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

Thanks, Malika. Good morning all. We are pleased to invite a Titagarh Wagons management for 4Q FY '21 results conference call discussion. The management is represented by Mr. Umesh Chowdhary, Vice Chairman and Managing Director; Mr. Anil Agarwal, Director Finance and CFO; and Mr. Saurav Singhania, Group Financial Controller. So we'll have an initial opening remarks from the management followed by Q&A session. I pass over -- hand over to Mr. Umesh Chowdhary for the opening remarks.

Thank you, Renjith. Very good afternoon, everybody, and thank you for joining the earnings call for FY '21 for Titagarh. Just to give, all the presentation for the numbers have already been uploaded yesterday, and I'm sure that would have been shared with whoever has joined the call. But to give an overview, the year apart -- has been a very difficult one apart from the COVID uncertainties that prevailed in India. Italy also has gone through one of the worst -- had been one of the worst affected in terms of the COVID crisis. Having said that, we have, by and large, as a company, been able to keep directional movement towards our plan. We have been able to achieve a number of targets that we had set for ourselves. Of course, some of them could not be achieved due to various reasons. I would like to give an overview of the performance separately for the Indian operations and for the Italian operations. As far as the Indian operations are concerned, we were able to continue to maintain a healthy order book or order inflows. We have now a current Indian order book of about INR 2,600 crores, which is one of the highest orders book levels that we have had in the company, Indian operations. And what is most important is the order book is split pretty well into different segments of our business, which is the freight business, the transit that is metro and propulsion and shipbuilding. 50% of our order book comes from the freight business and the balance, 50% approximately comes from the others. In terms of the performances, we were able to do an EBITDA of INR 130 crores on a revenue of INR 1,030 crores, INR 1,040 crores and a profit after tax of about close to INR 60 crores. This has been a turnaround from the last year where we had certain exceptional or one-off items, which had resulted in a stand-alone loss in the last couple of years. We expect that the current year, the trend of execution would be maintained. Of course, we are suffering the current lockdown due to the second wave of COVID. Our operations are likely to commence normally from coming week. The nonavailability of oxygen has also impacted the first quarter to some extent. But we are trying to make that up as much as we can. In terms of the execution of the Pune Metro, which is a very important milestone for our company. The prototype train has entered the testing industry. That has already been manufactured. Now it is being tested. We are expecting that, in the next few weeks, maybe maximum a couple of months, the train would be dispatched from Italy. The production of the first train in Calcutta, which is the upgraded plant that we have set up in Calcutta, has already begun. It started in the middle of April, but we had to slow it down because of the COVID second wave, and we are expecting that beginning of July, we will again start the production. We are expecting the first train from India to be rolled out within this year, with this financial year. And the first 3 trains definitely are going to get supplied from Italy within this financial year. Coming to the European operations. Again, they have been very difficult. In spite of that, the COVID problems, we have been able to increase revenue from levels of 30-odd million to almost close to 70 million. And the last quarter of FY '21, we were able to do a breakeven on the EBITDA in Italy, although there has been a full year loss on EBITDA level and then a cost PAT level in Italy. We have an order book of about INR 2,200 crores, INR 2,300 crores there, in that ballpark. And the legacy contracts that were there have already been completed. By and large, 100%, maybe a few percentages left, but that would not have a major impact. Now with the COVID crisis getting over, we are hoping to ramp up, and we are very confident that we'll be able to ramp up the production there. And this year, we should be able to achieve positive EBITDA in the Italian operations. In terms of the debt levels, in India, we had mentioned in the last calls that we are targeting to achieve, for the Indian operation, a net debt-free situation. I'm happy to report that in spite of all the disruptions, we were able to -- while we have a long-term debt on the balance sheet of the Indian operations of about INR 100 crores, we have equivalent cash available. So on a net debt level, we are debt free in India. In terms of the European operations, we have a debt of about EUR 75 million, which we believe that with the stabilization of the operations this year, we would be able to service from the Italian operations. So this is the overview of the entire companies working, and I'm most happy to answer any questions that might be there. Thank you.

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

Can you give more details on the India freight order book, the wagon division order book and a rough split between private sector and the Indian Railways wagon and also the production issues here? And I would like to know what is the road map here for the next 1 to 3 years for the India wagon division because there's a talk of DFC coming, private sector players purchasing wagons, et cetera. So what is seen here? And also overall margin-wise for the India wagon vision for next 1 to 3 years' outlook?

