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

Ladies and gentlemen, good day, and welcome to Texmaco Rail & Engineering Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Navin Sahadeo from ICICI Securities. Thank you, and over to you, Mr. Sahadeo.

Thank you, Renju. So on behalf of ICICI Securities, I welcome you all to the Q1 FY '27 earnings call of Texmaco Rail & Engineering Limited. From the management, we have with us Mr. Indrajit Mookerjee, Executive Director and Vice Chairman; Mr. Sudipta Mukherjee, Managing Director; and also Mr. Kishor Kumar Rajgaria, CFO. So without any further ado, I hand over the conference to the management for their opening comments. Over to you, sir.

Ladies and gentlemen, the management line has been disconnected. Please be hold while we quickly get them reconnected. [Technical Difficulty] Ladies and gentlemen, the management line has been reconnected. Please go ahead.

Yes. So I did the basic introduction, handing over the floor to the management for their opening comments, please.

Thank you very much. I'm sorry that we missed your opening comment because we got disconnected. However, all well that ends well, we are now all connected. Good morning to all our dear investors. My name is Indrajit Mookerjee. I am Executive Director and Vice Chairman of Texmaco Rail & Engineering. With me, I have our Managing Director, Mr. Sudipta Mukherjee; and our CFO, Mr. Kishor Kumar Rajgaria. They will all participate in this today's meeting, which is considered to be very, very of importance and important for us. It is, as usual, always, a great pleasure to connect with you. And on behalf of the entire management team, I welcome you to the Q1 FY '27 earnings call of Texmaco Rail & Engineering Limited. Today, we will be discussing the company's stand-alone results, which is the financial as well as the operational performance for the first quarter of FY '27, which means April to June, along with the progresses we have made on our strategic priorities and many key business initiatives, some of it we discussed earlier, and I think we would be updating you. The first quarter has been a period of focused execution of the company. We continue to build on the progress made over the last few quarters with our teams remaining highly focused on timely execution, improving operational efficiencies and strengthening our business across multiple segments. At the same time, we also continued to make progress on several strategic initiatives that will support the company's long-term growth. Before I turn to the financial performance for the quarter, I would like to mention a few of our immediate short-term initiatives, which we have taken and which have started yielding results. Our -- the -- some of the main initiatives, I have not been comprehensive, but I want to talk only of a few which are -- initiatives which are of importance to us. And I will try to prioritize them, but it won't be a comprehensive list. So our short-term initiative has been, as we mentioned earlier, to drive to improve our EBITDA, turning around of the Rail Infra business, building on the strength of Bright Power to become a market leader and also strong cash and financial management. Having said this, you would come across that these results have started fructifying and you would see them in the numbers. So let me first tell you about the first quarter of FY 2027. The company reported a stand-alone revenue from operations of -- stand-alone revenue from the operations of INR 753 crores, which was impacted by lower execution of the Freight Car divisions and the Infra, which is Rail & Green, which used to be called as Kalindee before. However, our Electrical Infra business, that is Bright Power, continued to perform well with revenue increasing 76.8% year-on-year basis to INR 175 crores, reflecting sustained execution across the Electrical Infrastructure business. EBITDA amounted to INR 81 crores, translating to a margin of 10.8%, which itself is a strong growth from the earlier years. So this is what I was saying, our short-term priorities. EBITDA remained in line with corresponding quarter of the previous year despite the lower revenues, reflecting the company's focus on cost optimization and margin improvement. During the quarter, we also saw encouraging improvement in the profitability of our infrastructure business. The Rail Infra and the Green -- Rail -- the Infra Rail & Green business reported a positive EBIT margin of 1.4% compared to an EBIT loss in the corresponding quarter last year, making a significant [Technical Difficulty] time passes. The Infra Electrical Bright Power, as I said before, continued to deliver a strong performance with its EBIT margin improving to 10.8%, representing an expansion of 150 basis points on year-on-year basis. Our continued focus on strengthening the balance sheet through improved cash management, disciplined debt payment and optimization of borrowing costs resulted in finance costs declining by 18.2% year-on-year basis and 17% sequentially, respectively. The reduction in finance costs supported profit before tax, which increased by 4.8% Y-o-Y to INR 44 crores with the margin improving...

Sorry to interrupt, sir. Speaker, your voice is breaking. Please go ahead. Yes.

