Titagarh Rail Systems Limited (TITAGARH) Earnings Call Transcript & Summary

Sure. And is there any other line of business where you see an opportunity, like in your presentation, you spoke a little bit about, with the new government initiative. So what is the outlook out there?

So as far as the lines -- and this is interesting question, so I'll probably just take a minute in explaining the vision of the company. The vision of the company, as you see from the presentation, we have basically christened ourselves to be a mobility solutions provider. We are supporting mobility in every form. Now whether it is in the industrial segment for the wagon, so all types of wagons. Today, Titagarh not only is the largest wagon producer in India, but also has probably the largest range of wagons that we produce. Apart from that, in the passenger side, we are in the metro, we will definitely be active in the metro light, which is the LRT segment and the Metro Neo, which is the trolley bus segment. So there would be tenders that would come up. We have not deliberately been very aggressive in participating in every tender because it is a costly proposition to participate in a tender. So we are only selecting tenders that are more suitable in terms of the size of the tender, in the specifications of the tender. Then the bridges, which is again supporting mobility and the shipbuilding, which is again in the mobility sector. So basically, if you look at all the segments that we are in, we would only like to concentrate on these. And since there is enough opportunity available in the existing segments, we don't want to spread ourselves any more thinner and focus all our management bandwidth on these segments only.

Sure. And my last question was with regards to the wagon institution, what is -- we're on track to do how many wagons per month currently? [indiscernible] how much did we do last quarter? And how much will that go up to? And also do our margins remain more or less stable from what they were in the last 2 quarters?

Yes. The margins, as you can see, are more or less stable. I mean, it can depend on a -- on quarter-to-quarter basis in a very marginal basis. But as far as execution is concerned, we are still constrained by lack of availability of wheelsets. For private wagons, we were permitted to import wheelsets, which started coming in, but primarily, these were coming in from China. So we've seen a little bit of a slowdown of shipments, of course, for the last month or so. The rail wheel factory is still not able to provide us with the adequate quantities of wheelsets. That continues to be the constraint. And for the Indian Railway wagons, the only option is to buy from rail wheel factory. So while we are comfortably positioned to manufacture between 500 to 600 wagons in our Titagarh plant every month, we are ending up, last quarter, we produced...

990 wagons.

990 wagons in Titagarh. So -- and in Cimmco, we did about 230 wagons or so.

So this is the last quarter number you are referring?

That's right.

The next question is from the line of Vipin Goel from ICICI Securities.

Yes. Sir, can you just break up the order book as we do between the -- [indiscernible] the wagons and the metro and then Cimmco?

I think the breakup has been given in the presentation, but we'll just share for you again. Saurav?

So the total order book, I mean, I'm consolidating the India operations, which is Titagarh and Cimmco taken together. So the total India operations, the order book is INR 2,400 crores, out of which the wagon would be around the -- just one second, is around the INR 1,200 crores -- around INR 1,200 crores. And then we have the order for the Metro -- INR 1,200 crores-- sorry, we have the order for the Nagpur Metro -- the Pune Metro, sorry, which is around INR 1,000 crores. And then the others are between bridges, foundries and train electricals and others for around INR 300 crores.

Okay. That's fair. And then, sir, on the recent railway budget, what's your outlook on that, given that the allowance that was to -- that was given to the wagons that has reduced some 7%, 8%. So what's your take on that?

We don't see that as a big challenge because you see the wagons are financed in any case via different methods with the railways. IRFC is one of the finances of wagon. And again, Coal India has given a lot of money to the Indian Railways to buy wagons. So I don't think that money is going to be a constraint in terms of purchase of wagons, it is primarily the economic activity, the demand of traffic that is going to determine the demand of wagon. Wagon, just to elaborate, is -- the return on investment, the capital output ratio of wagon is extremely favorable. So definitely, the railways would not find it difficult to find money to purchase of -- purchase wagons provided the economic activity picks up.

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

Can you give the split of wagon order book between Indian Railways and private wagons?

Yes. So the Indian Railways would be around INR 950-odd crores and private wagons would be something around...

INR 200 crores, INR 250 crores.

INR 200 crores, INR 250 crore.

Okay. And sir, about that, I just wanted to confirm. So what I heard is that debt as of 31st December is INR 220 crores, and do you target to reduce it by another INR 100 crores by end of March, which will bring it down to INR 120 crores? This is for India operations. Is that right?

India, including the Singapore, the debt that has moved from Singapore.

And this the net debt position. Yes

Net debt.