Sure, Bhagyesh ji. The Indian order for the freight wagon -- freight division, which includes wagon and components of wagons, is approximately INR 1,200 crores as on 31st March [ date ]. The private sector -- and I would say the majority of the orders are from the railways. Private sector demand had slowed down during the first phase of the COVID, first wave of the COVID. Of course, we saw that there was a pickup that happened in the private sector demand. But as a matter of strategy, because private sector demand had been -- has historically not had price variation, so we've not been very aggressive in booking private sector orders owing to the steel price fluctuation that is -- one has seen in the last few months. We believe that now steel prices should stabilize, so there would be a private sector demand that will come back again because most of the wagon manufacturers have shied away from taking longer-term fixed-price contracts. Most of our contracts that we have is on a price -- with a price variation clause. I would say, almost 70%, 80% of the contracts that we have are with price variation clause in the freight business. So the steel price impact has not hit us very badly. Of course, there can always be a little bit of a time lag between the PVC and the steel price increase. Going forward, we have seen that the railways have been able to decluster their -- decongest their lines. The DFC was, of course, delayed. And now we see that their work has picked up in the last year. Also, we've read in the newspapers and we've seen that the work pace has picked up quite a bit. So we expect that, this financial year, the DFC ordering should -- by the end of the year, should start. We don't expect to book that into revenues this financial year, but in the coming year and the year after, we definitely believe that the DFC wagon should contribute to revenues. We believe that wagon business would continue from the railway side and staying at the levels that they are. We don't see that the private -- the railway wagon -- Railway Board wagon procurement might change too much, maybe at the level 10,000, 15,000 wagons. But the private sector demand both for the DFC and for the non-DFC portion is likely to go up.

And railways, also, what is the margin situation? Steel has gone up so much, so pass-through is there.

As I mentioned, that bulk of our contracts are with PVC, so the margins remain -- our EBITDA margins, as you -- as I have mentioned in the past, are hovering between 9% to 11%. And if you see that it continues to be that way, some quarters, it can be slightly different. And as I said, that is primarily because the PVC takes indices of 2 months prior to the date of supply. So there can be a lag, but it averages out during the year.

The next question is from the line of Bhavin Chheda from Enam Holdings.

Can you give the number of wagons sold in the stand-alone, consolidated for the quarter and for the full year?

Sure. Anil Agarwal, our CFO, would answer.

So this year, we sold around 2,800 wagons, and this is the total quantity of wagons, which we have delivered even taking into account the consolidated because the consolidation in TFA, we are into the passenger rolling stock, not on the wagon rolling out of the rolling stock.

And quarter 4 would be how much?

Quarter 4 numbers are not really available with me. But on a full year basis, as I mentioned, it was 2,800.

Yes. And your INR 1,200 crores order book is for how many wagons?

It would be roughly around 4,300.

4,300.

Roughly.

Okay. And this is to be entirely executed in FY '22 or it will go forward also?

We have a delivery schedule, Bhavin ji, and this -- basically, most of it would be executed in the current financial year. Some of them is scheduled to go over to the next financial year, but then there are new orders that we might book this year that would come into this financial year. So they are -- some of them have a [indiscernible] delivery schedule, but I would say bulk of it would be executable during this year.

Okay. And regarding the gross debt numbers on a consol, if I see the gross debt is roughly around INR 846-odd crores, stand-alone is INR 103 crores. So I think majority of the debt is standing in Italian subsidiary. So what's the cost of this debt? And is there any other debt standing in other company apart from Italy?

So there is no other debt standing in any other company because we've done a merger of the other entities, including the Cimmco entity, et cetera, into Titagarh Wagons. So there is no other. That is the debt only in these 2 entities. As far as the cost of debt is concerned, in India, the cost of debt is close to 10% and in Italy, it is close to about 3.5% or something like that, between 3.5% to 4%.

3.5% to 4%. And what are the repayment schedules in Italy?

So there are different facilities over there with different repayment schedules. There are 3 or 4 different facilities. Some of them are also cash credit facilities. So they're kind of rolling, but there are certain term debts, which have a repayment over the next 5, 6 years.

Sure. Because Italian subsidiary is as of now not reporting cash profits or just an EBITDA positive. So how are you serving the Italian subsidiary's interest and debt repayment there. Has standalone provided loans in advance to a Italian subsidiary? And if yes, what's the outstanding number?

As a standalone, we have not given any loans or advances apart from business advances, which are for ongoing contracts. The Italian subsidiary had a negative EBITDA in the current year in the first 9 months, but it had actually turned EBITDA positive prior to the pandemic hitting the operation. And we are fairly confident that it will be again EBITDA positive this year.

Sure. And Anil, consolidated, other income was higher at INR 14 crores versus INR 3 crores in standalone. So is there any one-off there? Or why was such high number in quarter 4?

In the stand-alone, the other income -- you are asking about the standalone other income, right?

consolidated other income. And so your [ net ] income was much higher than the standalone. I think standalone was INR 3-odd crores, which is the normal run rate, but consolidated on -- was INR 14 crores versus INR 6 crores in December quarter and INR 5 crores last year March quarter. So was there a one-off, which has been accounted there?

