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

Okay. And from the private market, any -- what's the outlook there from the private sector for guide and order?

I'm sorry, I couldn't understand that.

From the private logistics companies like Gateway Distripark and Concor and others?

So -- yes, there -- I mean, private sector requirement of procurement has been met daily from time to time. I mean, overall, on the host of requirement for privatizing has been very healthy as we said in the financial year. We have executed substantive private orders that we are having with us a few orders ahead.

And the current increase in commodity prices, is there any impact because of that? Or are we able to pass on the majority of this commodity increases to end customer and protect our margins?

Majority of our contracts that we have are with price variation to jobs. So we are legal to pass on the commodity price to the final customer. Having said that, there are a few tenders or key contracts that we have which are on fixed price basis, but they are not substantial. And the company has put together the best possible risk mitigation strategy in order to not allow the contract to become onerous ones. There, of course, in the price variation that we have is on our wholesale price and net sales variations. So there might be quarter-to-quarter lag in terms of being able to recover the peak of price. But at the end of -- I mean, if you normalize it over a period of a fiscal, we are able to pass on the impact of the price.

Okay. And in the Italian subsidiary, like what is the current utilization level and what's the outlook there in terms of growth from the European market? Do you see substantial activity there?

So the growth outlook in Europe for passenger trains is quite healthy because of the new norms that are being discussed and contemplated in terms of passenger carrying capacity for coach and so on. And the European business is into manufacture of passenger trains. So we believe that the demand for the trains is likely to be quite healthy and good. So the company's subsidiary has full integrated capacities to deny that manufactured space, a result of which, we do believe that the outlook of the business can be quite good. Having said that, there are current challenges which are caused due to multiplicity of factors coming out of COVID. As You all know, Italy was one of the worst affected countries. So we are trying to overcome those challenges. And beyond that, we believe that half 2 would have a very bright future for the group.

And what's the capacity utilization out there?

The capacity over there is quite large. The company has in the past, earned revenue more had acquired, so the highest revenue that it was able to achieve was about EUR 275 million. So if we just look at in terms of -- if that was close to capacity, then we can consider that at the capacity.

And in the Indian unit, what's our capacity currently, capacity utilization level?

So for the freight business, our total capacity is about [ 3,000 ] wagons. Of course, the demand -- actually if the demand picks up, we are able to produce that, but we are doing -- last year, we did about 4,000 wagons, and we are about the same run rate now last -- to last year -- I mean the year before COVID. In terms of the passenger coach segment, we are getting a capacity of 200 metro coaches a year.

Okay. Okay. And -- so if we are able to -- so what's your outlook, like is there any possibility that we can increase our utilization and there can be some operating leverage out there or you feel that you need to move these capacities to somewhere else so that you can move to...

So between both the units, we have adequate capacity to build up more capacity or outsource capacity. Our target -- we have this capacity over the last few years. But our target now and going forward for the next 3, 4 years, is going to find various means of utilizing our capacity.

Okay. And last question from my side is that we had planned to engage in this proposition. So what is the status out there in terms of and when can we hear some something positive regarding the propulsion system?

I did mention to the gentleman before who asked the same question that first prototype is likely to be delivered from India in the Q4 of the current financial year.

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

If possible, could you give us some details about the balance sheet items, like the gross and the net debt inventory data, creditors, cash balance and those things?

Yes. So since we have not published the balance sheet and this is not statute or required. So it would be not possible for us to say out the numbers. But yes, definitely, I can indicate that more or less, the things are in line with the March numbers and in line with the estimate which we have done.

Okay. And just can you give the debt figures as if possible in India and in the Italy business?

As an instance, so even in India, you know the debt label, whatever we were having as on 31st March, we are maintaining a debt label barring some -- maybe some working capital limits from a small limits for our prior day-to-day working capital. But otherwise, as far as the long-term debt is concerned, so that is exactly on the same line as that of in the month of March.

Okay. Okay. No problem. And if you can give us the split of the wagon order book between private and the public sector? And like what is the wage order book in number and value term?

