Good morning, ladies and gentlemen. I'm [Karthikeyan] moderator for the conference call. Welcome to RITES Limited Q1 FY 2027 post research conference call. We have with us today Mr. Rahul Mithal, Chairman and Managing Director, RITES Limited; Dr. Deepak Tripathi, Director Technical; Mr. Krishna Gopal Agarwal, Director Finance and CFO; and Mr. Prem Singh Meena, Director Projects.
As a reminder, all participants will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone telephone. Please note this conference is recorded. I would now like to hand over the floor to Mr. Rahul Mithal, CMD, RITES Limited. Thank you, and over to you, sir.
Morning everyone. Thank you. Let me start with giving the safe harbor statement. The presentation and the press release which we uploaded on our website and exchanges yesterday, and discussions during the call today may have some forward-looking statements. These statements consider the environment we see as of today, and obviously carry a risk in terms of uncertainty because of which the actual results could be different, and we do not undertake to update those statements periodically. Let me give you a brief overview of the quarter one performance, the way we see it.
We are quite upbeat and confident in the way quarter one has panned out in terms of the roadmap which we had set ourselves at the beginning of the FY. That, as you recall, was primarily that the all-time high order book of last year starts generating revenue and we have a substantial growth YoY in the overall FY. Having said that while the quarter one has been in YoY good growth of 19%, and bottom line also about 8%.
We need to really step on the gas and keep on improving the execution sequentially over the coming quarters so that the entire FY is as per the guidance which I had laid down at the beginning of the FY of having a substantial growth vis-a-vis the last entire FY. That in a nutshell is how we see the performance of Q1 and the quarters going forward, and I'll go into details as I answer specific questions.
Thank you, sir. Ladies and gentlemen, we will now begin the question- and- answer session. If you have a question, please press star and one on your telephone keypad. In the interest of time and fairness to all participants, you are requested to restrict yourselves to one question per participant. Time permits, you may join back the question queue. Ladies and gentlemen, if you have a question, please press star and one on your telephone keypad.
We wait for a moment while the question queue assembles. Ladies and gentlemen, if you have a question, please press star and one on your telephone keypad. We have the first question from the line of Mahesh Tolani from GoQuarter. Please go ahead. Mahesh Tolani, your line is unmuted. Please go ahead with your question. There seems to be no response. The next question comes from the line of Vipul Kumar from Narnolia Financial Services. Please go ahead.
Hello, am I audible? .
Morning. Vipul, go ahead.
Thank you for the opportunity. My first question was regarding the export side. As management has said, the revenue recognition will start from first rake in July 2026 from the Bangladesh order. Why was that? Why the revenue recognition was not coming in the first quarter?
Yes. Vipul, in our export business, as you would be aware, the revenue recognition happens when the entire stock, that is, whether it's a bunch of locomotives or in case of coaches, as a Bangladesh order, the entire rake of 20 coaches is sent as a group. While the coaches are getting ready in bits and portions, the entire rake will be shipped out in the next 10 days. That's why the entire revenue recognition will take place in a group in the quarter two for the first rake, and subsequently these will be in the successive rakes.
In terms of the why it did not happen in Q1, because you see, this is the first rake and has about four types of coaches. If you recall my last call, in that I had mentioned that the prototypes have got approved and the mass production has started. Basically being the first rake in terms of the approval of the final rake has taken a few days, now the rake is in the final stages of being dispatched. We foresee that the subsequent rakes should take a little lesser time per rake because of the designs now getting approved and accepted.
Okay, thank you. One more question was regarding the-
Vipul sir. Stand back in queue sir.
Okay, sure. Thanks.
Thank you. The next question comes from the line of Vishal Periwal from PL Capital. Please go ahead.
Yeah. Thanks for the opportunity. Sir, with respect to export order, can you give the breakup of order which is pending from Bangladesh, Mozambique and others?
Yes. We have an export. Total RITES order book, let me include both the export and consultancy, is INR 2,100 crore. Out of that about INR 1,775 is the export of rolling stock. Out of that about INR 900- odd crore is the order from Bangladesh, which is about 200 coaches. The rest of the orders are for locomotives, both from Mozambique as well as the in-service locomotives, et c, from the various countries in the African geography. Broadly, if I put it's about 50% of the export order book is for these coaches to Bangladesh and the balance is for the locomotives.