In Italy, I think it would be one-off. It would not be a recurring other income. I don't have the exact data with me right now. But in Italy, we don't have any recurring other income. It would be more like a one-off maybe.

The next question is from the line of Saurabh Jain from Sushil Finance.

Sir, my first question is during the media interaction, you had mentioned yesterday that the stand-alone order book is executable over the next 2 years. So could you please give some similar color on the Italian order book also? And also now since the legacy orders, which came along with the acquisition are over now, what kind of EBITDA margins can we look forward for the Italian operations for the current fiscal and probably some -- in the next fiscal?

Sure. So as far as the Italian order book is concerned, that is also -- some of the contracts are executable over the next 3 years, but there are many which have to be executed within this year. The total order book of the Italian subsidiary is at about INR 2,200-odd crores, EUR 270 million. In terms of the EBITDA in European market in the segment that we are, and I mentioned that we normally expect an EBITDA of 7%, 8% over there, and new orders that we have are on a blended EBITDA of about 7%, 8%.

Okay. So sir, would you be able to quantify what percentage would be executable in the current fiscal and approximately?

So we don't give the -- we don't give out the estimates or the forward-looking numbers. But as I've mentioned, that these orders are primarily, you can say that's executable over 2, 2.5 years because, normally, in the passenger train segment, the lag which is there or the gestation period from order to execution is normally 18 months. So I would say that these orders have come over a period of time, and they are executable over the next 2, 2.5 years.

Good. Sir, an observation on the stand-alone business was that exports have gone up substantially, even though on a smaller base, but the majority of the full year has come in the last quarter itself, approximately INR 28-odd crores. So shall we assume that this is a trend, which is catching up and is likely to continue this year?

No. This would be primarily on account of the execution of the Pune Metro contract. So this is -- I -- we don't have much of an export turnover, which is going to be there. But going forward, targets that we are setting up for ourselves is that we have upgraded on it over the last couple of years to cater to the international market. We are getting ourselves all the international certifications. And maybe -- as mentioned, maybe 2 years or 3 years ago, when we were at order book levels of INR 600 crore that our focus or priority would be to build up order book, I can -- and then it was to -- particularly as far as the Indian operations are concerned. Our -- going forward, our priorities are going to be, a, for the Indian operations to develop international markets over the next 2 to 3 years; and in terms of the Italian operations, to turn EBITDA positive and to stabilize the operations. I must also add over here on the Italian operations is one of the [indiscernible] we have been able to achieve is to try to optimize cost levels there. So we have consolidated the manufacturing sites in Italy. Earlier, there were 3 manufacturing sites, which we consolidated them to 2 last year. And this year, in probably the next couple of months, we'll be able to consolidate them to a single manufacturing site, which is a large enough site, which will help us to optimize costs there. So with all the measures of optimization of costs and increase of volumes, the Italian operation should start taking care of itself and contributing.

Okay. So sir, what kind of cost optimization would that help because if you have already considered that in those 7%, 8% kind of EBITDA margins, which you are expecting in the Italian operations?

Yes. I -- when I say 7%, 8% margins, I'm talking about industry margins, industry EBITDA margins. I'm not talking about contract-to-contract EBITDA margins on a blended basis. There can be some contracts or some quarters where we can achieve a better or some quarters or some contracts where it can be slightly less. It's also dependent upon the strategy of the contract. But on a blended basis, the industry EBITDA margins that one can achieve in Europe is about 7%, 8%.

Okay. Sir, does shipping orders, which we bagged early this year, have similar margins, which we witnessed in the last 4 vessels we had supplied last year?

Yes. I mean I will not be able to specifically discuss about the margins of a specific contract, but when I say the average EBITDA margin that we expect in Indian operations is going to be between 9% and 11%, we blend it while quoting for the orders as a matter of strategy to maintain that kind of a net EBITDA level. But to specifically speak about contracts and individual contractual EBITDA margins would not be possible for me because of several reasons, competitive and otherwise.

Got it. So -- but this shipping orders of INR 130-odd crores is executable in this current fiscal only, FY '22?

It's over the next 2 years. We have also got some other contracts apart from that from the defense PSUs and from some states. So these contracts are executable over the next 2 years.

Good. One last question. In the budget, the government had announced a 33% increase in the CapEx for railways, and also they had increased capital outlay for metros by 20% odd so for the current fiscal. So any update, how is the traction looking at the ground level and in metro, which all tenders have we participated so far and outcomes of which are yet to come?

We are participating in pretty much all the metro tenders that have like to come out and that have been coming out. We have participated, as we have informed to the stock exchange, in a monorail project in Mumbai. The order has not yet been finalized to anybody. According to the same articles that you are mentioning, there are supposed to be several metro -- light and metro and Metro Neo projects that are likely to be taking off in the current year or in the coming years. And we have geared ourselves, and we are now fully eligible and capable of participating in all of them.