So the number -- average realisation per wagon is roughly around INR 30 lahks. And with the total order book we have in the freight business is around INR 840-odd crores, so you can just calculate the number of wagons. And the breakup between private and the Indian listing we are not publishing. So it would not be possible for me to share that particular data.

Okay, no problem. And what was the -- how many wagons were dispatched in Q1, if you can give that number?

I can give you a ballpark number. It would be -- again, you need to just make a simple calculation by dividing the total turnover by INR 30 lakhs, you will get the number of wagons.

Okay. Okay. Got it. And lastly, what was the CapEx that we did in Q1? And what do we expect for the remaining part of the year?

So overall CapEx, what we had planned for the upgradation of the entire facility along with the new CapEx for the Metro project and the propulsion was something around INR 80-odd crores. And out of that, roughly around INR 20 crores, INR 25 crores, we have incurred in the last year, in the first quarter, we did almost around INR 15 crores to INR 20 crores. And the balance we will be doing in the balance part of the year. So maybe March 22, all our CapEx would be complete.

Okay. Got it. And lastly, in the last call, I think you had mentioned about a new design center in Hyderabad. So is there any update on that?

So the new design center is working very well. They are working in close coordination with our Italian team and working on lot of projects, particularly like the Pune Metro project and also the propulsion equipment project and also some design for the Italian company as well. So they are working very well. And in fact, we are in the process of increasing the overall size of the design center.

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

Can you do throw more highlights? See this relaxation from the train factory keeps on recurring or occurring again and again essentially. So what is the way out in between the imports from China, et cetera? What is the way out permanently? Will you be scaling up to 200 metro coaches? Are those axles coming from Italy or -- for the wagons? In next 2 to 3 years, obviously, the company will scale up in both private and government level. So what is the way out for this?

So for the transit business, for the metro coaches the we do not have to come from Rail Wheel Factory, that is coming from different sources. There are there is a Czech and German company, which is present in India also. They supply those wheel sets and there are other international companies that supply those wheel sets. For the freight wagon, it is a part of the contractual condition. It's not that there is no wheel set available globally. Wheel sets available globally. So we have been representing to the government and probably in the tenders going forward they will change this and they will allow for wheel sets to be imported. But because these are tenders that have been finalized on the basis of wheel sets to be given or to be taken from Rail Wheel Factory at predetermined contractual prices and conditions, therefore, they cannot be altered in the existing contracts. Having said that, I would also like to add that Rail Wheel Factory was shut down for 1.5 months almost, primarily because they were expanding capacity. So they have started their production this week, the week that we are in now. And they will start rolling off the wheel sets from 16 at almost, let's say, 1.5x the capacity. So we believe that with that happening, the capacity constraint with the Rail Wheel Factory will also be taken care of.

Okay. And sir, the newer wagon orders and the newer steel prices. So how does one negotiate? What is your strategy?

I'm sorry, if you can just repeat your question once again.

The newer wagon orders that are going to come, be it for the government or private sector, but the steel prices are also up. So what's the strategy that we are employing in gaining orders and protecting the margin?

So I mean, that strategy has worked out on a tender-to-tender basis depending on what is our capacity loading, et cetera. As you can see that what I have always maintained that on the wagon business contribution, the margin can be between 8% to 10% of EBITDA. In some contracts, we also go below that. Some contracts, we are able to get above that. Our pricing strategy is always done as a fine balance between capacity utilization and margin protection. So that on a blended basis, we can stay within that 8% to 10% of EBITDA rate.

Okay, sir. And finally, your view on the DFC as -- from getting the rate now the deadline in September for 1%. So your feeling is that the orders actually will come fighting from down the line. Is that correct?

