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

Ladies and gentlemen, good day, and welcome to the Texmaco Rail Q2 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 Equities 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's my pleasure to welcome you to this financial results conference 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; and Mr. Ravi Varma, VP, Corporate Affairs and Company Secretary. We'll have the opening remarks from Mr. Indrajit Mookerjee, followed by a Q&A session. Over to you, Mr. Mookerjee.

Thank you, Navin, and good afternoon to ladies and gentlemen. Firstly, I have to thank you for your -- sparing your time to be with us in this Q2 conference call on our performance. I would like to start by saying that the industry are passing through a mixed time, one way, the growth is coming up and the -- but there are still so many impediments. And Texmaco is no exception. We also are -- have been seeing the growth in the future. At the same time, we also see some of the issues which are grappling with us. I would say that some part of our production was affected because of the -- as an outcome of the COVID for the supply of oxygen gas got restricted to the industry, which affected most of the heavy engineering and fabrication industry. Then also Calcutta, where all our factories are located pass-through an unprecedented situation of heavy rain, maybe is the climate change and which in under the part of the factory for some time, and we have to regroup ourselves to come back to production. But I think that's all in the past and the future looks different. So I would like to say the results are already with you. They're already have been circulated and you must have seen them. So at this point of time, I would like to request my colleagues, Ashish Gupta and Mr. Vijay to come in and say a few words about given highlights of the Q2 performance, and then it can opened to Q&A. Thank you so much for your presence.

Well, good afternoon. This is Ashish Gupta. So over and above what Mr. Mookerjee just told, you also had the issue with supply of lease from RWF for more than a month. The entire rail wheel industry actually has come to almost a grinding part because of stoppage of supplies from RWF because of the shutdowns which they have taken. And as we all know, rail wheel factor in Bangalore is a monopoly and everybody is supposed to buy these from there. So I think as Mr. Mookerjee told all these are behind us now, and now we are pushing very hard to increase our production and meet the targets that we have set for ourselves as far as production is concerned. On the EPC front, we were very privileged last month when we were invited by the Dedicated Freight Corridor to facilitate us, Texmaco basically to -- for the wonderful work the company has done in the EPC contracts that we have there. And we were 1 of the 4 contractors who are actually invited by DFC on their Foundation Day. It was truly a very, very proud move for all of us in Texmaco. On the operational front, we have recently undergoing a major study, which is for a period of around 38 weeks with a global consultant to reduce our operating costs, improve efficiency, improve productivity, cut down on labor cost, et cetera. So we are only 9 weeks into the program, and we are expecting good results out of the program, and this should help us to improve our margins going forward in the future. So this is what I had to update on the immediate things which are happening with our operations. And I'll leave it to Mr. Vijay for further comments.

Thanks, Ashish. Good afternoon, ladies and gentlemen. Mr. Mookerjee and Ashish both have summarized the present situation in a suppling manner and giving you the picture that how the industry is passing through, what are the future prospects for the industry to come in, what are the pains and how the industry is shaping up. The challenges which we faced has been properly explained and no further expansion required on that. And that is why the portal results which are there in your hand, you will find that the turnover wise, we have not been able to show much of the growth in the second quarter and as we expected, yes, the third quarter will be a better quarter compared to what we've been doing. But due to all these reasons, that growth was not forthcoming. In spite of that, we have been able to maintain as an entity of the operations with all the challenges and all this thing. And hopefully, with the weather God, the corona -- COVID impact and also the impact due to the medical reasons because of that oxygen and all were not available, will be behind us and things will run smoothly from here onwards. So these challenges being behind with us. We are looking for that we will be able to a normal one. Now just for convenience of all because you have the report, but still I'll give you the numbers. The turnover was about INR 380 crores for the quarter. And for the half year, it was about INR 716 crores. The profitability, that is the PBT levels, we had a profit of INR 960 lakhs that is INR 9.16 crores for the quarter for the quarter as well as for the year, we are having a profit of INR 15.80 crores. So compared to last year, if you see like-to-like figures and all, it is much improvement, but is still far, far from satisfactory. We need to do a more, and we are working constantly on that. Apart from this, general interest of you, people are there and what is the order book, the order book is close to INR 3,000 crores, and we are maintaining to that. Our aim is to first complete all the pending orders which are there in the book and then go for booking the orders. Maybe the size wise and the things we will explain during the course of question-and-answer session. With this, I thank you all and open the session for question-and-answer.

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

Sir, can you throw further light on the order book composition or EPC division-wise of the Wagon division and within the Wagon division, the private sector and the public sector, also only forthcoming wagon orders expected, both from private and public sectors.

I'd like to take this question, Vijay, and I'll respond to you about the numbers. The order book position wise, the wagon order today is INR 450 crores. There is a tender due which is likely to be open for reverse auction, maybe most probably by end of this month or very early next month. And this railway has urgency to finalize this because the Railway Minister today is in an urgency to finalize all pending contracts so that railways, what vision he had to give shape to railways can be accommodated.