The next question is from the line of Sreeram Ramdas from Green Portfolio.

Firstly, how is the execution taking place with trams in Norway and the metro coaches in Brazil as well as Catania?

No, we are not executing any tramways in Brazil or in Norway or in Oslo right now. We have in the past done tram execution. That is the company that we acquired, Firema, in the past. It had supplied tramways to Oslo, et cetera. Now what we are doing is, from the Italian operations, we are executing contracts for Naples and for the city of Sicily, Catania.

Okay. Got it. And when it comes to capacity utilization, it was low for the best part of the year. So how much are those levels in India as well as the Italian operations?

In terms of the capacity utilization in India, we have adequate capacity. And particularly with the upgradations that we have kind of made in the last couple of years, we are fully geared to producing 7,000, 8,000 wagons if there is enough workload without any additional or without major CapEx being required. In terms of the metro coach facility, we are -- the facility that we are setting up in Calcutta, we should be able to scale up to about 200, 250 coaches a year. We are just starting to make the [ first ] metro coach. We have done several EMUs and MEMUs in the same facility, but this has been upgraded and made suitable to manufacture aluminum coaches, which is the first time that it is being done in India. So it's a huge technological jump for an Indian company to be doing aluminum coaches in India. So in terms of the capacity utilization, I would say that we have built up, over the last couple of years, adequate capacity legroom that is available to us in order to be able to grow the volumes as the market picks up.

Okay. And this expansion is taking place in Uttarpara plant, correct?

The metro is taking place in the Uttarpara plant. That's right. The metro and propulsion is being set up in the Uttarpara plant.

Okay. And any percentage number that you can give me in terms of capacity utilization?

No. I mean we're just starting production. So right now, if you see capacity utilization, it is 0. We are going to deliver, as I mentioned, the first trains for the metro from the Uttarpara plant this year.

Okay. And I mean the -- I meant the capacity utilization for the Italian operations, which is producing metro coaches and the wagons. That was what I was looking for.

So for the wagons, we -- last year, as Anil just mentioned, we delivered close to 3,000 wagons. That is, I would say, about 50% of our capacity or maybe slightly lesser. In terms of the Italian operations, the capacity is actually divided into revamping contracts, new bid contracts, et cetera. So it's very difficult to quantify a percentage of capacity utilization. But if I had to say in terms of revenue, the unit in the past has done a revenue -- I mean, before we acquired, of about EUR 250 million, EUR 270 million. And what we did was EUR 70 million last year. So there is a possibility with the same infrastructure to do what at least they have done in the past, which is 4x of that.

Okay. Got it. And another question, what kind of value addition are we doing in metro coaches in Italy? For example, are we doing AC systems, the wheel sets, hydraulic door systems? Or are we just assembling the things procured from various sources? And what I'm trying to say is what kind of manufacturing setup do we have there other than sheet fabrication and assembly?

Well, we are manufacturing the entire metro coaches. One of the metro train mass producers in the world actually do the doors themselves or the AC systems themselves. These are specialized equipments. What normally the metro coach manufacturing is, is fabrication of the coach, the bogeys, integration. Some of us do the traction. Like our Italian subsidiary makes its own traction as well. So yes, I mean, it is pretty much an integrated. And in the [ balance ] of a metro coach manufacturing, one can definitely classify our Italian subsidiary to be a fully integrated plant.

Okay. Okay. That's what I was looking for. Great. And...

And also for the testing facilities, our Italian facility, Titagarh Firema, is one of the most advanced testing facilities to test trains of different voltages, the voltages that are applicable all over the world starting right from 1.5 kV up to 25 kV.

Okay. Wonderful. Okay. And you said that it takes 3 years, I believe, for the Italian order book to be executed. And I want to understand how the payment flows, payment cycle, like do you get payment based on the prototype? And how many -- what percentage do you get on the final delivery, et cetera?

Each contract has a different payment schedule. I mean there is no standardized payment schedule for this business. So while quoting for tenders, we kind of evaluate the cash flow cycle for each of the contracts. Some of them, for example, have in advance. Some of them don't. Some of them have milestone payments. Some of them have delivery payments. So I mean it's very difficult. It's not impossible for me to give one single answer for this because it's applicable differently for different contracts.

Okay. Okay. And I'll just try to squeeze in one more question. The Italian subsidiary, it has seen a lot of changes in the CEO, and that's quite unusual despite only 4 years since acquisition. So can you just give me some information on what's going on there?