From where shall I repeat, would you be able to tell me?

Just a sentence backward, you can start from there.

The reduction in finance costs supported by profit before tax increased by 4.8% Y-o-Y to INR 44 crores with the margin improving by 1.23% to 5.9%. Profit after tax increased by 85.9% on a Y-o-Y basis to INR 52 crores, translating into a PAT margin of 6.9%, an improvement of 381 basis points Y-o-Y. On the operational front, company delivered 1,054 freight cars during the quarter, while the Foundry Division recorded a production of 5,148 tons. These operational metrices reflect our continued focus on execution across our core manufacturing businesses. Beyond the quarterly financial and operational performance, we also strengthened our order book during the quarter. As of June 30, 2026, company's order book is standing at INR 9,923 crores, providing multiyear of execution visibility across Freight Cars, Infrastructure, Rrail Infrastructure, Electrical and other businesses. During the quarter, we secured a diversified set of Indian and international orders across the freight rolling stock, railway signaling, electrification and transmission infrastructure, further strengthening our execution pipeline. As I said that EBITDA improvement had been one of our tasks on the immediate basis, and they were achieved through better product mix, going to higher margin, expanding to geographical areas and also AI-enabled efficiency improvement actions. We continue to see a structural shift in the Freight Cars -- Freight Car Division's order book. The share of private sector and export orders increased from 21% in FY '25 to 79% in FY '26 and further to 96.4% in Q1 FY '27. This reflects the increasing participation of private customers in the freight rolling market while further diversifying our order book and revenue visibility and, of course, margin improvement. We have moved ahead -- our focus remains -- as we move ahead, our focus remains on strengthening the freight rolling stock businesses, which is our core business, while continuing to broaden our presence across complementary businesses that reduce the impact of industry cyclicity and create additional avenues for growth. The progress we have made over the last few quarters reinforce our confidence in the direction we have taken and provides a strong foundation for the company's long-term growth. Several of these strategic initiatives have continued to progress during the quarter. And I will request Sudipta to take you through them in great details, sharing how they are shaping the next phase of Texmaco's journey. I would like to thank you for your patient hearing. And I would now request Mr. Sudipta Mukherjee, our Managing Director, to step in and say a few words.