How big is the tender, sir? Expected tender?

Beg your pardon?

How big is the expected tender?

The tender is already on. It is 9,000.

Okay. 9,000 wagons.

The reverse auction is due and that is likely to be opened by month end or early next month. Now the total order book for the back-end today for the company is INR 450 crores, comprising of basically 60% from private and 40% from railways. This apart, there are Heavy Engineering division, including my loco shell division, HME, bridges and high-tech division, all this thing. The total order is close to about INR 400 crores, making the Heavy Engineering division order book of about INR 850 crores. Steel Foundry had an order book of about INR 115 crores. My Rail EPC division has an order book of about INR 1,750 crores. Others are about INR 200 crores, and that is how our order book compares INR 3,000 crores.

And within the Rail EPC, the duration of the contracts are now shorter duration so that we can recover the receivables faster.

Ashish will take this question.

Yes. So for EPC, we have 3 large projects going on. So one of them is on the Eastern Dedicated Freight Corridor. We expect to complete this project this financial year. So it's nearing closure. On the Western DFC, which is the largest project we have, the project is almost 70% to 73% complete. And the deadline to complete this project is June 2022, which is the year railways has given. There might be a delay of 1 or 2 quarters here and there, but I think by the end of calendar 2022, we look at this particular contract for a closure. The other contract is the Bangalore Metro project, which is also INR 500 crore contract that we have. And this project is 33%, 34% complete as of now, mainly plagued by issues of active to the firms those who are operating in a -- I know, a big city. But we expect that this should be completed latest by end of 2023, this entire project. So these are the 3 big projects. Then we have a project in Bangladesh -- 2 projects in Bangladesh. One of the project is expected to be completed by April or May of the next year. And the other project, which is the bigger one, we are expecting closure by end of 2023. So this is the longest we are looking into the horizon as far as the closure of the projects is concerned. The project that we have. Thus, we have some small projects in the range of INR 50 crores to INR 150 crores, which have project time line of mostly between 6 to 18 months. So we do not have any big project, which is at trending 7, 10 years into the horizon as of now.

[Operator Instructions] The next question is from the line of Vasudev from Edelweiss.

Sir, so in the order book split that you gave in the heavy engineering, can you further subdivide the order book into the rolling stock, heavy mechanical and locomotive.

I think we explained that, Vijay, I mentioned that in rolling stock, the order is of INR 450 crores. In locomotive, the order is about INR 80 crores, in HME and bridges, the order book is about INR 312 crores. So that's comparing to around INR 850 crores in heavy engineering.

Okay. And also, can you give the revenue split for the segment?

In the third quarter -- in the second quarter?

Second quarter, yes.

The Heavy Engineering division has done a revenue on of -- Heavy Engineering division has a revenue of INR 160 crores.

Okay.

The Steel Foundry division had revenue of INR 86 crores. The Rail EPC has a revision of INR 183 crores. This is the gross revenue and then there are intersegmental that is a foundry product, which is going to the -- for the use of our rail wagon divisions is about INR 50 crores. So net turnover is about INR 373 crores. And there are other incomes comprising total together about of INR 379 crores.

Got it, sir. And I want to know the outlook for the wagon ordering from Indian Railways and private sector? And how many wagons have been dispatched in the second quarter?

The total number of wagons, which were dispatched in the second quarter, was about 350. And about the outlook we already mentioned to you in respect of the tender, which is there from railways. They were opened up for reverse auction sometime in the end of the month or early next month as of now, that the situation emerging and demand from private sector seems to be reasonably good at this point of time. There is a lot of inquiries are coming.

Okay, sir? And how has the DFC wagon ordering been?

See Ashish here.

So...

Yes, yes, I'll take this question. So see, DFC would carry high-capacity wagons. And orders for high-capacity wagons, which are capable of carrying containers has just started to flow in. So we have had 2 orders already logged in from 2 big customers. And we are in discussion with almost every major player in the market, including CONCOR. Everybody is looking at ordering a lot of these rigs. So early days, but I think the demand is starting to trickle in now and see the Western DFC right now is up to Palanpur. And by the end of this year, when it moves up to Samand then it will have major connectivity to all these ports to the railway network before it goes up to Ahmedabad. So I think by the end of the year when we have more visibility on the completion of the project we should see many, many more orders for these particular wagons coming into the market.

Ashish, you may also mention of our inquiries and successes in the export market.

Yes, yes, yes. So we have had -- we have locked in orders from Cameroon, from Mozambique. We are actively looking at Tanzania, Liberia. And so Africa is one territory, we are actively looking at. And we're already locked in to -- not huge but significant orders for Cameroon and Mozambique and we are now looking at a very large orders from Liberia and Tanzania also. So we are actively focusing on the continent right now.

