facing all -- whatever we can do with given parameters, we try to do. And certainly, we have been able to achieve still by performing well in the month of June, a turnover of INR 336 crores with an EBITDA of almost 13% and a PBT of INR 6.83 crores. So that way, performance-wise, I must say, it was not as expected, but still reasonably better in the given situation. That's how basically doing about the actual numbers of performance. The resulting thing that the oxygen, parliament, all this thing are behind us now, but COVID is still there. There are still huge restrictions imposed by the West Bengal government, where our -- 5 of our plants or 6 of our plants are located. We are allowed to work only 50%. We are also being restricted for usage of our full resources to the operations. Given situation, how can we do -- divide our shifts, whatever methodologies need to adopt and all the things, we are doing it and making sure that we achieve the desired results which we have committed on the budget for the company and make sure that by the year-end, we've delivered a reasonable robust performance to our stakeholders. And with that objective in mind, we are working constantly. And I can certainly say, compared to what we did in quarter 1, we'll do slightly better in quarter 2 and certainly much better in quarter 3 and quarter 4. That's how the situation is basically emerging about this thing. But now the company has various divisions. One is the Rolling Stock -- one is the Heavy Engineering division, which is comprised of Rolling Stock, Hydromechanical Bridges and High-tech divisions. Then there is rail EPC where we are basically working in the segment of track works, ballast-less tracks, signaling telecommunication, auto fare collections, overhead and electrification. Then we have our Steel Foundry division, which is operating at 2 locations, 1 in Calcutta, other in Raipur, Chhattisgarh. And there, we are getting to the requirements, both for export and domestic markets. And with acquisition of Raipur, now we are also catering the Department of Defense and other Heavy Engineering segment where there's a requirement for handling processes are there. So this is how the company's basic divisions are operating about. And had this COVID impact not been there, our performance -- we would have been able to give you a better performance compared to what actually we have shown on quarter 1. The demand for exports for steel casting is reasonable. We are -- in spite of the COVID [indiscernible], the demand from our customers is constant. We are not seeing any dip. In fact, rather, if anything, we are seeing that they are asking us to improve on our production line, which can help them to enhance their market and that is exactly what we are trained. In fact, rather, we are now already working on development of new products for the export market, which can give additional market share. And God willing, if the things goes all [ well ] and all these things, our export can see a quantum jump by the end of this year. This is there basically the position in this company. EPC division, of course, because it is [ cycle-ated ] work, it really got impacted for the reason that the various sites were not in a position to work being the COVID. But we geared ourselves. Now we are working and all the sites play out in the operational stage and people are all have been able to join the site and work in this. The silver lining for our kind of industry and our kind of a company basically come from the railway plan 2030, where the comment is very, very clear that railway should be future-ready and from the market share of 27% freight which is there with the railways today, they want to see that it reaches up to at least 43% by 2030. So it's a very big target which railway has taken. And hopefully, this is going to benefit the industry, which are working in the railway segment. One, we are also one of them. And certainly, we'd expect that the benefit will also flow to our good company. This is basically what the overall scenario of the company is. Of course, the order book-wise, we are really conservative, but then still, it still -- we are sitting on an order of INR 3,400 crore. But order book will not be a challenge the way situations are changing in the railway segment, which is our main segment where we're operating. And with more and more prior players being allowed to participate in the rail segment, the business horizon is also widening, and this will certainly augur well for the organization. Having said this thing, I will now leave to the forum to have any questions on this thing and request Ashish in case he would like to add some more point. He is the Deputy Managing Director, and he is the one who is expediting the business today. Thank you.

Good afternoon. This is Ashish here.

Please go ahead, Mr. Gupta.

Yes. So adding on to what Mr. Vijay just told, we are seeing a lot of traction in the urban mobility business also, where we are a very significant player, especially for ballast-less track mains and the other metro works. So there also, we are present. We are actively looking at accelerating in more tenders in the future. I'm very hopeful that we should be able to increase our portfolio there also. There are not many companies, only 2 or 3 companies in India who are actually qualified to do this job and we [indiscernible] to better up. That is something I would like to add here. Thank you.

