Good morning, ladies and gentlemen. I am Karthikeyan, moderator for this conference. Welcome to the conference call of RITES Limited to discuss its Q2 FY 2027 and H1 FY 2027 results. We have with us today Mr. Rahul Mithal, Chairman and Managing Director, Dr. Deepak Tripathi, Director Technical, Mr. Krishna Gopal Agarwal, Director Finance and Chief Financial Officer, and Mr. Prem Singh Meena, Director Projects. At this moment, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. At that time, if you have a question, please press star and one on your telephone keypad. Please note, this conference is being recorded, and in the interest of time and fairness to all participants, you are requested to restrict yourself to one question per participant. Time permits, you may come back in the question queue.
Now, I would like to hand over the floor to Mr. Rahul Mithal, Chairman and Managing Director, RITES Limited. Thank you, and over to you, sir.
Morning, everyone. 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. At the outset, I would like to just correct Karthikeyan. Director Projects, Mr. Meena, has not been able to join due to some exigency. The other directors are here and the company secretary. Let me give the opening summary on our perception of the Q2 results.
The performance has been muted, and an analysis of it shows that it is primarily due to two, three important revenue milestones sliding marginally by a few days and 10, 15 days into quarter three. T hat has affected both the top line and the bottom line. That has had an impact both on YoY, both Q2 as well as H1 to H1. But the way the execution has been planned, we are quite reassured and confident that the guidance which we had given at the beginning of the FY and reiterated at the end of Q1, that remains on track. That's the broad overview, and I'll get into details as we proceed ahead with the detailed questions.
Thank you, sir. Ladies and gentlemen, now we 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 yourself to one question per participant. Time permits, you may join back the question queue. Ladies and gentlemen, we will 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. The first question from the line of Gaurav Giridhar, an Individual Investor. Please go ahead.
Good morning, sir. Thank you for giving me the opportunity. I would just like to ask that, how would be the margins going forward? Will they be on a growth trajectory? Will they be on the same levels? How would it be?
Morning, Gaurav. If you see the margins for Q2 and also if you see the margins on an H1, the EBITDA margins on a consol basis are at 22% and 17% on the PAT margin, which, as we have been giving the red lines for EBITDA margin on 18%-20% and PAT margins for about 15%-16%. These red lines, we are very confident that even on a quarterly basis, on a half-yearly basis, and an annual basis, we will not breach in any way.
However, on a particular quarter, based on the blend, because as you see, in this quarter itself, there has been a substantial contribution of the turnkey segment. YoY, there is an increase in about INR 70 crores in turnkey, whereas export, there is a dip of INR 60 crore. There was zero booking of export in this quarter. The blend change will in fact impact the margins.
On an overall, this is the levels, by and large, on an annual basis that we will remain on, especially in the second half as the export delivery picks up pace. It will be slightly higher margins compared to obviously the turnkey segment.
Okay. Thank you so much. I will come back in queue.
Thanks.
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 Mr. Vishal Periwal from PL Capital. Please go ahead.
Yeah, sir. Thanks, sir, for the opportunity. Sir, I mean, though a brief has been provided in the presentation that the delivery for the Bangladesh coaches has begun. I think it is mentioned one rake is already delivered. In terms of more numbers, can you provide, like in this quarter, how many are expected? And then quarter four, I mean, what sort of delivery we are expecting to make in this order?
So, yes, Vishal, morning. As I mentioned, this first rake, being the first rake, it required lot of final checks, inspection by third party, et cetera. W hile we were targeting it at Q2, it slid by about 10, 12 days, and in fact, that has had an impact both on the top line and the commensurate bottom line of Q2. O nce the first rake has gone and it is now being put into service there very shortly in Bangladesh, so the learning experience for both us and Bangladesh Railway will expedite the production for the subsequent rakes. I foresee that regular basis, while in the second quarter, I mean the quarter three, the second rake would near completion, but again, revenue booking, as you know, in export happens and in final dispatch.