Net debt position. Okay. And Firema debt stands at EUR 60 million?

That's right, yes. On a stand-alone basis, so there is no corporate guarantee overhang on to India.

Right. All right. And sir, if you could share your outlook on wagon ordering between -- in public and private sector and upcoming bids that you see?

I'm sorry, I didn't get that question.

If you could share your outlook for FY '21 on wagon ordering in public and private sector, and any upcoming bids?

So there is this segment that I mentioned of 6,500 wagons, which was reverse e-auctioned, and that is yet to get finalized. Company is well positioned in the e-auction. So we are hoping that this order should get finalized, sometimes in this quarter. As far as the overall demand. As I mentioned in my opening comments, we had seen in the last few months, a little bit of slowdown from private sector. That is primarily driven because of 2 factors. The general liquidity and economic activity slowdown as well as the iron ore auctions that were happening, as a result of which most of the iron ore companies were not actively involved in the market for buying wagons. We do hope that the private sector demand should pick up again from -- because, particularly, the steel prices have seen an upward trend. So if the demand of steel continues, also growth, there should be a sizable demand that should come from the steel sector. The railways demand has also been muted because of the lack of traffic growth, which we've all seen in the different publications. But we do understand that in January, the traffic growth of the railways have again shown a positive sign. So it is effectively dependent upon the economic activity of India. But considering the policies of the government, wherein they are trying to -- we also heard yesterday the Railway Minister saying about the new Logistics Policy Committee, which has been created by the government, which is targeting to reduce the logistics cost of India by -- from 14% to the 7%, 8% level. So this -- obviously, in order to achieve that, railways is going to play an extremely important role. And therefore, wagon demand is likely to be healthy in the years to come.

Right, right. And sir, on the Firema, if you could give some guidance on revenue growth and margins for FY '21?

So we would not be able to give you any forward guidances because the company has not been providing any forward-looking guidelines. But the target for FY '21 is to definitely turn around into PAT positive in FY '21. We had said that we would turn EBITDA positive in FY '20, which we have done. And in FY '21, we are targeting, and we are very hopeful, I would say, to turn PAT positive.

The next question is from the line of Vikram Rawat from PhillipCapital.

My question is on what are the opportunities you are looking in the domestic metro market over the next 1 or 2 years? And can you just highlight the pipelines in the domestic market? And second, in the global market, what are the -- what are our platform, we are -- what are the outlook for the global market? And third thing, sir, how do you see the impact of the recent this coronavirus thing's on the -- how do you see this as impacting the business for the Indian players, and you especially?

So as far as the Indian pipeline is concerned for the metros, the only order we have received till now is the Pune Metro. There are some tenders that have been issued. We are evaluating the ones that we will like to participate and the ones that we would not like to. Having said that, it is in public domain that every Tier 2 city also, in India, is under the radar or being considered to be put under the services of the metro operation. So the demand for metro coaches in India should continue to be healthy and are particularly combined with the Make in India initiative. There are not many companies in India that are producing the metro coaches. So we do believe that there should be adequate opportunity for Indian companies in the Indian space. As far as the global space is concerned, from Italy, we are catering to the global space. As far as the Indian operation is concerned on the metro, we are only concentrating on the Indian market. From Italy, we are bidding in different African countries. We are also looking at certain Nordic countries. But primarily, as of now, the order book is from Italy, from within Italy or within Europe. And we would like to step out of Europe, but that would be done in a very calibrated manner. As far as the coronavirus is concerned, it's an extremely unfortunate incident for mankind, but -- and we do hope that it would get resolved soon. What would be the impact on our business? I would not be in a position to comment upon that because we really do not know whether -- how things would span out and whether it is going to impact the supply chain out of China, whether it is for components or it is for the finished product. So on one side, there are certain components that are purchased even by us from China, for example, the wheelsets that I just mentioned. On the other side, we are also competitors to China in many tenders. So we'll need to see how things span out. We are unable to comment upon the impact of that as of now, it's a little early to comment upon it.

[Operator Instructions] The next question is from the line of Ashish Kumar from Infinity Alternatives.

I had 2 questions, one was in relation to the Firema. We had a number of historical legacy contracts that we had inherited, which was low margin. Are all of those completely done?

Would you like to ask your second question also? Or...

The second one was in relation to the French subsidiary in terms of that potential liability that we have on the corporate guarantee. Whether -- what -- where are we? If you can give some more color on it? And are you expecting any -- I know it's difficult to -- in the notes, you had said, it's difficult to estimate. But are we expecting any hit? Or do we think that, that the real estate there will be sufficient to make sure that we don't get any hit on the parent balance sheet?