So we had the -- last CEO change was something which we made about 2 years ago. I had mentioned that during our call also that I had myself taken over as an interim CEO. That was primarily to clean up operations, to restrategize the fixed cost strategy, et cetera, et cetera. And then we had appointed a good CEO last year. Fortunately or unfortunately, the government of Italy found him to be attractive and they kind of poached him to be the CEO of the Italian Railways. So our CEO who was there has become the CEO of Italian Railways. And we have another person who was associated as a Board member in our company. We have appointed him as the CEO. So he's doing a reasonable job, but I would say that, going forward, we may, after the things have stabilized, get in a younger CEO, who would be then there for a longer period of time. But for the coming foreseeable future, the existing CEO who is operating will continue to be there.

Great. Great. And sorry, just last one. With the ABB -- with the tie up with ABB, how the sample out is going for the railway, for the propulsion systems?

Yes. So that's very important. Thank you for asking that. The cooperation, we signed with ABB is going well. This financial year, we are expecting to supply the prototype for the railways for the propulsion system, which has been designed and manufactured in cooperation with ABB. We believe that the second half of next financial year, we should be into regular production of the propulsion.

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

Can you give me the detailed breakup of the order book if possible?

I'm sorry, can you repeat the question, please?

The detailed breakup of the order book, like between wagons, coaches and others.

Yes. It's given in our presentation, if you see on the Page 3 of the presentation, but I will just repeat it. The total order book is about INR 2,680 crores, 42% of which is in the freight. About 38% is in the passenger or transit, and the balance is shipbuilding and defense, bridges, et cetera.

Okay. And you just spoke about the monorail order. So can you just throw some light on that? Like when do we expect an order? And what about the execution period?

Well, we don't know. Until the tender is finalized we cannot say when do we expect the orders. But as we have disclosed in our reporting to the stock market, we have participated in this tender. We are [ pray tell one ]. And as far as the finalization of the order is concerned, I mean, in a tender, anything can happen. We do not know what will happen going forward. So we would only be able to comment about the execution schedules, et cetera, if and when the tender is awarded to us.

Okay. Okay. Got it, sir. And in Italy, do we have any bid pipeline?

I'm sorry?

Do we have any bid pipeline in Italy?

Oh, yes, absolutely. The bid pipeline is there, both in India and in Italy. There is a big bid pipeline, and that always remains there in terms of several tenders in all the divisions that we continue to participate on. It's an ongoing process.

Okay. Got it. So could you quantify what could be the bid pipeline for coming years?

So I mean, again, there are many tenders, which have been issued. There are tenders, which are expected to be issued, so it's difficult for me to offhand give you a quantification. I can give you the quantification of some large tenders that we have participated. From Italy, we have participated in tenders worth about EUR 500 million, EUR 600 million, which has yet not been finalized. From India, maybe the total tenders that we would have participated in, which are pending finalization, would be about INR 1,000-odd crores.

Okay. Got it. Then, going forward, what do we expect the debt levels to be? Like at the stand-alone level, we are net debt free. So in the coming years, do we expect to raise any debt?

We don't expect to raise long-term debt, but in terms of working capital, that is a fluctuating scenario.

Okay. And sir, one last question. What is the impact of the commodity price hikes?

So as I mentioned, the commodity price hikes, most of our contracts -- I would say, bulk of our contracts are with the price variation clause. So apart from the time lag impact that we have, we don't expect to have long-term impacts for the commodity price hikes. However, it does kind of dampen the finalization of fixed prices contract, the balance, 20%, 30% fixed-price contracts that we don't generally have the private sector wagon business. So we are expecting that -- we are hoping that the price stability should come in whatever levels they stabilize, should stabilize in the period ahead or weeks ahead. And that would definitely help to strategize the order inflow better.

Okay. And could you give the breakup of the order book between the Indian Railways and the private sector?

Bulk of the railway orders are from the Indian Railways. Some of them are from private sector, but we've not, for competitive reasons, disclosed the breakup.

Okay. I can understand that. And lastly, can you give any revenue guidance?

Sorry, we don't give any forward-looking projections, so we'll not be able to give revenue guidance. But what we can -- definitely, I can share with you that FY '20, we did on an Indian operations revenue of about close to INR 1,500 crores. Due to various constraints, it had dropped down to about INR 1,000 corers, INR 1,100 crores in FY '21. So we -- barring the caveating the COVID situation, which has impacted the first quarter, as I mentioned before, we -- our target would be to at least regain levels that we achieved in the past.

The next question is from the line of [ Arvind Joshi ] from [ Baklir Advisors ].

I just had one broad question on our shipbuilding industry. What is our strategy in this? Are we largely reactive in this or we are having a strategy to get orders and all that? Normally, if some order comes up, we have the capability, and hence, we build it or we have a proper strategy to go out, find the market and explore possibilities, go to different clients. And I just wanted to get an insight and some feel into how our shipbuilding industry operates. And what is the competitive positioning? And how do you see this evolving over a period of time?