While the efforts are on, I think the deliveries of these subsequent rakes should happen Q4 onwards. Whether it is about two rakes or three rakes, we will try and fine-tune, and by the end of this quarter, we will get a better picture. But definitely, at least about two rakes minimum in quarter three or maybe quarter four.
Okay. We have total 10 rakes. One is delivered, another two in the remaining part of financial year, and then seven will go to FY 2028. Is that fair to understand?
Yes, very much so. In fact, the balance seven rakes will pick up pace very soon after the second rake onwards, because once the design and the manufacturing and the acceptance will get streamlined. The seven rakes definitely, they have to contractually also get finished in the next FY. The pace of picking up the third, fourth rake onwards will be very much faster.
Sure, sir. I think this is very helpful. Maybe a similar thing if you can provide on Mozambique, that will be great, sir. I will come back in the Q4 most certainly.
Sure.
Thank you. Ladies and gentlemen, if you have a question, please press star and one on your telephone keypad. We have a follow-up question from Gaurav Giridhar, an Individual Investor. Please go ahead.
Thank you so much for the opportunity again. Sir, I would just like to know the effects of the recent 8th Pay Commission on our books. How will it impact RITES?
Yes, Gaurav, I am glad you raised this point. This is a very important hit that we for, and this will, the provisioning will start from Q4. We have already done the calculations, trying to fine-tune it based on the last pay revision which happened in 2017. B ased on this is equivalent to, like for the CDA pay scale, it is the 8th Pay Commission. For PSUs, for the IDA pay scale, it is the 3rd Pay Commission, and it is effective from 1st January 2027. T he provisioning as part of good governance has to be started from Q4. It is quite a substantial amount. We are still working out the exact numbers based on the last trend which was there, and considering our strength has increased quite substantially in the last 10 years.
This provisioning will start from Q4 and will continue then on a regular basis on every quarter, even till even the final commission results, I mean, the recommendations are approved.
Thank you. Thank you so much for the information. It is quite useful. 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. The next question comes from the line of Lakshmi Narayanan GK from Ksema Wealth Private Limited. Please go ahead.
Thank you for the opportunity. Sir, could you just give a gist of the export order which are yet to be delivered, sir?
Yeah, morning. As I think one of your, I think Vishal had asked, the Bangladesh order I had given the details about nine rakes are left, which is about 182 coaches. 18 coaches went in the first rake. The major order which is pending is the one which we got this FY, that is the ICVL Mozambique of five locomotives. These are the major bulk orders, and as we said, we are trying to start in a short compressed time because this is a recent order, but still we are stepping up trying to start the deliveries of the Mozambique locomotives at least. Take the first locomotive in quarter four. Major export of rolling stock orders. Besides, there are orders for the development that we did for conversion of the in-service diesel locomotives to cape gauge and standard gauge.
Those are also there, but those have been bits and portions of two locos, four locos, et cetera. T hose are more of developmental orders, which may have a little longer lead time because as the first trial development locos goes and get approved, then the subsequent locos starting delivery.
Understood, sir.
The next question comes from the line of Aryan Shetty from Lennox Capital. Please go ahead.
Hi. Thank you for the opportunity. I wanted to ask, is the FY 2027 growth guidance still realistic? Because H1 revenue grew about 5% and Q2 only about 1.5% against the guidance that you have given of a double-digit growth rate this entire year. T o get there, I think you would have to grow about 14%-15% in the remaining quarters. So are we still confident about that growth in FY 2027, or will it be shifted to FY 2028?
Yeah, go ahead. Am I audible now? Yes, I think we lost some technical glitch in this.
Okay. I was asking that if FY 2027 growth guidance is realistic. If we look at H1 revenue, it grew about 5%, and quarter two only grew about 1.5% against the double-digit growth guidance that you have given for this entire year. To go there, I think H2 revenue would have to grow at about 14% to 15%. Are we still confident about that growth in FY 2027, or would some of it would be shifted to FY 2028?
