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

Ladies and gentlemen, good day, and welcome to Titagarh Rail Systems Limited Q1 and FY '27 Earnings Conference Call. [Operator Instructions] I now hand the conference over to Mr. Umesh Chowdhary, Vice Chairman and Managing Director, Titagarh Rail Systems Limited. Thank you, and over to you, sir.

Very good afternoon, and thank you for joining the Q1 FY '27 earnings call. I am joined by Mr. Prithish Chowdhary, the Deputy Managing Director; Mr. Anil Agarwal, Deputy Managing Director; Mr. Saurav Singhania, the CFO; and the team. I would like Mr. Prithish Chowdhary to give an overview of the developments during the quarter. And of course, after which we'd be very happy to take any questions that may be there. Prithish?

Good evening, everybody, and thank you for logging in to the Q1 investor call. So before we start, I'd like to share some key updates and key highlights of the quarter. Firstly, we are happy to share that the Q1 was the highest share of the revenue for the PRS vertical, meaning the passenger rail system vertical for the company. In Q1, the PRS contributed almost 31% or 31% share of the revenue with more than 30 coaches dispatched in the first quarter, which for the company is a milestone, it's a historic milestone. In terms of wagon dispatches, the number was at 1,284 wagons, which was a little bit muted as a conscious call. This is largely on account of the wagon order book currently standing at orders of 5,300 wagons. And while we await for a larger tender to be announced from the Indian Railways and while the company actively pursues orders from the private sector, we aim to manufacture anywhere between 600 to 650 wagons per month until such time that there is a clarity from the Indian Railways on a larger tender for freight wagons. At the end of the quarter, the total order book for the company stands at INR 26,635 crores, including the company share of JV orders. The TRSL order book as a stand-alone is INR 13,335 crores, with INR 10,395 crores coming in from passenger rail systems and INR 2,470 crores coming in from freight rail systems. This is also to highlight the growth of the PRS business for the company over the coming quarters. We intend to increase the coach production to 45 to 50 coaches per quarter in this financial year. And then further, as the company has stated multiple times by '28-'29 to establish a total production capacity of 850 coaches plus per annum, for which we -- the company has a healthy order book supporting these plans for growth. With this, I think we can close the major business updates for the quarter and open it up for questions.

Sorry, sir. Go ahead.

Yes. We are happy to take questions now.

[Operator Instructions] First question is from the line of Rajesh Bhandari from Nakoda Engineers. Please go ahead.

Sir, in fact, if I am not wrong, the best probably the pure railway company is Titagarh Rail. We have a lot of orders also, but somehow I find that these orders are not fructifying on the ground. [Foreign Language]

So sir, thank you very much for your observation about Titagarh. And your second observation is on data very, very accurate, but one has to see it from the perspective of the quality of the order book and of the business plan. So as was highlighted by Prithish that 80% of our stand-alone order book today is relating to the passenger rail system, which is a new business that the company has entered into. And quarter-on-quarter, we have registered a very healthy growth. If you look at actually on a year-on-year basis, the increase for the coach dispatch in the -- as has been given in the presentation also, it is on a year-to-year basis, it has increased by almost 400% and quarter-to-quarter by 43%. Even in terms of the revenue of the PRS from the last quarter, which was INR 130-odd crores, we have INR 170 crores. We are now at INR 230 crores. And it is going to now register a quarter-on-quarter growth every quarter as we go ahead. So amongst the order book, we have 2 types of orders. One is the Vande Bharat order, which is going to be supplied over a period of the next 5 years and the metro order, which is going to be supplied over the period of the next 2 years. So if you refer to the strategic plan that was published by the company last year, about 6, 8 months ago or maybe a year ago, the overall growth and the execution plan of the existing order has been given therein. And we are very confident to be able to meet with that execution or ramp-up plan, barring maybe some -- like in the last year, there were some postponement in 1 quarter or so. But barring that, we are very confident of being able to ramp up the passenger rail business. So to sum it up, there are 2 business segments that we have. One is the freight rail segment, one is the passenger rail segment. And both need to be evaluated individually. On the freight rail segment, we have a capacity to produce 1,000 wagons per month. We have deliberately now kept it a little scaled down because of the new order visibility, which we are hoping to get in the next few months. Till we have that order visibility, we would like to downscale the operation to around 600, 650 wagons so that the overhead absorption can be kept in an equal manner. As far as the passenger rail system is concerned, the ramp-up is going to be steep. And quarter-on-quarter, we should be able to see a very healthy growth going forward.

[Foreign Language] 850 cars per annum for the passenger railway. Did I hear it right?

Yes. It is there in the strategic plan also, sir, that by 2029...

By which year, sir?

2029, 2030. We will have a capacity [Foreign Language]

[Foreign Language] Because each car is going to cost around approximately INR 10 crores. So we can expect by...