Thank you, Indrajit. Good morning, everybody. So of course, very nicely narrated by Indrajit on the stand-alone Texmaco that what are the improvements. In a nutshell, I would like to mention that we are walking the talk in terms of our focus, which we always state that we are focusing strongly on the bottom line of the result, and we continue to grow and keep our words. And we believe that the momentum will continue on the continuous improvement path. So while we say so, along with the operational efficiencies, of course, we are working in and around Texmaco Rail, and we have already shared with you the vision for the company, which company is taking to and is significantly progressing towards achieving those as committed. So I'm not repeating those, but you know that Texmaco also has a few JVs. And I would just like to quickly touch upon in terms of the various initiatives which we are taking or you will be seeing your company coming towards and you have seen some developments already. Is one of them, of course, is the recent entry of TrinityRail into the joint venture leasing company of Texmaco Touax, which is a significant, I mean, movement in terms of our business portfolio in India is concerned. The objective is that we have a larger share of the leasing market, because you all know that the government very proactively and the Ministry of Railway is reforming the policies and coming up with enablers for exciting the private investment in the country. And like it has [Technical Difficulty] with the maturity level increasing. So from the government project, the private stakeholders are also becomes an important partner into the whole development. And when it comes to a private OEM to have those rolling stocks, which are capital-intensive. So we always see our share of capital -- CapEx investment as well as leasing. So although we were doing -- running the company very profitably, but the scale was not up to that level, but with all the policy initiatives by the Ministry of Railway and Honorable Railway Minister, we feel that this space is going to significantly change. And with the coming of Trinity, it makes the leasing entity into an entity who also has a manufacturing base, who is the largest manufacturer of rolling stock, having so much of their own designs and engineering in Texmaco, the 200-odd years more than that leasing expertise of Touax, and Trinity is one of the largest manufacturer as well as leasing company of U.S. and also having an IP of more than 200 rolling stock designs. So it's going to be an exciting journey way forward, and we look forward to increase our modal share in terms of leasing. And it works as a complement in the whole marketing initiative of Texmaco while we want to remain in a leading position to have -- provide rolling stock and rolling stock solutions. In terms of our JV related to -- along with Wabtec, so it is taking shape in 2 dimensions. Of course, that Texmaco with Wabtec is coming up into the air brake equipment sphere, which remains a very critical component, and we believe there is a significant market in India to work around that. And it also -- it is also coming up with some predictive maintenance and condition monitoring system, which is going to be a new entry into the market by anybody in the domain. Of course, we are looking forward to some other possibilities, which will come to know soon that what Texmaco and Wabtec is jointly go -- and going to do in India and beyond India. We are also working on our new design wagons, of course, with the new design solutions of bogies. That also you will see that will come up with new IP designs with Wabtec. In regard to our interior company, where we invested for the passenger rolling stock, so Saira Asia. So I'm happy to let you know that we very soon will be having a qualification, which we are working for in the semi high-speed and high-speed segment. And in regard to our Slovakian -- Czechoslovakian JV with Nymwag, Texmaco Nymwag, so we are very excited to also mention here that they are one of the leading company of tank rolling stock solutions in the world and in Europe. They remain the third largest over there. And with the new initiatives of the government that where the public sector units are being allowed to lease wagon and invest and work with the wagon manufacturers for the design, we are very excited that we have certain efficient offerings to make offer in the Indian context. And these all together, while along with the vision of Texmaco for moving towards 2030, what we have shared, but these JVs are also coming up in a new avatar and building in -- I mean, shaping up in a different level, so which will significantly fuel and complement in the whole growth story of the company. And I must mention, as I have repeated that, of course, the reforms which the Indian Railway is going through, the eight points are reforms which the Honorable Railway Minister has come up with, I would only like to mention that Texmaco was keenly focusing on the capability development last couple of years. And this has really helped us to put us in a position that we are ready with our offerings to offer to our customers as soon as these policies come up in the market to capitalize. In terms of business development, as Indrajit has mentioned that, yes, our focus remained for a very healthy mix of railway, export and private sector. And of course, we have been able to make a very good mix and the momentum of the new orders from all these segments are on a very positive direction. And we are hopeful that we'll be able to keep the momentum in terms of our production and profitability in and around it. So collectively, these developments reinforce our confidence in the vision of 2030 road map, as I have mentioned, what we talk internally as Texmaco 2.0. And as we move forward, our focus will remain on disciplined execution, of course, for the order book, strengthening our core railway business and continuing to build complementary capabilities, as I have explained, that support the sustainable growth, enhance margin resilience and reduce or protect ourselves from the business cyclicality this segment we used to see historically. We remain -- while I say so, we remain committed to executing our vision to 2030 road map with the same discipline and with more vigor that if we can achieve it earlier. With that, I would be happy that with the permission of Indrajit and all of you that we can open the floor for questions.

Sure.

Thank you.

[Operator Instructions] The first question comes from the line of Balasubramanian from Arihant Capital.

Sir...

Mr. Balasubramanian?

Sorry for interrupting. Your voice is breaking. Can you come in the range and talk?

Right now it's clear, sir?

Yes, please go ahead.

Yes. Sir, our new growth engines for Kavach and signaling and renewable energy and designs and third one is leasing platform. So if you could share the detailed road map about our capabilities and our strategy and capital allocation, and if you could give the detailed road map about preparation phase and the deployment and harvesting? Because I -- because railway and signaling that need high technical capabilities and how we are positioned to capture in this opportunity, and renewable and defense is completely new area like compared to our core area. And we are trying to like mitigate this cyclical industry of wagons. So how we are going to take it forward? On that leasing platform side, I think the whole industry is slightly moving toward leasing. You have mentioned about we are the highest market share in the leasing side. How many wagons we have leased out? And if you could talk about the future of leasing platform also? Yes, sir.

Yes. So I think it's a mix of statement and questions. If I go wrong, please point out to me if I miss anything.

Sure.