No, I am glad you asked that question because at the outset, as I said, some of the milestones slid by few revenue realization slid by about 10, 15 days into Q3. But the way we have looked at the planning for H2, we seem quite confident, especially you see in export of rolling stock, the revenue gets booked on a lumpy basis when the entire set gets delivered. W e are still quite confident that the guidance that we maintained of a top-line double-digit growth on a consol basis, operating revenue, we are on track for that.
Okay. Just a follow-up on this, how much of the growth do we expect from exports versus turnkey work?
Both will step up. In fact, the Q2 as well as H1, if you see, the export booking was zero, and turnkey was a substantial amount, INR 100 crore plus, the year-over-year, H1 to H1. As I had mentioned in my previous interactions, the turnkey order book is also young, and that is why the execution has started picking up pace. These are all bulk of these turnkey orders of INR 4,500 crore are about 18 months or 24 months, 12 months to 18 months old. They will definitely pick up pace even more in H2, and export, having the first rake having gone, will pick up pace. H2, that is why we are confident that contribution from both export and turnkey will see a substantial growth vis-a-vis H1, and that is why we are on track to see that the top line has a double-digit growth year-over-year.
Okay. Thank you so much, and all the best.
Thank you.
Thank you. The next question comes on line of Priyankar Sarkar from Square 64 Capital Advisors LLP. Please go ahead.
Good morning, sir. Hope I am audible.
Yeah, Priyankar, go ahead.
Sir, the first question is, what is the sustainable growth rate that we can achieve in our consultancy segment? Because what I see that over the last, let's say, a longer term of five years horizon, right, we have grown in single digit, mid-single digit. I s there a possibility of accelerating that, or this is how it is going to be sustainable going forward next two, three years?
I am glad you asked that question, Priyankar. In fact, you see the consultancy has been, as you correctly said, in two, three years, in about single-digit growth. There has been a shift in a huge amount from nomination to consultancy and nomination to competitive bidding in all elements of our consultancy revenue, whether it is quality assurance, whether it is project consultancy, whether it is international consultancy. H aving stabilized in the order inflow on a competitive basis, our fresh order inflow is about 70%+ on a competitive basis in all our segments of consultancy. I am quite confident that while an upper double digit may be a difficult target right away, but on a near future, we definitely are able to see at least touching a double-digit growth in overall consultancy revenue.
Right, sir. That's good to hear. Second, sir, can you throw some light of, I know you have given the EBITDA margin guidance in the past also-
Priyankar, I request you to come back in a queue for the second question, please. Thank you.
Sure, I'll do that. Thank you.
Thank you.
Thank you, sir. Next, we have a follow-up question from Vishal Periwal from PL Capital. Please go ahead.
Yeah, sir. Thanks for the follow-up. Sir, regarding Mozambique also, can you provide some clarity? A follow-up is that, like, in export, we have Bangladesh, Mozambique, and there is one more, South Africa. Similarly, if you can provide some clarity when the third order will enter into execution or revenue booking stage for us.
Yes. So, Vishal, the two main orders in export of rolling stock are the Bangladesh and the Mozambique five locomotives, about INR 150 crore. T he five locomotives, as I said, while it is a recent order and we have substantial time available as per the contractual conditions, but we are stepping up on the Vishal, am I audible?
Yes, sir.
Yeah, I think some technical issue. The first locomotive, we are definitely aiming that it gets ready by Q4, and we are quite confident that seems to be on track as of now. We will definitely aim that we finish the order latest by H1 of the coming FY. That is the outermost limit. With this, I think these five locomotives will be delivered well above before their targeted time. Bangladesh have already given the details. These are the two main orders. The other orders of Africa, South Africa, and other countries in Africa are the in-service developmental loco that we have converted them from broad gauge to Cape gauge. In fact, two locomotives are ready, and they will be shipped out in the coming months because these are the first trial developmental locomotives.
These are a number of orders which have clubbed into about 20-odd locomotives of different geographies in the African continent. They will be spread over a period of time, being a developmental order. O nce these developmental prototype locomotives reach there and stabilize, by next year, this will become a steady flow of locomotives, both in delivery as well as getting further orders, because this is a developmental effort made by us.