Sure. See, firstly, I just don't think that the market is -- any of the products that we are participating or we are presenting is a product where we can be reactive. We have to be proactive based on our strategy. Orders in such cases where it's more tender oriented do not come by way of a trickle down. So we have a very clear strategy. We have a very clear strategy also for our shipbuilding venture, which is, effectively, we do not want to be in the commodity shipbuilding industry. We only want to be in the specialized shipbuilding industry. So we are participating in tenders selectively for Navy, for ocean research and some other specialized or specific tenders. Shipbuilding is an industry, which is -- which has long working capital cycle [ intensitivity ]. So we are very careful while selecting the tenders that we participate. That is one of the key focus that we keep on how intensive is going to be the working capital cycle, learning from the peers who have been -- or who are in the shipbuilding industry. So to answer your question, yes, we definitely have a strategy, and we are definitely not reactive. I would say we are very proactive, but we are very selective on the kind of vessels or the tenders that we'd like to participate.

Could you just stress a little bit on the kind of competitive advantages we possess based on designing abilities on location or low-cost sourcing of certain specific inputs or something like that way? How do we position ourselves? And what enables us to bag orders and stay profitable in the slightly competitive area?

The most important is our track record of having delivered vessels to the Indian Navy, to the ocean research. We have been able to manage our projects very well. We are definitely cost competitive. And we -- our positioning is not to go for very large vessels. So we -- our facility is catered to do specialized vessels. We don't get into the large cargo vessels at all, and we don't have any kind of backward integration [ USV ], but our [ USV ] definitely is fungibility of our basic infrastructure that we have in Titagarh. And we have a very good design setup for sure. I think that's another area. When we speak about design, I'm sorry, I missed out, I think it was important that I highlight it. During this year, we also took a big step forward in terms of setting up our design center in Hyderabad, which is primarily for our passenger and transit and propulsion business. We have set up 100-people design center so that we can -- while we have our design expertise available in Italy, this is our initiative towards achieving self-reliance or [indiscernible] for both designing and manufacturing for these trains in India. This is coming up very well. We already have about 35-odd people in the design center who come with very large experiences. We have the best of designing infrastructure in terms of software, hardware and everything, and we are planning to grow this. So one of the key focuses that we have in the company is from being just manufacturers, we are moving towards being -- or investing a lot in the designing capability.

And just to understand what -- considering the new government list on -- negative list of imports for defense products and all that and considering the special domain expertise that we have managed to generate, what kind of addressable opportunity or addressable market that exists in the Indian context and maybe in our range of neighbors, South Asia, somewhere we could get similar products? Defense and shipbuilding combined, what could be the rough addressable market? And what kind of conversions we can achieve in this or, say, not immediately but next 2, 3 years probably?

So we -- in terms of the defense business, we don't have a large order pipeline as of now. But this negative list and the opportunities that are coming up on the defense segment have been more recent. We need to see what kind of translates and what goes to the different PSUs. So it would be premature for us to quantify this at this point of time. But we are keeping our eyes and ears open. We are present in all the opportunities as they keep on coming up. And we will see how this develops over the next 2 to 3 quarters.

But this is a strategic focus area for us now, defense and shipbuilding.

Definitely, all the businesses that we are in, we are presenting, and we have kind of segregated, as you could see also in the divisional reporting, the segmented reporting. The key focus areas of our business are very clearly earmarked and all these areas, which have been reported, are our strategic key focus areas.

And you believe tailwinds would improve for this sector over the next 2 to 3 years, looking at the government policies and overall, the kind of experience, learning curve we have gone through, we could be able to -- we'll be in a better position to exploit the emerging tailwinds in shipbuilding and defense?

Definitely. I mean, the reason why we moved out of some of the, like HEMM, et cetera, tractor, we've decided to move out of because we said that they were not strategic in our growth plans, and there was -- we wanted to focus on a few key business areas. For example, in the defense, now we are developing or we are supplying specialized [ shakers ] for the Army requirement. So all these areas, which we are in the 4 key areas, what we have shown in our segmental results, are our key strategic areas. All of which we believe either already have or are going to have a potential upside for our company.

The next question is from the line of [ Venkata Subramanian Raman ] from [ Organic Capital ].

On the Italian operations, it's been a while since we actually took full control, and we still have subscale kind of margins. And given your commentary about how advanced our facilities, et cetera, what kind of margins will keep you -- will make you happy and what will disappoint you, which is question one. And two, we acquired some assets both strategically and also because there was an opportunity there. And given what we faced in France, what have been our learnings and how -- are we fully provided for?