Okay. In terms of variation could be there, revenue booking on a quarterly basis. In terms of our timeline, Bangladesh, can we conclude all our order delivery this year? Second, Mozambique, will it start anything this year or it will move to FY 2028? That's my last question, sir.
In terms of Bangladesh, these are 200 coaches, roughly about 10 rakes each. The first rake starting now in this month. We will not be able to complete all the 10 rakes in this year. Contractually also we have time till next year and we foresee that yes, it will definitely get completed in the next FY. The coming quarters will tell us how many maximum we can push in this. Because the first rake, once it goes and stabilizes, it will hasten up the speed of the subsequent rakes.
Definitely yes, it will get completed in next FY, maybe somewhere the early second or maybe third quarter of the next FY. As far as the locomotives are concerned, the Mozambique ones, yes, we are trying that maybe by the end of this FY we could aim for beginning of the deliveries. Again, a little more clarity would happen maybe by end of Q2 in terms of the exact visibility while we are trying to start some deliveries by end of this FY.
Sure sir, thank you. I will come back in the queue sir.
Thank you.
Thank you. Ladies and gentlemen, if you have a question, please press star and one on your telephone keypad. In the interest of time and fairness to all participants, you are restricted to one question per participant. Time permits you may join back the question queue. Ladies and gentlemen, if you have a question, please press star and one on your telephone keypad. The next question comes from the line of Uttam Srimal from Axis Securities. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. Sir, just wanted to know how much revenue you are expecting from export side this year and the next financial year.
Our assessment is that this year export we should try and achieve at least INR 300 crore+ . As I said, the coming quarters will maybe by end of Q2, we'll get a little more visibility in terms of progress in being able to aim for some starting of delivery on the Mozambique locomotive order, as well as the gap between the successive delivery of rakes of the Bangladesh order.
The first rake as it goes in the next few days, and it stabilizes there in the coming weeks, will give us a clarity on the gap between the successive rakes. Maybe by end of Q2, we'll be able to further fine-tune the figures, but definitely not less than about INR 300 crore for this FY.
Sir, as you said, this order has to be executed in next two years. Can I mean that in next year, export will be a major part of the revenue?
Yes, for sure. Both the export of rolling stock and the project consultancy, our RITES Videsh order book, which is at INR 2,100 crore as of June 30th. We are aiming that this year it should account for roughly about 15% odd of my total revenue. As the quarters progress and more clarity emerges on the exact quantum which we can achieve this year, for sure, as you correctly predicted that the current order book which we have should by and large get covered in the next FY.
That is the reason why we are aiming that we continue to get fresh orders also, which also one export order, which we are trying this year. This quarter also we got and quarter two also we've got one order, which is not currently included in the order book we've declared to the exchanges. While the, as you correctly said, the current order book we'll aim to definitely finish by next year. There'll be a fresh addition in the coming quarters.
Okay, sir. Thank you.
Thank you. Next, we have follow-up question from Vipul Kumar from Narnolia Financial Services. Please go ahead.
Hello, hello. Am I audible, sir?
Yes.
Yeah. As we see Vande Bharat is going global, what is the opportunity looking by the company in that area prospect?
I'm sorry, please repeat your question. I didn't get it.
As we see Vande Bharat is going global, what is the opportunity looking by the company in that area?
Yes. We have already initiated the possibility of exploring exporting Vande Bharat on the standard gauge platform to certain geographies. We have reached out to certain possible countries which have even some interest in it. The process of trying to develop a prototype on the standard gauge platform, the initial discussions with Indian Railways have already started, and I think in the coming months, this will gather pace in terms of developing the first prototype on the standard gauge platform.
Okay. Thank you. It is very helpful.
Thank you. The next question comes from the line of Lakshmi Narayanan GK from KSEMA Wealth Private Limited . Please go ahead.
Sir, am I audible?
Yes. Go ahead.
Sir, could you throw some light on turnkey projects? I see the margins are very lower. Is it usually that way or is there something else going there?
Yes. The turnkey is about 50% of our order book, and it contributed roughly about 30%-33% of the revenue of this quarter. Basically, they always remain in the range of about 1.5%-2%. We are very clear. As we have said earlier, we are not a construction company. We are a consultancy company, and the turnkey orders also that we take, the scope of work for us for these turnkey orders is the same as the PMC work which we take. It's just that the method of account, let's say, for explaining, if a project is INR 100 crore and the, let's say, the fees is INR 5 crore.