Okay. Sure, sir. I think this is helpful. I will come back in the queue, sir. Thank you very much, sir.
Thank you. We have the next question from the line of Nemish Sundar from Elara Capital. Please go ahead.
Yeah. Hi, sir. Thank you for the opportunity, and congratulations on a good set of numbers. Could you just throw some light on the Sri Lanka export order also? Like, how would you, when would you commence the delivery, and how would it weigh across quarters?
No, right now, as of last of this Monday, we have been only declared L1, and being an important event and a substantial value, we declared it to the exchange. It's about $41 million, about INR 400 crore. We are hopeful that soon it should get converted into a formal LOA. The delivery, as per the contractual requirement, is 12 months from opening of the LC. So, that again is a tight delivery schedule, and we have already started preparatory planning for it. A s soon as the LOA comes shortly and the LC formalities are finished, we will try and deliver it within the 12 months. These are five sets of DMUs of seven coaches each.
Okay, thanks, sir. I will get back in the queue.
Thank you.
Thank you. We have the next question from the line of Mehul Patel from A&B Capital. Please go ahead.
Hi, sir. Hello?
Your voice is resounding. I might have devices. Can you.
Sir, am I audible now?
Yes, thank you.
Sir, I just wanted to know if there is any update on the JV that we have signed with NICC. What work are we actually going to bid for, and when do we expect the first overseas order from it?
No. In fact, as we gave a declaration yesterday, as of now, that JV is not materializing. This was in advanced state of negotiation, but as of now, it is not materializing. Let us see. It is on hold right now.
Okay. Thank you. Sir, I had one more question. Sir, the contract staff has grown quite a bit, like by around 500 in a year, and our regular staff is falling. Turnkey work now is nearly half our order book, and it is growing at more than 60%, while consultancy work is flat. Sir, I just wanted to know that over the next three to five years, do we see RITES mainly as a consultancy or as a project execution company? How will we sustain EBITDA margins if our mix shifts?
The two elements to your question. One is that in terms of the employee strength, the regular employee strength is, in fact, not dropping. There has been a fresh induction of about nearly 100 regular employees, which equalized the large number of superannuations which happened in about 15 months to 18 months, because RITES being incorporated in the 1970s, 1974, there was a huge induction in the 1980s, 1990s. These are the people who are super, and there is a peak of superannuation in these three, four years. The net strength of regular employees with this heavy induction has been same. It has not decreased. The contract employees has substantially also increased because these are based on the project's deployment.
As we have touched an all-time high order book in the last one and a half years, and maintained a fresh order inflow of one plus order a day now, each of these projects require also deployment of a mixture of both regular employees and project-based employees. In terms of turnkey, the turnkey is, we are not an EPC company, we are not a construction company, as I have reiterated several times. Even the turnkey order that we have, about INR 4,500 crore, none of them are EPC contracts. These are all cost plus turnkey, where primarily our role is the same as a pure consultancy contract of a PMC. The only methodology difference is the accountal, where some of the clients, like educational institution and hospitals, et cetera, prefer that the entire revenue and order book flows through our P&L.
For example, if our fee is INR 5, instead of the order value being INR 5, it is INR 105. That is the only difference. W e remain, we are and we will remain only a consultancy company. It is only a question of the accountal, and obviously because the denominator becomes large in a turnkey order, it shows in lesser margin.
Sir, but still it will impact.
Ma'am, you can come back in a queue for your follow-up question.
Sure, sure. Not a problem.
Thank you.
Thank you.
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 Priyankar Sarkar from Square 64 Capital Advisors LLP. Please go ahead.