As far as Titagarh Firema is concerned, the legacy contracts, we have executed majority of the legacy contract. Or I would say, by 31st March, that is FY '20, we would have executed, except for maybe EUR 10 million, EUR 15 million of the legacy contract, everything would have been executed. So from FY '21, most of the contracts, I would say, 90%, 95% of the contracts that will be executed would be the new contracts, and we will not have any overhang of the legacy contracts in FY '21. As far as the corporate guarantee obligations of the French subsidiary is concerned, we are now evaluating because the whole process of the land realization, et cetera, takes time. So we are now evaluating what is to be done, and necessary actions or necessary steps, we intend to take before the end of this fiscal. We are evaluating all sorts of -- one -- on one side, we are trying to expedite the crystallization of the value that needs to get realized. On the other side, we are also looking at options of kind of subrogation of the rights and squaring up the liability of the corporate guarantee, but after due deliberations and proper legal consultations, and once the Board takes a decision, we do intend not to keep this overhang beyond this fiscal. So whatever needs to be done, we would like to be conservative and complete this before FY '20.

But do we expect any cash outflow from the HoldCo or from the parent? Or that's unlikely, in your view?

There would be some cash outflow. What would be the quantum of the cash outflow? And what will be the timing of the net cash outflow? There might be a cash outflow in the beginning, which we may be able to recover subsequently. So we have already -- as far as cash flow is concerned, we have already factored that in, in our cash flow. So that's something which will get crystallized before March. What will be the amount? Whether that amount would be a net outflow or it will be a temporary outflow is something that is impossible to comment at this point of time till we get clarity on the realization amount and the realization time lines from the real estate value of the French assets.

The next question is from the line of [ Umesh Batra ] from Sequent Investment.

Can you share the number of wagons dispersed during the quarter?

Sure. As we mentioned a little while ago, we sold about 990 wagons from Titagarh and about 200 wagons from Cimmco.

Okay. And can you throw some light on the availability of wheelsets because we were feeling some problem in the previous quarter. So any update on that?

The shortage of wheelsets, as I mentioned a little while ago, again, is continuing. We -- for the private wagons, we had been allowed to import wheelsets from -- for the private wagons. We did import some of the wheelsets in the last quarter, and that helped us to warp up the production. But because of this coronavirus problem, the last 1 month, there has been no shipments from China. On the other side, rail wheel factory continues to have some capacity constraints. They are also, in turn, importing some axles from China, which are getting impacted on account of the coronavirus. But we do hope that with the internal capacity of rail wheel factory, we should be able to continue with more or less current run rate of wagons. A few percentages here or there, but by and large, we should be able to continue with the current run rate with the expected supplies from the rail wheel factory.

As there are no further questions, I now hand the conference over to the management for closing comments.

Thank you very much for the very enlightened questions from everybody. As I mentioned in my opening comments, the focus now, the -- let's say, 6 quarters ago, the focus was primarily to build up an order book with which we were able to succeed to an extent; then was to stabilize the production, which, again, over the last 4 quarters, as you can see, we have consistently maintained an execution of about -- on the vicinity of about INR 300 crores a quarter. We expect to maintain the same trend till the metro coach execution starts. As I mentioned in the last conference call and this one, now the focus is on debt reduction. We are working very, very closely to improve the working capital cycle and incorporate efficiencies. This is an activity which is being monitored at the -- at every level and is being led by the Director Finance and the Director Operations on a day-by-day basis. So with this operational efficiency improvement, we hope that we should be able to reduce the debt level in the Indian operations significantly, both in FY '20 and then FY '21. The focus, again, in the coming year, FY '21, is to try and get another 1 or maybe 2 metro contracts. So that the line of the metro continues. Of course, the current contract will get executed up to FY '22. But in order to continue that line, we would be looking at bagging another contract this year. And of course, the wagon and the other bridge businesses would continue on the normal stream as they have been continuing. So on the whole, we hope that the Indian economic scenario, the overall industrial output and the GDP growth picks up again, because our business, particularly on the freight side is directly related to the economic activity and the GDP, which in turn, impacts the railway loading, and in turn, impacts the wagon procurement of the railways or of the private sector. So with these words, I once again like to thank everybody to join the call. And I look forward to be able to share the annual numbers in the next few months.

Thank you. Ladies and gentlemen, on behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.

Thank you.

Thank you.