In a consultancy, our order value would be INR 5 crore. In a turnkey model, it would be INR 105 crore, where the revenue flows through our P&L. That's the only difference, and that's why the denominator being bigger, the margins become smaller. Certain clients prefer to give it on that model because of dealing with a single entity. Strategically also, that's why we take it in that mode. Yes, you're correct. The margins are much, much lesser compared to the consultancy mode.
Okay. Like in order book also, like we'll be taking the whole base or only the part which is going to come, sir?
Yes. Order book also, the size of the order is, the full order of, let's say, INR 105 crore would be the order in the turnkey mode, and if it would be in a PMC consultancy mode, it would be INR 5 crore. That's the way it's accounted in the order book also.
Okay.
Thank you. Ladies and gentlemen, if you have a question, please press star and one on your telephone keypad. Next, we have a follow-up question from Vishal Periwal from PL Capital. Please go ahead.
Yes, sir. Thanks, sir, for the follow-up. Sir, in terms of new opportunity, one is into consultancy and other into export. Can you give some color? How is the environment looking like? Any big pipeline or that can further take our order book to almost maybe more than INR 10,000- odd crore of what we have been seeing. Can you give some color around this particular point?
Yeah. The total order book or export in particular?
Yeah, consultancy and how the opportunities are in export.
Yes. You see, this quarter also, we have got 128 orders totaling to INR 670 crore, and we've maintained the strike rate of 1+ , which is nearly 1.4 orders a day. Again, despite the execution, the order book has grown. We are now at INR 9,450 crore. Our target of achieving INR 10,000 crore. The interesting thing is that about 70% of these fresh orders are on a competitive basis.
While we continue to get orders, we are getting bulk of them on a competitive basis. Whether it is consultancy or export, we are getting orders at the rate that we have envisioned, and we are on track of reaching the INR 10,000 crore order book, despite a heavy execution aimed for this FY.
Okay. In terms of new opportunity and anything that you are seeing, I mean, size-wise, export side, how things are. Briefly, you did mention on the Vande Bharat, anything that quantification can be provided, sir? How are the big pipelines are looking like?
In export specifically, again, we have been maintaining now nearly for about seven, eight quarters, the aim of one order a quarter of export. This quarter also, in July, we have got an order for about INR 35 million for nine locomotives to South Africa. We haven't yet accounted for it. While we declared it to the stock exchange, we haven't yet accounted for it in our order book because we are waiting for the formal agreement to be signed, and then we will account for it in the order book.
In terms of getting orders on the export front, there are a number of bids that we have bid now, and as you are aware now, most of the export orders are on competitive global tender bidding. We have bid for a number of orders, both in the locomotive front, the coaches, DMUs, et c, and I'm sure that we are targeting to maintain at least export orders of one order a quarter. Besides in the international project consultancy also, there are a number of bids in the pipeline, and combined the order book of INR 2,100 crore of RITES Videsh as on June 30th, is definitely aimed to, even with execution, not get depleted over a period of the coming quarters.
Okay. Sure, sir. I'll come back in the queue, sir.
Thank you.
Thank you. The next question from the line of Harshit Kapadia from Elara Capital. Please go ahead.
Yeah. Hi. Good morning, sir, and congrats once again for a good recovery in the revenue. Just wanted to get your head on the margin front, sir. We are seeing margins probably coming down both sequentially as well as on a YoY basis. Do you think have we hit the bottom or is there a possibility that we can further see margins to be on a low?
Yeah. Morning, Harshit. See, broadly, if I lay down while the execution is happening and the young order book will continue to generate revenue sequentially, as I brought out in the beginning, we will step on the execution. There are broadly three elements which are definitely contributing to the overall stress in the margin. The first is definitely, as you see that since about 70%+ are on competitive mode, as they generate revenue in the coming quarters, these have been taken definitely at a much tougher margin.
The overall mix in terms of margin, whether it is from consultancy or turnkey, that they will obviously add a stress to the margin. The second element is the travel. Being a consultancy organization, both domestic and international travel is a major element. There is definitely a pressure on the travel costs. While we've got very strong guardrails put on it to keep a check on it. Yes, that is definitely a contributor which has to be kept on watch.
The third element is that the impending pay revision has to be definitely accounted for somewhere down the line. Broadly, with all these three, in a nutshell, the EBITDA margins will always be under pressure. As you see, we have been giving a guidance that on a console basis, our red lines are not coming below the 20% EBITDA margin. Even this quarter, we've been able to hold on to 22%. Sequentially also, we've held on to 22% Q4, Q1. PAT margins, we've held on to about 17% sequentially also.