So yes, the areas you have mentioned in terms of Kavach, defense, renewables, there were 2 part in your statement that one is that the road map. And I think we have already given a road map in our plan, vision. But of course, the strategy cannot be discussed over a call like this that how we are going to achieve. I can only say 2, 3 pointers that I mean, on a concept level, Texmaco as a company, if you have seen that our -- we want to -- while we want to strengthen our core business, which is mechanical engineering heavy, we had remained mechanical and metallurgy engineering heavy. But at the same time, if you see that there were certain probable revenues would have come from the other businesses which we were pursuing since last nearly a decade or a little less than that, which also focuses on electrical and electronics part of it, while we work for electrification, signaling, EPC contracts. So Texmaco has also successfully been one of the company in India who are the major contractor in consortium with Hitachi for the dedicated freight corridor, including the track link to the signaling integration. Most of the metros in India also, I would say most, not all, Texmaco has worked. In electrification journey and the development of the country, our Bright -- I mean, which we called as a Bright Power has always remained a bright spot, which is also Texmaco. And these were not at all a traditional business of Texmaco. But you have to believe on a company who is running successfully more than 8 decades, and it's a business phase and we know how to build the capability. To emphasize the points in the areas where we have gone into, we have always mentioned that we have -- maybe we have very carefully chosen our path and we took time. And we always love to say that we do not want to do a business on an knee-jerk or to be flashy to impress anybody on a superficial level. But we have chosen our path very carefully after we have invested in the capability, which starts from having right kind of people and with a proper evaluation and venturing into all of those businesses. So this remained on a very strong focus of us and Texmaco is not taking up any business, which in my speech, I have mentioned, Indrajit has mentioned and we have been consistent that which is not going to be a sustainably good for the company as well as which is not positively contributing to the life of the people or the expectations of the people of the nation. So we are very clear about it, and we are doing where we can make a difference, be it Kavach, be it renewable, be it defense. All of these are going to be a noncommodity and you will see a special qualitative effort from the company.

There is another question on leasing.

Yes. On the leasing, I think you have mentioned that, yes, we want to -- even if not the leader, I mean, we have a very clear position that there are a few companies who are operating, including one of the largest multinationals. So this is also a multinational company. We want to have at least a 50% share in terms of the business from a jump from 15% to 50%. So today, we have around 35 rigs operating in -- through leasing. And on a near term, we are absolutely ready to invest around to start with around 100 rigs marker.

Yes, sir. The follow-up on that about the capital allocation on these areas and...

We can't hear you clearly. I'm sorry.

So capital allocation...

Mr. Subramanian -- yes, please go ahead.

So capital allocation on these areas and what kind of ROC we can expect?

The leasing company is a joint venture company, as you know, where presently after the entry of the world major Trinity of U.S., our stakes will be 34%, from 50% to 34%. So that's a joint venture company, not within Texmaco. As far as your other questions of, I think, the capital allocations primarily will be in core business or there will be also in the defense segment, which will gradually go up because we take a very -- all our business groups are taking a lot of risk together. I mean we take care of the risk. So percentage-wise, it will not be a huge one. But there will be investments in both Kavach areas, which we already have made certain progress as well as in the defense. So if I have to give you, it won't be a very major capital allocation.

Sir, my last question, in the order book like a...

Mr. Subramanian, your voice is breaking. Can you please come in the range and talk?

Sir, order book expectation, [ last quarter, INR 9,920 crores ]. And sir, after the...

Mr. Subramanian...

I can't hear.

Sir, we are not able to hear you, sir.

Sir, the order inflow [indiscernible].

We are sorry, Mr. Subramanian...

Mr. Subramanian, we request you to come back in the queue. Next question comes from the line of Parvez Qazi with Nuvama Group.

Yes. So 2 questions from my side. First, continuing with your comments on the wagon leasing business for additional 100 rigs. There was a news article, which is that overall, the 3 partner JV can potentially invest about INR 1,800 crores over the next 3 to 5 years to lease about 100-odd trains. Is this number broadly correct?

Yes.

Sure. And the second question is about another news article where the management was talking about the South African order. And apparently, we are looking to establish a locomotive plant and a wagon manufacturing plant in South Africa and which might entail an investment of about INR 200 crores to INR 300-odd crores. So just wanted to get your views on this. Are these numbers correct? And what is our strategy regarding this?

So I'm not in a position to mention about the numbers because these things changes. But yes, the -- in terms of the facilities, yes, we are looking forward to, because you need to meet a lot of localization thing and business is a continuous evaluation thing that which faces you what. So yes, we are looking for -- we are open to put up something which helps in the cause of our improving the export business in terms of wagon as well as locomotive. And you also remember that we are working now also not only on supply, but also in terms of providing maintenance on a long-term basis. So perhaps it makes a lot of sense.