[Operator Instructions] The first question is from the line of Anshul Saigal from Kotak Asset Management.

Hello? Am I audible?

Yes. We can hear you.

Okay. As I look at your numbers, it looks like the Heavy Engineering division did reasonably well [ despite ] the circumstances, while the EPC business has actually what dragged our numbers down. Could you just throw some more light on this trend? And also, I would assume that oxygen would have, in fact, impacted the Heavy Engineering division as also the Steel Foundry division. And my second question is that in the Steel Foundry business, I think we were adding to our capacity. Has the new capacity come on board? And now where are we on capacity in Steel Foundry versus [ meter ] evolution?

Ashsih, If you want to take on the EPC, please?

Yes, so I'll do that. I'll take on the EPC business. See, in the EPC business, we had an impact of 6 to 8 weeks on execution basically because of COVID actually and because all the construction sites had to be demobilized because of very high incidence of infections on site, so we -- as a precautionary measure, we demobilized all the sites. So all of the project sites were actually impacted. But we are very confident that going forward, we should be able to make up for the shortfall that we had in Q1 in the subsequent quarters. Because besides they're all back to normal now, and we are now increasing the resources to make up for the loss in execution. So that is the primary reason for the lower billing in the EPC business this quarter.

As far as the oxygen is concerned, perhaps, Ashish, you could say that we had used innovative ways to run as much as possible.

Yes, yes, yes. During oxygen shortages, actually, what we did was we maximized production of Rolling Stock, which did not need oxygen. Also, we converted a lot of our equipment to -- from oxygen to argon and CO2 mix and also converted a lot of equipment to plasma cutting wherever possible, and we did it very, very fast. In fact, we modified a huge amount of equipment to do that. And therefore, we could still run a significant portion of our production lines during the lockdown also.

The other question is on the Steel Foundry capacity. Vijay, you'd like to address it?

I'll answer the balance of questions.

Yes.

Regarding Steel Foundry capacity, we have added the Urla plant a year ago and then Urla plant now, virtually, is running full blast. But then only problem was due to the COVID restrictions initially at Chhattisgarh, the plant was not operating at its potential. However, the later part, that is the month of June, in all this thing, we run the plant through this whole thing. And today, the plant was producing in the range of 700 to 800 tonnes, which is very close to its capacity. These are part -- not only this that we are running with those capacity, we've been introducing new products. And let me share with you the good news about this thing, that we have successfully developed the critical product for Indian Navy, which is basically the hull of the ship. It's very large casting, weighing about 22 to 25 tonnes. And that successfully developed and supplied to them, and they are very happy with that. And in fact, rather the demand is -- since it's robust for this item, they are coming with repeat orders for this. We also developed the coco bogies, which are basically required for the locomotives. Of course, in the current stage of thing, the locomotives are gradually shifting to fabricated bogies. But in the steel railway, we have a huge system whereby they are using the coco bogies and we have developed the flexible bogies, which is used in the locomotives for the Indian railways. And that also is supplied during the first quarter. So these are the products which are niche products, which commands high premium and which gives you a lot of creditability. As a result, the Urla plant is establishing itself now very fast for niche product requirement and all this thing. And sooner, we will be also now making foray into the export market from our Urla plant as well, although it will be compared to Calcutta plants in a smaller way. But yes, we'll be going through this thing and that we have been successfully negotiating with certain vendors to start operations from Urla for exports. The capacity wise today, technically speaking the steel foundry has a capacity of 40,000 tonnes. But that depends upon the product mix. And effectively, the 40,000 tonne capacity with a variety of product mix that the company presently is doing. If we are able to achieve 30,000 tonne to 32,000 tonne, then it will the full capacity, actual production base. But if there is only one product requirement in there, certainly, technically, we can achieve 40,000 tonne, too. So we -- that's why we say always 30,000 tonne, 32,000. I don't think, this year, we'll be able to achieve the capacity level thinking on closer to the capacity due to the problems of COVID situation turmoil and all. But from next year onwards, we are targeting that we'll be reaching very close to the capacity, which we already established. And already the balancing activity and the balancing installment of the equipments are in place in respect of those items. You also referred about that in the Heavy Engineering division, we did reasonably well. That's very correct. In fact, rather in Heavy Engineering division, we did well in that division. In spite of this problem, which Ashish did explain to you, the oxygen -- the innovative method we adopted to make sure that the production activities are somehow made up and all those thing. And we also made adequate batch mix, whereby we can do certain reasonably profitable items to make sure that the bottom line is also not getting seriously impacted. A combination of all these things certainly has helped us to make a reasonable result for the quarter 1 against the odds. So this is what basically the situation remarks for this thing.