Yes, I would put it differently, Bhagyesh, I would put it differently that now the DFC is -- the question is not whether it will come or not. The question is how much will be the delay? So while I understand that the railways have or the DFC Corporation has set at a certain time line, in a project of this magnitude and with the COVID being so unprecedented, even if it is delayed by -- I mean, it will not be -- I'm not even suggesting for a minute that it will be, but let's say even if it's delayed by 12 more months, the fact is that such a mammoth the infrastructure has been created. So the demand -- the latest demand for this is -- has to come. I mean this is basically capacity creation. The capacity has been created by the railways. The capacity utilization can only happen when they have wagons. Otherwise they cannot earn revenue out of such a huge investment that has been made. So my personal take is that by end of this year, beginning of next year, they will start buying the valence for the DFC. But even if it is preponed or postponed by 1 or 2 quarters, it doesn't really matter too much because even for the traditional Indian railway type, I mean, now we are talking of -- the railways are talking about going 3x in terms of traffic. They've already gone quite a bit. But now we are talking about -- I saw a statement from the Minister Danve that we're looking at 300% growth for the railway traffic. So if things like that are the intentions of the railways then the only way they can achieve that is by making a quantum change in the railway procurement while power, sorry, the wagon procurement.

Okay. One last question from my side. On the defense sector announcements have been made that below INR 200 tenders and orders Indian shipbuilding and defense. So further scope for us to do something in this space?

So on the defense side, we have not got a lot of traction, either on the order booking nor on the revenue side of it. We have received some orders for shelters and so on from -- maybe we have got some others. But not too much on the defense side. And that's the reason when I mentioned a few minutes ago, we have restructured the whole vision at the management, structure of the company, wherein we have tried to create these 3 business units with the management structure, focusing on the 3 where we have merged the bridges, shipbuilding and the defense into the single unit.

[Operator Instructions] The next question is from the line of Rahul Jagwani from PGIM India Mutual Fund.

Actually, my question is more on the margin improvement you're showing. So I mean basically, what is driving this improvement? And what is the outlook over there?

So the margin improvement, again, as I mentioned, the price variation clause that we have is generally has a quarter-to-quarter impact because it's linked to the wholesale price index. So sometimes depending on the inventory of the steel that we carry for the low price and thereafter, the price -- wholesale price index moves and the type of wagon we deliver and the contract against which we deliver the wagons, the margins can vary from a quarter-to-quarter basis. And I just mentioned to Mr. -- sorry, with Mr. Bhagyesh about the quoting tender, quoting strategy also wherein we quote to tenders -- quoting tender is based on the capacity utilization and our necessity to bid that order. So it can vary from a quarter-to-quarter basis, but I do not want to indicate here that there is a change in our overall margin expectation. We still maintain that our EBITDA levels are likely to be around 8%, 10% on a blended basis.

[Operator Instructions] As there are no further questions from the participants, I now hand the conference over to the management for their closing comments. Over to you, sir.

Thank you, Ma'am. So thank you very much for the very insightful questions. As I mentioned, the different businesses of the company now, I mean, in terms of the 3 business verticals that we have identified as the growth drivers for the company. All 3 of them are moving forward. Freight business is more stable. We are already perhaps the largest player in this segment, in the country. Our focus would, in the future, be towards developing international markets for the freight business, and this is going to be one of the key areas over the next 6 to 8 quarters, while on the Indian side, we will continue to take advantage of the buoyancy in the commodity market and in the -- we would continue to tag along with the railway, and target to grow their traffic share. We would also look at internationalizing our freight business. As far as the passenger business or the transit and propulsion, it is going to be a very important year for us because our facility in Calcutta will roll out its first metro coach. We expect that by the end of the year, the first metro coach from our Calcutta plant should be ready end of the calendar year or beginning of 2022. The propulsion is likely to come out in the first quarter of next calendar year or the last quarter of the current financial year. So all of these are going to be very important milestones and historically, the only division that has contributed to the top and bottom line of the company has been the freight. Going forward, while the freight would continue to grow on its own accord, the other 2 divisions are also likely to become substantial contributors to both the top and the bottom. So as you -- one more thing which I must add here is -- there was a question on the balance sheet...

Sir you can continue.

Yes. So another issue on the balance sheet side, which the question was asked, and I would like to come in and make one observation that we have informed the markets, and you must be aware that we were -- the company was given a double upgrade in its credit rating by CRISIL. From being BBB straightaway, we went to A minus, which is reflective of the improvement in the balance sheet quality of the company. So one of the key target areas for ourselves is to continue to maintain this improvement in the balance sheet quality, while on the other side, continuing to grow on all the segments of the business. So with those comments, I would once again thank you for the continued support to all the investment community.

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