Thank you. So just to answer your questions one after the other, as far as the first one is concerned, what kind of margins would keep us happy, I mean that I don't think has any bounce cost, higher than the margins that we can get, would -- we will be happier. But realistically speaking, on a serious note, we would believe that the industry that we are over there, 7%, 8% EBITDA margin is what we can expect to achieve. Yes, we have acquired that company about 5 years ago, but out of which 1.5 years have actually gotten washed off on account of COVID if you see the numbers quarter after quarter. December 2020, just before COVID hit, we were actually starting to turn around. We were starting to deliver positive EBITDA numbers for 2, 3 quarters, losses at shock. And the losses primarily that has been incurred over there were on account of legacy contracts that we acquired along with the company, which we knew that there have been legacy contracts. But the gate of that -- some of these contracts, which are almost 1.5 decades old was probably much higher than what we had anticipated. In terms of learnings, the first learning is that in a high-cost economy, we need to have a technology-based industry. So passenger trains is a high technology, much higher technology industry than a freight wagon. And that, I think, is the single most differentiating factor between Italy and France. It is, as you acknowledged, a very comprehensive and modern facility. I would say it's high technology. We believe it has manufactured the Italian high-speed systems in consortium with now Hitachi and Bombardier. So the available technology with our Italian subsidiary is there. The facility is there. It's a question of scaling up volume and having sufficient working capital, et cetera, available. We believe that this year, we should be able to turn around.

Sir, the constraints that you kind of referred to, which is working capital and execution, you think it's falling into place already or definitely for this year. And also, given some of the design, et cetera, can probably be done out of Hyderabad, which are setting up now, will it kind of help cost a lot better? And therefore, do you think, a, margins will improve? And two, if scale's also improved, do you think we can actually get to the kind of margins that you dream of?

Absolutely. These are parts of the strategy. I mean one is to target the margins that we spoke about, but then the other is to travel that route and to be able to achieve that. All these things that we are doing of setting up the design center here or to try and support manufacturing from the Indian manufacturing center, these will actually be a part of the journey to achieve that destination.

And do you think it's sooner than later, Umesh ji? Meaning do you think it'll happen in the next 3, 4 quarters? Hello?

Sorry, can you hear me?

Yes. We just missed you.

Yes. So definitely, this year, we are targeting and we are hopeful that we should be able to [indiscernible] a positive, at least definitely on the EBITDA levels.

And lastly, on the ABB partnership, what kind of addressable market and what kind of revenue can we possibly achieve? What kind of contribution can happen from there?

I would not like to give the numbers of the contribution or the margins. And can I just give you the business potential? The ABB collaboration is for the EMU and MEMU propulsion and train propulsion. So this is required for all the rolling stock that is manufactured in India for -- by the railways or by -- for the railways. So this is a very niche segment, and this is also strategic for us because, in Italy, for the trains that we manufacture, we manufacture our own propulsion. The target going forward for India is for the trains that we manufacture, we are going to manufacture in maybe next 2, 3, 4 years. We should be able to backward integrate to manufacturing our own propulsion, and this is a step towards that. So apart from having a good market potential for the propulsion that we are doing for the EMUs and MEMUs, this is also very strategic for our train production business.

Do we need to bid for this separately? Or our bids will -- going forward, will be actually a fully fitted out offering?

It's both. So when we supply only the propulsion, we have to bid for it separately. But when we bid for a train with our own propulsion, then it is a fully fitted one.

The next question is from the line of Bhavin Chheda from Enam Holdings.

So what would be the CapEx in standalone and Italy for FY '22?

CapEx that we have incurred or you're asking about what is the expected?

So both, one is FY '21, and one is current FY '22 plan.

We -- for between FY '21 and '22, we have -- in India, we would have a total CapEx of about [ INR 100 crores ], which we are doing from our internal generations primarily. In Italy, the total CapEx that we have planned will depend upon the new order inflow. We don't require major CapEx over there, but there -- part of the CapEx is also the new design developments that we will have to incur based on the new platforms we take up when we receive new orders. So I would say, on a ballpark, on an average basis, a facility like that would require about EUR 3 million to EUR 4 million or EUR 3 million to EUR 5 million of CapEx. But any additional substantive CapEx will be dependent on the new order pipeline that we see in the market.

And sorry, India, you said INR 200 crores over '21 and '22, right?

No, INR 100 crores.

INR 100 crores over '21 and '22. And this would be mainly for what, sir?

This is upgrading our existing facility. As I mentioned, that one of the strategies is to go to the international market. So we are applying for [ recertifications ] and so on and so forth. And also for the transit and propulsion. So we are setting up [ state-of-the-art ] propulsion manufacturing facility, the one that we signed the agreement with ABB. So this is all included in that.

Okay. And if I see the stand-alone numbers, though your debt number is very low, the interest cost number is very high. It was INR 55 crores in a year, last quarter also INR 11 crores, so the debt is INR 100-odd crores. So are there LC and bank charges, which lead to such high interest costs? And what would be going forward?

So there are a number of things. Number one is you said LC and bank charges are of course there, but also the debt reduction took place in the later part of the year. So that is the first part. The second is also there are certain customer advances where according to the accounting standard, we have to factor in the interest cost.