The total cost of a car is INR 10 crores. When we are supplying Vande Bharat, it is in consortium. So about only 51% of the car value comes to us for the current contract. For the future, we will see whether we are still going consortium or we go by ourselves.

Okay. And for the -- for Vande Bharat, okay. For other metro cars, what is our share, sir? 100%?

Exactly. Metro cars, we participate ourselves. We do not go in consortium.

By 2029, '30, we can expect that we will have a turnover of approximately maybe around 3x?

Sir, the capacity that we have, if you refer to the strategic plan, it will be visible there, where we have given it out in public domain that the total capacity wise, the company is going to have a capacity to do 850 cars, which gets translated INR 8,000 crores, INR 8,500 crores of potential revenue. And the freight is going to be INR 12,000 crores, which is a potential revenue of INR 4,000 crores, INR 4,500 crores. So that is the capacity that we are building. Execution of that is also dependent on receipt of orders and other factors. So we would not like to give any forward-looking statement here by saying that this is the revenue that is likely to be or not likely to be. But what we are saying is that this is the overall capacity, the business potential from the company that we are generating to be ready within 2029 or 2030.

Next question is from the line of Koundinya Nimmagadda from Jefferies.

I hope I'm audible. Sir, my first question is on the FRS segment, right? Obviously, we did hear you that you scale -- it's a calibrated scale on the wagon side. What I'm trying to understand here is that this 5,300-odd wagons that you have in your order book, I mean, at least from the presentation, our understanding is that you will have to execute it this year. God forbid, if you do not get a new order flow, that 1 lakh wagon kind of whatever we are hearing, right? If it does not happen, do you intend to slow it down further? If so, are there any penalties which the company may need to incur? That's my first question.

Very clear. But -- so there is no plan to scale it down even further because this plan has been done on the basis of the delivery commitments that we have. In fact, there is -- with this plan of production of about 600-odd wagons, we would be maybe a couple of months ahead of the delivery schedule of most of the orders, but not much. So the possibility of scaling this down should not be very significant. As far as new orders are concerned, we are now aggressively going and booking private orders also alongside with hoping for the new wagon tender to come out.

Sir, anything that you're hearing on the new wagon tender, because I think that's been the news for some time now, and we were also optimistic that it could happen any time in third quarter or so. Any color on that? Has it been pushed out? Or is it on track?

So in the government machinery, things do take time, as we all know. And unfortunately, the last few months have been months where the priority overall have shifted because of the Middle East war and all of those extraneous factors. So I have always maintained that if you look at the overall macroeconomics of the railways, the requirement of the wagon can be deferred, but not -- deferred by a few months or a couple of quarters, but not dropped. The railways continue to have their target of going to 3 billion tonnes of freight movement. They are currently at half of that. So it's a very simple arithmetic that if they have to double up their freight movement, they cannot do it with the same number of wagons.

That's clear, sir. Sir, my second question is on the PRS segment. So 2 parts to it. One, is there any change to that 200-odd coaches that you were targeting that guidance? Is it still intact? Or is there some change? And within that, if you can briefly comment on the key metro projects, Bangalore, Gujarat and Mumbai projects or things on track? Do you see any delays either for things that you can control or you cannot control? Are there -- if you can comment on that, please?

So the target remains intact. There is no shift in the target that we have. We had mentioned in the last call also that 10%-plus/minus, we should be able to achieve the target fully. As far as the projects that we are focusing on now, we are intending to complete Bangalore and Gujarat first and get on to the prototyping of Mumbai.

Sure, sir. Any tentative timelines that you could indicate to us on when do we expect Gujarat to complete and when do we expect Mumbai to start? Because -- and also on Mumbai, there were some news flows of project potential delays on the civil work side. Would that in which way impact our execution?

No, that does not impact our execution. In infrastructure projects, 2 or 3 months delays are not significant. They are -- there is enough buffer to keep coaches also in between. As far as timelines is concerned, bulk of the Bangalore and Gujarat will be over within this financial year, maybe spilling over a little bit to the first quarter of the next financial year. And the prototype of Mumbai will start simultaneously. It will not be subsequential, but it will be parallel.

Sure, sir. If I may ask one last question. What -- how are the things panning out with respect to your backward integration/technology upgradation on the propulsion system side? If you can maybe speak a little bit about those plans.

So that is also going on fully well. We've already supplied 2 rakes of propulsion equipment for EMU. We are now planning to supply the propulsion sets for MEMU, which should be done within the end of this quarter or beginning of next quarter. So that's a plan which is very well on track.

Next question is from the line of Parvez Qazi from Nuvama Group.

So continuing on with the previous participant, you indicated that we will target to complete bulk of the Gujarat Metro order in this year with maybe some portion to be done early next year. Did I get that right?