Good to hear about that. And sir, how are we looking towards the debt trajectory for like FY '22, are we planning any debt reduction or taking on any new debt?

Vijay?

Can I request you, can you repeat what question was that?

Our outlook on the debt trajectory for this fiscal '22.

Yes. If you see that both my debt and unbilled revenue are gradually coming down. And as Ashish explained earlier, apart from 3 major contracts, which we run in '22 and '23, all the contracts are of short duration. So now the debt cycle is also will be gradually reducing. So accordingly, we'll find that in the case of Rail EPC, the debt cycle will be much reduced than what it used to be earlier. So we are targeting in our own base that yes, the debt should be reduced and it cannot reduce in one day because basically, we need to get the final bill settled, which in all this long-term project contract takes some time but things are moving positively. And accordingly, in the last 2 quarters, we've been able to reduce by almost INR 45 crores, INR 50 crores in the case of EPC business.

Okay. So can we expect the same for H2 as well, INR 45 crores, INR 50 crores of debt reduction?

I won't put the numbers, but yes, the trend will remain the same.

Okay. Okay. And finally, sir, any guidance on order intake, revenues and margins?

I will refrain at this point in time as you understand sensitivity of. But as I've given you the order book, that is basically -- which will be -- major of that will be executed during the year.

[Operator Instructions] The next question is from the line of Vishnu, an Investor.

My question is basically on the wagon. So first question, let's say...

Sir, your line is not very clear. You have to be little louder.

Okay. One second, just a while. How about this, is it better?

Yes much better.

This is better. This is better.

So my question is basically about wagons industry just to understand the working capital cycle. So basically the rail wheel set factory from Bangalore dispatches the wheel set. By how much time will you be receiving the wheel set? And how much time does it take on measuring the reinstruct to construct the wagon. Overall what's your timeline like.

Ashish.

Did you hear my question or should you want me to repeat it?

Yes, I understood. You asked how much time does it take to assemble a wagon once you receive the wheels from -- wheel sets from the RWF.

The first question, I think, was when will the wheel sets come from RWF. That was the first part and the second part.

So wheel set supplies started to normalize mid of October. And I think we're on track now. So that phase of supply is not happening, it is already over. See, the other thing to understand is that we cannot keep producing wagons and wait for these. Thus ultimately, the wagon production also stops because these wagons have to rest on wheels, and then we take them out from the shops on the rail tracks. So we can at best produce 70, 80 wagons and keep them ready and wait for these. Once the wheels are in place, it takes 2 to 3 days to put them on the -- put the wagon for the wheels and then roll them out. So it does not take a lot of time to convert a frame to a wagon once these are in place. Does that answer your question?

Yes, yes. Definitely. That helps. Just 1 more question. For the Dedicated Freight Corridor the expectation will start to be proven could be procuring the 25-ton axle load patent type. But given the upcoming tenders for the wagons, hardly 10% of the tenders going to be allocated for the 25-ton axle load. If I understand correctly, CONCOR, is having a pipeline of around 10,000 wheel sets for 25-ton axle load. Now who's going to manufacture these wagons for CONCOR? As CONCOR mentions manufacturing it or would it come to private wagons builders or new workshops this 25-ton axle load bought in wagons, so who is CONCOR subcontracting it?

So CONCOR has already come out with the tender. So the railway workshops and the private sector players everybody has quoted. So we are now awaiting the results of the waiting process.

Okay. So even CONCOR doesn't manufacture on their own. You again do have a tender and they give it out, right, even the 25-ton axle load?

Yes, yes, yes.

[Operator Instructions] The next question is from the line of Vishnu, an Investor.

Sorry, I'm unmuted now. So just a follow-up question on the BCA flat wagons -- what is -- then compared to BCACBM wagons? Is it a margin for BCA?

Pardon, pardon?

For BCA flat wagons [Technical Diffculty] the margin [Technical Difficulty] BCACBM wagons?

It's not very clear. Are you asking about the margin?

Yes, the margins side for BCA flat wagons?

We still appreciate. This is Vijay here. I'm taking this question. That individual wagon margins and all this thing in this conference, it will not be feasible for us to give. So please understand it is basically, in general, the margin is similar for all the wagons, be it flat wagon, be it BCACBM wagon, be it covered wagon. And then depending upon the specialty of wagon, it keeps a little bit variation in all these things. But to specify a particular margin to this thing and answer, I'm afraid will not be able to provide you a very clear insight on it.

That's okay, no problem. Just one more question, if you don't mind. I mean there's a lot of, what you call, impetus from the automobile industry to price using the BLC wagons or that automotive car wagons right. So do you have any -- what you call, so both on the automotive companies like Maruti or others?