What's the customer advances outstanding in standalone. So I was coming to that number also. And it was close to INR 65 crores earlier. And in consolidated also, there is a customer advance number. So if you can share that 2 numbers?

So in the customer advances, there is a mixture of progressive payment that we receive because many of the contracts, particularly in the train business, both in India and in Europe, are on percentage of completion. As I mentioned in my answer against one of the questions a few minutes ago, some of the contracts have progressive payments. So I would not be able to quantify the exact advances because each contract is different in their advances. But the numbers, of course, will be the detailed numbers, whatever are disposable as per the accounting standards would be there in the financial statement.

Anil, if you have the outstanding number because I have some other current [ plans ]. It is number of INR 287 crore. So that would include INR 100 crores, INR 120 crores of customer advances?

That includes the customer advance. The [ recast ] number, I would tell you, maybe no one was -- the complete financials are out. From there, you can get that particular number.

But it will be upwards of INR 100 crores, right?

It should be.

Approximately, yes.

Okay. And even Italy would have the customer advance, so consolidated number should also have a higher number, right?

Italy would not only have -- or even India would not only have customer advances, but it's -- also included in that would be the staged payments. As I said, progressed payments.

The next question is from the line of Sreeram Ramdas from Green Portfolio.

Umesh, this is a follow-up to the previous answer you provided. You said you -- the Italian operation is one of the most vertically integrated metro facilities. And hence, I'm thinking, you said -- you also mentioned that margins -- the industry margins are somewhere around 7% to 8%, correct? So will it be fair to assume that because you're vertically integrated, your margins can maybe -- may be above by 300 basis points to 10%. Is it fair to assume?

No, because [indiscernible] ourselves as vertically integrated. We are comparing ourselves to vertically integrated plants only, whether they are Alstoms of the word or et cetera, they are also equally vertically integrated in terms of the scope of integration.

Okay. Okay. And these big players like BHEL or Servo, they're also vertically integrated, I believe, correct?

BHEL is not into rolling stock. They are only doing some locomotives for the Indian railways, and they are doing propulsion. Propulsion is a stand-alone business that we have started or [ made as a whole ], et cetera, which is basically the agreement that we signed.

The next question is from the line of [ Ankur Chanda ], an individual investor.

I have this question on the Italian operations. There was a report by India rating credit agency, which mentioned there was a cash infusion of about EUR 3 million into the TFA. Can you please throw some light on that?

Sure. As -- post COVID, there were certain cash requirements that were there. And also as a part of getting the Italian state support, there was a necessity for some equity infusion. But -- and that infusion was done by way of the holding company using equity into Titagarh Firema.

So this cash infusion was through the parent, Titagarh Wagons? Or was it in promoter's personal capacity?

No, this was not from the parent, Titagarh Wagons. This was [ supported ] by the promoters.

So please, can you explain the rationale for that?

Titagarh Wagons had -- the Board and the lenders had advised that considering the requirement of the cash in Titagarh Wagons, Titagarh Wagons should not be taking further cash exposure. And therefore, we had decided not to put further cash from Titagarh Wagons.

And this infusion was by means of optionally convertible debentures, right?

That's right.

And so the intention would be for promoters to convert these debentures into equity of Titagarh Firema at a later stage?

As you said, it's an optionally convertible debenture, so I will not be able to comment what would be the final decision going forward. But as of now, it has been invested as an OFCD.

So that would imply that, at some point later, there is a possibility that the Italian operation might not be 100% subsidiary and would have a promoter stakeholding separately.

It's an OFCD, so definitely, I mean, as you said that the option is always there. As of now, I would only say that it's an OFCD, which was supported by the promoter because TWL was not able to support this amount, which was essential for Titagarh Firema.

So this was just about EUR 3 million, about INR 20 crores. So Titagarh Wagons couldn't support this INR 20 crores you're saying.

That's right.

I mean it sounds like a very small number, so I mean, INR 20 crores [indiscernible]...

There was an embargo from the Board and from the lender. It's mentioned also in our public filing that about INR 27-odd crores, I would say, was supported by the promoters and Titagarh Wagons had an embargo for putting in [ investment ].

Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to the management for closing comments.

Well, thank you very much, everybody, for participating and asking very relevant questions. I hope I've been able to answer them. But if there are any answers or any questions unanswered, we'd be happy to take them. Our Investor Relation department or our CFO or myself are available at any point of time to answer any questions that might be there, and we request you to kindly email that. We believe that the company in the sector -- all the 4 sectors that we have presented are promising sectors. We are trying to make ourselves -- in terms of technology, in terms of capacity and in terms of capability, we are trying to upgrade ourselves to be world class in these sectors. And we would continue to request for your support, and we hope to be able to deliver better numbers going forward as well. Thank you.

Thank you.