And also, Vijay, I just wanted to add, to say that in respect of the last quarter, we practically worked only in the last 45 days of the quarter. The first 45 days, we could hardly move. So that's also one factor one has to keep in mind.

Very true, sir.

If I can just continue and ask a few more questions. One, [indiscernible] various segments. Second, [indiscernible]...

Anshul, if I can just interrupt you, your voice is breaking.

I can't...

Anshul, if you can repeat your question, please?

Am I audible now?

Yes, but -- yes, it's better. Please go ahead.

I was asking that INR 3,500 crores is the total...

I'm sorry to interrupt you, Mr. Anshul, but your voice is still breaking, sir.

Give me a minute. Is it audible now?

Yes.

Yes, Anshul. Please go ahead.

So INR 3,500 crores is the total order book. Can you please split it into the various segments? Second, what was the order book, say, early last year that is at COVID? And third, how do we see the trend for various businesses in the remaining part of the year as also maybe a medium to long-term trend, say, 3 years. If you can just elaborate that?

Anshul, again, I'll tell you, your voice was not very audible, but what I would make out, I'll try to answer on this is that. The question was to regarding the order book comprising of what and what is total order book. You mentioned something that if I heard correctly INR 4,500 crore, we never mentioned that. Order book is INR 3,400 crores, that is what we mentioned about. And this comprises mainly of, number one, the heavy milling, which is about almost INR 1,000 crores, of which the Rolling Stock order is close to about -- Rolling Stock also comprises of 2 divisions. One is the wagons, the other one is the locos, loco shells assembly. For the rolling stock order compared to almost to INR 600 crore, the loco orders comprises nearly INR 200 crores. The HME business order is comprising close to INR 300 crores. So that's about basically order situation as far as the Heavy Engineering is concerned. Steel Foundry order book of about INR 150 crores. The Rail EPC division has an order book of almost about INR 2,000 crores and then some miscellaneous order in the JVs and all this thing, which is in the total of INR 3,400 crores. That's the order book which we have today actually happening about. As far as the booking of the new orders are concerned, the railway tender is already announced. It is going to be rather tendered sometime during the end of this month. The quantity requirement is about 8,800 numbers. And on top of that, the quantity requirements for private is now substantially large as railways are wanting that more and more private players should own the wagons. So this is given a real boost by the railways, various schemes and all these things. And in fact, the recent announcement regarding trade regulation also helps to private sector to actually increase their population of wagons that they can do in this thing. Since more and more logistic players are coming in the rail segment, they are owning their wagons and running this thing, this segment is going to look up from now onwards and also for next 5, 10 years. This boost will remain for the -- first, they have to own the wagons in the equity and to reap the benefit of the freight advantages they get in respect of long haulage for the consignment, which railway is handling about. Initially, when I mentioned in my opening remarks, I did mention that railways aims to increase the volume of traffic on their track from present 27% to 40% by 2030, which is substantially a large number we are talking of. And hopefully, with the DFC line commissioning and railways also putting impetus on that movement of track should be faster and availability of the Rolling Stock, they should be able to achieve that levels of efficiency and operational -- operations loading. And this will certainly benefit the industry to generate more demand for the Rolling Stock, which is a lifeline for increasing any trade movement in the rail lines. So this is what's the situation. And I hope I've been able to cover most of your questions.

[Operator Instructions] The next question is from the line of Bhagyesh Kagalkar from HDFC Mutual Fund.