Our red lines of 20% EBITDA margins and 15% PAT margins on a consolidated basis, we will definitely strategically pushing on the execution of some higher margin orders out of the 700+ orders that we are executing. We will ensure that we don't go below these red lines. Specifically to answer your question, yes, these 22% and 17%, which are there currently on a consolidated basis, while they may fluctuate a bit here and there on a particular quarter, but as I said, on an annual basis, we will definitely not allow them to go below the red lines.
Fair enough, sir. I have few more questions. I'll join in the question queue. Thank you.
Thank you. Ladies and gentlemen, if you have a question, please press star and one on your telephone keypad. We have the next question from the line of Parimal Mithani from Credential Investments. Please go ahead.
Yeah. Good afternoon. Can you hear me?
Morning, Parimal. Go ahead.
It's just an observation since last two years. If you see the order book build up, mainly, I think the consultancy, since we got into competitive bidding, the consultancy side of the order wins have been not on a great level compared to the turnkey side. How do we look at it? If you can answer that question, it'll be much better for us, sir.
You see, it's not really that it's not on a The mix is changing, if you see that. If you compare on two years back, the number of the quantum of the turnkey order was much lesser. Now it's about 50% of the order book. That is why incrementally, you see a bigger increment. In terms of the total order, today also out of INR 9,450, about INR 4,700 is turnkey, and the balance, about INR 4,700, is both the project consultancy and the export consultancy, export of rolling stock consultancy. Roughly, it is now 50/50. In the pure consultancy, the export of rolling stock consultancy has grown quite substantially. Yes, as I again said that the turnkey element now is grown at a much larger percentage, so you see that as a bigger growth.
Sir, in terms of since we came into competitive bidding, the margins on the domestic front will be the same going ahead from this side, from Q1?
Yes. The margins, as I said, on an overall, while case to case, since a large number of 70% odd, as I said, fresh inflows are on competitive basis. The case to case, there may be tougher margins. On overall, EBITDA margins of 20%+ is what we are aiming to be maintained. We normally, at beginning of every quarter or every half year, we are able to prioritize some of the high margin orders along with the low margins, et c, so that on a blended basis on a quarter, we don't fall below 20%. That is what we're going to definitely try and maintain.
Thank you.
Hello? Yeah.
Next is a follow-up question from Harshit Kapadia from Elara Capital. Please go ahead.
Thanks for the follow-up, sir. On the employee cost, what is the increase that one can expect in FY 2028, sir? That's first. Second, I'll come with second question.
Harshit, if you see a quarter-to-quarter, s orry, YoY basis in Q1, there has been increase of about INR 10-odd crore in the employee cost. Roughly, this is the trend on a per quarter basis is what we're going to aim at. There are two elements to it, which is to be seen in perspective. If you compare YoY Q1- Q1, there has been a net increase in our employee strength of about 450 numbers, which is a huge jump from about 2,675, it has gone up to about 3,125.
Roughly about 450 numbers is a jump, and that's a conscious jump because as we were early last year stepping on getting new orders, and we were confident seeing the bids in pipeline that we will get fresh orders at the strike rate of one order a day, we had to build up our bench strength for executing these orders. That is the reason why we could not have a gap in hiring the bench strength and then executing the order. There is a substantial increase in the numbers. That is number one, which is contributing to the increased cost.
Even now with the fresh orders coming, there is a pipeline of about 200+ for further inflows, and this will keep on increasing as we strategically on the sectors that we get more orders. The second element that I brought out is that at somewhere down the line, we have to account for the impending pay revision, which is expected. Both these elements will definitely have an impact on the overall employee cost on an annual basis this FY. The answer is that we have to generate as much of top line so that even with the margins we have set the red line, you see an incremental growth in the actual bottom line.
Understood, sir. Would it be right to say, will at least there be a 20% increase next year in FY 2028, mainly because of the pay revision? Not just because of the employee count.
Not really 20%. I would put it more in the range of about 8%-10%.
Okay. Fair enough, sir. This is really helpful. Sir, second question is mainly on the order book. We have seen the order book composition, 50/50 with turnkey being 50% share. Now, since we are now increasing the order book trend towards INR 10,000, maybe INR 11,000, INR 12,000, do you see turnkey as a proportion staying there, or do you think it's going to increase or decrease? Any color if you can give from a two-year perspective, that would be of great value for us.