Sure. And last question...

I just want to add one more thing that you would be happy to know that more important than the investment is our footprint. So we make our footprint in the South African soil. So this is very, very pathbreaking for any Indian companies to go to that developed area and start doing business with a constant -- with a sustainability. I mean we will remain there because making our footprint there. So that's more important, I think, than the amount of investments because investment rates start going up as we start doing business. So -- but the business is very, very good. It's good for the country also for India.

Sure, sir. Last question, I mean, we have seen very strong order intake in Q1. Just wanted to get your thoughts on any potential wagon tender from the Indian Railway.

We are all expecting as all of you are expecting because we -- everybody agrees that there is a need to railways to induct wagons. And with the forecast or the numbers and I think in recent time also, a lot of reforms have been taken up that how we shift the transport more from road to rail. And of course, the same modal share of 40% to 45%, which was indicated through National Rail Plan has been consistently reached. And in the present geopolitical situation, we all know that more we use railway transport, it will be softer on our inflation control and to keep the momentum of the GDP growth because we spend less money in terms of importing oil. So there is a lot of sense which it makes, but we believe strongly that railway is very sincerely working in and around it to craft the exact demand. And it's also a very, very wonderful decision to welcome private investment around and to call for all kind of innovation and introduction of new designs because we are standing in a very transitional situation because while the DFCC is going to be fully operational, even to the extent it is being operational, it has shown a tremendous kind of traffic and with the existing railway tracks and further investment in and around the railway tracks to decongest and with the national permit of the container trains and all. So we believe that it will be a progressive demand from railways, and we expect soon that Indian Railway will also come up with something, and there will be a good momentum by the private OEMs to invest to.

Next question comes from the line of Deepak Poddar with Sapphire Capital.

Am I audible, sir?

Yes.

Sir, just wanted to understand on your core business FCD. So now 96% of our order book is private and export, right? So in terms of execution, any kind of challenges we are facing? I mean, can you throw some more light on that?

We don't -- we are not facing any challenges in terms of execution. But yes, the first quarter, there were a lot of challenges in terms of the supply chain, you know that it is not faced by the industry per se. I think it was a general phenomenon because the oil and gas prices were so high, and we had to always control the consumption considering that there could be a crisis. So all of these and not only about us, but also our partners who supply us various critical components. So it remained a little bit of stress in and around the supply chain. But for us, the kind of mix, fortunately, we are enjoying in spite of these rises and the various initiatives on focus on cost reduction and our strong operational control has helped us to improve the profitability. And we believe that it is not one-off. And this will continue. And the -- rather we feel that our supply chain issues, whatever we suddenly faced because of those, we have done some alternative arrangements. And our output is going to improve from the coming quarters and it has started improving.

And anything on the wheelset as well? I mean we are facing any problem on wheelset?

As of now, no. But you cannot say because the industry production remained very timid perhaps in this quarter. And we are dependent on the supply of Rail Wheel Factory. And that's what is the mandate of the government. But we have enough stock for our -- enough avenues for our export orders, private orders. So we didn't face anything around wheelset. We are not also, I think, going to face any challenges in this quarter or in the coming as of now.

Understood. And as you mentioned now that, that execution we expect to improve in coming quarters. So this year, what sort of execution we are targeting in FCDs?

I think we had made an indication because see, with the -- I have been telling that let's not talk about, say, if you talk about capacity, we can say that our capacity is elastic, we can make 15,000, 16,000 wagons. But when we say so, those are the commodity wagons. Now your company is making more specialized wagons rather than the commodity wagons, so their volume doesn't matter. Here, the overall top line -- I mean, top line and the bottom line or the profitability matters. And it's also not about wagon qualitatively, the whole company is changing in terms of our foundry, we are changing our product mix. I mean every vertical has a derisked customer, derisked product mix. So it's a complete transitional situation, inflection point for Texmaco. So we do not want to value in terms of the quantity, but better, you will find a very, very big qualitative shift in the company overall.

Okay. And so if not the volume part, I mean, anything on the growth part, I mean, on the revenue growth, if you can comment anything there.

That indication was already given, I think, in our business plan. We believe that we will -- I mean, we are on the work that we do better than our previous years.

Better than in terms of growth, I mean...

Yes, yes. Growth and bottom line improvements, everything.

Okay. Okay. Okay. Okay.