So the automotive carriers, I think we have the largest market share in the market for this BCACBM wagon. And we are actually engaged with all the major carriers who are using these wagons for transportation of automobile.

So I understand in terms of the order book on those kind of wagons. Have you seen an increase in terms of the order book? Or is the same as last year in terms of the number of wagons we have requesting?

It's almost at the same level. There is no increase as of now because primarily the industry is -- the entire industry, including the wagon manufacturers are now looking at a different design because see predominantly the Indian auto market is more than 50% SUVs now. So people are in the process of developing taller designs so that you can accommodate 2 SUVs on top of each other on the same wagon. So that is where some design intervention is happening. So once those designs are through approved by RDSO and all, so we may see more traction coming into the market.

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

Yes. From margin-wise, can you throw the highlight for the next 6 months? I'm not asking the numbers, but can it be better than what it was instead in all divisions?

Bhagyesh, Vijay here again. Certainly, it will be better because if you get clear on the production, automatically, the cost factors and all the things are under control. Of course, the price of steel and all these things are very important factor, which need to be taken into care. Hopefully, now the steel prices are more or less stabilizing. And we are -- at first time, we have seen that there is a softening as we should now also in spite of the continuous rising graph. So hopefully, this thing also stabilized. And then with the continuous run, which we are getting now due to the reasons explained earlier, which we have been there, we hope to be better.

Okay. And sir, what is the total short-term and long-term debt and the net cash? And what are the payments due in the next 6 months?

The total debt on the company today is close to about INR 700 crores, and of which about INR 115 crore debt is getting converted into equity, as per our letter of offer. And the balance, the long term is only about close to INR 45 crores, if I remember correctly, INR 40 crores between INR 40 crores and INR 45 crores. That's all about debt.

[Operator Instructions] As there are no further questions from the participants I would now like to hand the conference over to Mr. Ashish Gupta for closing comments.

Hello?

Yes, sir. We can hear you.

Ashish, you're required to do some closing comments.

Yes. I think first and foremost, I would like to thank all the participants, all our team, investors who have joined this call and listen to us. And we're also very thankful to all our investors for believing in us and for standing with us. The last 2 years have been extremely difficult and challenging for the industry. And I think we have COVID behind us, hopefully, and with all the problems that the industry faced, we look forward to very -- with a lot of optimism to the brand, which is going to emerge in the railway sector. And railways is also very, very keen to increase the share of railways in the entire logistic scenario in India should bode very well for the industry. We are looking forward to this large tender which is coming up. And I think we also look forward to rewarding our shareholders better and also to better our performance going forward every quarter. We are doing a lot of transformative work in the organization right now in terms of cost reduction and changes in the management structure, et cetera. So this should also start to bear fruits very soon for us. And we look at the future with very, very cautious optimism and a lot of hope and we hope that the world comes back to normalcy, as soon as India progresses at a rapid pace, which would be very, very helpful for the wagon industry at least. So this is -- once again, thank you for being here.

So Ashish, I just wanted to bring the focus in addition to what you said, that I just wanted to tell our friends that there are 2 definite areas where we are working. And I think these questions came to -- came from you indirectly. One is the development of wagons, which are -- which can take part in the future requirements. So a lot of development towards are going on, design and development work within the company. Lots of work is going on, and we have got good manpower to help that through. And then secondly, of course, I mentioned is that we also are very actively looking at the market outside India. Sorry for -- Ashish for interrupting. But is that...

No, no perfect points, it's very important...

Because we -- it's not always business as usual. We want to deliver to the customers something more than business as usual. And which are certain of our unique selling propositions.

Yes. The other thing which I would like to add here for all our investors is, see, traditionally, we have been almost -- if you look at our product mix, we have been hovering around 50% of private sector orders. And going forward, there would be a huge from the private sector. And these wagons need a different level of quality and service. And I think when the market finally opens with our leadership position in the private sector market, we should be able to leverage the current effort and pain that we are going through, just to -- with the future in mind. So that is going to be very, very useful for us. We are also making significant efforts to reduce our footprint on carbon. Basically, water conservation is something we're actively looking at. And as Mr. Mookerjee pointed out on the water logging issues in our region. I think this makes an extremely good business sense to invest in the environment and the society around us. So that is what we are doing. We are also trying to improve the industry in terms of occupational health and safety. That is subject which is very close to our heart, and we are now working on it. We have been hiring safety professionals. We have been investing more and more effort into improving the work practices. This is something we want to be the industry leader at least in the wagon industry on these fronts. So we are basically looking at a 360-degree view of the business. So we are trying to address all stakeholders and all the issues, which impact either our customers or our investors or the societies around us. So with this, I would like to conclude and thank all of you for being there.

Thank you very much, sir. Ladies and gentlemen, on behalf of SKP Securities Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.

Thank you.

Thank you.