That's right, Parvez. Yes, absolutely.

Sure. And by when do we expect to supply the prototype for Mumbai Metro?

It should be done in Q1 -- sorry, Q4 of this financial year, Q1 of calendar year next year.

Sure. And will the Vande Bharat prototype also follow a similar timeline, Q4 '27?

That's right. Within the same timelines, we will be giving the Vande Bharat first train also. End of this calendar year, that is end of this third quarter and beginning of fourth quarter, between that.

Sure. And lastly, what about the Pune Metro? By when do we -- do we need to supply a prototype there? Or is it because it's an extension of an earlier order, we can just start with series production straight away?

So Pune Metro, I think it's a very relevant question that you raised, Parvez. So maybe I'll speak a few words about the Pune Metro. So this is an extension order. We don't need to do prototypes again, but this is an aluminum metro as we have already -- as you are already aware, most of the investors are already aware. In the past, Pune Metro that we executed, the first 34 trains that we have supplied, we used to bring in the subassemblies or the flat packs from our associate in Italy. This time, we have already acquired all the machines, which are now under the different stages of installation and commissioning so that we are fully independent and self-sufficient to make the complete coach right from the extrusion up to the final coach. Earlier, the subassemblies were made by Firema. Now we will be making those subassemblies very well -- very much in India. This will give us 2 things. One is, of course, we will be able to become self-reliant in the Pune Metro production line, but we'll also set up our facility for aluminum coaches for the upcoming projects, particularly projects like the bullet train, which is -- which has to be of aluminum. And while we are the only company in India, which has done aluminum coaches in India, but the backward integration of the manufacturing with this coach will also get established with this line. We are expecting that this production line will be fully commissioned by Q1 of next financial year. And the delivery schedule of these 12 trains is Q3 or Q4 of next financial year. So even maybe before that, we will be able to deliver those trains and also be ready to produce aluminum trains in general, end to end.

Sure. And last question on our shipbuilding side, I mean, what are our plans there? I saw your interview where you were saying that we are making progress on the construction part. So some update on that would be useful.

Parvez, I lost your voice. Can you repeat the question?

I was asking about some update on our shipbuilding venture where we are expanding our capacity. So some perspective on that would be great.

So on the shipbuilding, as you are aware, we have hived off the shipbuilding division to a wholly-owned subsidiary, which is called Titagarh Naval Systems. And new shipyard that has to come up in Palta is started -- the work has started on the ground. We have appointed a Managing Director and CEO for this project, a person who comes with extensive knowledge and background, Commodore Hemant Khatri. He was the Chairman, Managing Director of Hindustan Shipyard before. And the plan is that between the Q1 of next financial year or Q2 of next financial year, the shipyard will be fully up and running.

Next question is from the line of Navin Sahadeo from ICICI Securities.

Sir, my first question was on the recent cancellation of the MRVC tender altogether. So just to understand, does it any way risk the total addressable market for us because that project now -- Indian Railways says is to be done in-house versus a tender system or to private manufacturers in the past. So I mean, that was the plan earlier. So just wanted to understand that is it in a way, risk the total addressable market? Or the way to look at it is that since Indian Railways now will be focusing on that, the wagon -- the typical freight wagon things could be like out to the public much sooner. Some color on that will be helpful.

So, freight and the passenger capacity is not fungible with each other. They are completely chalk and cheese. Both may be white, but they are completely different from each other. So the question whether the shifting of this load to railway PSU can help the freight wagon demand come up, that would not be the case. As far as your question on the total addressable market is concerned, the total addressable market is not changing at all. It is only the product mix that is changing. The total addressable market and the total capacity available remains intact. It's not that ICF is a new capacity which is coming up. It has a finite capacity, does not have an infinite capacity. It is only the product mix that can keep on changing. So let us say the total requirement of the system is X and the total supply, including ICF, including us, including Alstom, including BEML is Y, those X and Y do not change. If ICF gets busy to produce a particular type of product, there will be the other types of products that they will not be able to produce within the passenger segment for which we believe that the business will come to the private sector. So we do not see this as a setback in terms of the overall business potential. Yes, of course, a large tender going off the market is not a very happy situation. But as the Honorable Minister announced in his public appearance, this was done only for the reason of expediting the local train supply so that the railways capacity and the railways muscles can be used to bring these trains earlier into the Mumbai suburban system. And this probably -- I mean -- I'm not quoting him, but I'm just giving my own estimate. This probably will mean more Vande Bharats that were being produced by the railway production units who will be ready to produce these trains that get tendered out and be supplied by people like us.

That's helpful. My second question then was on the prototype approval. So you mentioned bulk of Gujarat will get delivered this year or early next year. So is it safe to assume that the prototypes for both Ahmedabad and Surat have already been approved and hence, the confidence or it is likely anytime soon in coming weeks or days?