You see, today as we stand, turnkey is about 50% of our order book. It is a low-margin contributor. It's in the range of about 1.5%-2%. In terms, it does pull down the margin. Besides the fact that the consultancy and export are in any case now on a, or nearly a large chunk is on a competitive basis. They, in any case, have tough margins. We are not really very keen on taking much on turnkey basis, but more and more, many clients are preferring to give us on a turnkey mode in terms of dealing with a single point of contact for compliances, GST provisions, et c.
Strategically, we have to take certain orders on turnkey to keep the client's pipeline open. That's the very reason why. We definitely will, because the parallel growth in the consultancy and export is also there in the pipeline. I don't think over a period of time, I see the turnkey being more than 50-odd% on an average basis of the total order book.
Fair enough, sir. Thanks for answering. I'll join for the question queue again. Thank you.
Thank you. Ladies and gentlemen, if you have a question, please press star and one on your telephone keypad. Ladies and gentlemen, if you have a question, please press star and one on your telephone keypad. In the interest of time, I request the participants to restrict yourself to one question in the initial round, and if time permits, you may join back the question queue. We have a follow-up question from Harshit Kapadia from Elara Capital. Please go ahead.
Thanks for the opportunity, sir. I do not know whether you have answered this question. Would you be able to share within the consultancy, how much is the QA revenue in this quarter, sir?
QA has been, again, a good, steady growth and if you recall last FY, we touched the levels which we had touched about before the competitive revenue up-
Yes.
...of about two years back. We touched an all-time high again. We are on track again, it's about in the same range of about INR 70-odd crore.
INR 70 crore. Okay, that run rate is ready-
We will definitely surpass the previous years overall, at least by a double-digit growth.
Oh, very nice, sir. Congrats on that. I think I'm done with my questions. Thank you, sir.
Thanks.
Thank you. We have a follow-up question from Parimal Mithani from Credential Investments. Please go ahead.
Sir, just needed an update on the REMCL business. Second, sir, are we going well?
I lost your second part of the question. Your voice cracked. Parimal, are you there?
Can you hear me?
Yeah, voice was cracking.
Hello.
Now I can hear you.
Hello.
Yeah, go ahead.
Yes, sir. First question is on the REMCL business, which is there.
Yes.
The second part is, in terms of dividend payout over next two to three years, sir. Will we maintain the same momentum going ahead?
Let me tackle the second part of your question. I don't see any reason why you should have any doubt on that. The last two, three years trend have assured you that we do not come in for any surprises and changes in our business model. Having said that, we are always 90%+. We'll not give you any surprise in the change in our basic business model. Once there is no major change, we can, with the low CapEx and hardly any working capital requirement, debt-free, we don't see any major shift in the Dividend payout policy.
In terms of REMCL has been steadily giving a good PAT and dividend to us. It's about 50%+ PAT margins. This quarter also, it gave a profit of about INR 22 crore, that's a good dividend payout ratio of about 90%+, 91%. We've got a good dividend of about INR 10 crore from REMCL. We see this on a steady growth basis.
Last quarter, I had mentioned that this year is a focus for REMCL further diversifying into both international renewable consultancy as well as project consultancy, I mean, renewable consultancy in the domestic area. In both these fronts, some headway has been made in quarter one. It's early days, but I'm definitely sure by the end of the FY, that'll also start contributing in a substantial way in both the top and bottom line of REMCL.
Okay, sir. Thank you, and all the best.
Thank you.
Thank you. Ladies and gentlemen, if you have a question, please press star and one on your telephone keypad. Ladies and gentlemen, if you have a question, please press star and one on your telephone keypad. Wait for a moment while the question queue assembles. Sir, we don't have any further questions. I hand over the floor to Mr. Rahul Mithal, CMD RITES Limited, for closing comments.
Thank you. Thank you all. Just to reiterate that the focus on increased execution sequentially to be able to achieve the targets that we had set ourselves for this FY. That's the key focus in the coming quarters, while definitely not compromising on the red lines of margins that we have set, and definitely aiming that we have a double-digit growth on the revenue and have some incremental definitely growth in profits. That's the aim in the quarters on a sequential way. Thank you. Thank you very much.
Thank you, sir. Ladies and gentlemen, this concludes your conference for today. Thank you for your participation. This is disconnecting your lines now. Thank you.