Sure. Thanks. Sir, since you have already guided us for the margin, you know, bottoming out around 20% odd, but would you be able to give us a sense of is this the bottom? Can we ever get back to the 25% plus EBITDA margin? Because, sir, I have been a shareholder of your company for the last five, more than five years, and over the years, right, the margins have just kept on going down and down. That is because of the mix change, which you have also reiterated, right? All of us can see that. W ould it be fair to say that, you know, margin trajectory can get back to 25% plus over the next three, four years, or are we structurally down to that 20% margin level? I just wanted to get your thoughts on this, please.
No, Priyankar, glad that you asked this. You see, you are correct. You have been following the company for five-plus years. The margin reduction is not just on the blend mix. It is also because if you see the breakup of the order book five years back and see the breakup of the order book now in terms of nomination and competitive, there is a complete reversal. A s of 30 September , which you must have seen in our presentation, it is about 60% plus on competitive and about 37% on nomination. And this is the order book. The fresh order inflow is about 70% plus on competitive and only about 30% odd, or 27%, 28% on nomination.
Once you are competing on getting orders on a competitive basis, whether in domestic or international or in export, the Bangladesh export order was our first export order in 50 years on a global competitive tender basis. The Mozambique orders, both the Mozambique orders and the Sri Lanka, which we are L1, these are global competitive orders. W ith that trend now being there, the possibility of coming back to the margins of 25%+ EBITDA margins, which were there five years back, that is not a possibility at all. What we are doing strategically, and we are keeping a very close watch, that the red lines, as I said, of 20% and 15% PAT margins, that in no way should be breached.
Thank you, sir. Thanks for the clarity.
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. Next, we have a follow-up question from Nemish Sundar from Elara Capital. Please go ahead.
Yeah, thank you for the follow-up. Thank you for the follow-up, sir. My question was on the quality assurance segment. Can you just throw some light on how was the performance during the quarter and how is it expected for the remaining part of the year?
Yes, the quality assurance vertical is a classic example of, I was explaining to Priyankar just before you, of a change, as you are aware, from the nomination to the competitive mode. We have seen in the last two years, this has hugely recovered, not only in terms of the revenue, but in terms of the profitability. In fact, this quarter, there has been a growth of about 15%+ YoY on its contribution in the revenue, to the consultancy revenue. T he quality assurance in terms of its expansion, both in the Indian Railways and non-Indian Railways clients, to give you an example, we are doing the inspection of as varied items as items for the renewable energy, items which are software like PCs and tablets, et cetera. In any case, safety inspection of items like axles, rails, et cetera.
And also, we got the recent orders for AI-based tools for inspection of rails. So, quality assurance, there is a huge revival, and this trend is going to continue. We have come out of the business re-engineering that we did for our quality assurance vertical.
Okay, thank you, sir. I will get back to you.
Thank you. Next, we have a follow-up question from Aryan Shetty from Lennox Capital. Please go ahead.
Hi, sir. Sir, I wanted to understand what new are we doing in REMC. You have talked about renewable energy consulting and overseas work for REMC. H ave any of those orders come through yet, and by when could they be meaningful?
Yes, REMC is progressing on the line of the diversification. In fact, just yesterday, we signed our MoU under this renewable energy conference that has been happening in New Delhi with the global ISA, International Solar Alliance, which opens up the opportunities for international consultancy by REMC. We have already started tapping opportunities and giving EOIs. In terms of consultancy in renewables and net zero, et cetera, we have already got about seven, eight orders in the last six months, an order book of roughly about INR 10 crores. This is a recent development, so these will start generating. Some of it has already started generating revenue in Q2, but by the end of this FY, next FY, this will be a substantial contribution in terms of the top and bottom line.
Both in terms of diversification in the domestic and in terms of the international consultancy in REMC, the green shoots have already started showing. In fact, as I said, quarter two, it has already started generating revenue.
Okay. 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. Again, we have a follow-up question from Nemish Sundar from Elara Capital. Please go ahead.
Yeah, thanks for the follow-up. Sir, just on a macro bit, are you seeing any slowdown in awarding of any rail tenders or like this year because of the elevated crude prices and the overall fronts, you expect that the railway budget this year could see any constraint in being fully deployed?
Well, as far as we are concerned, we still continue to get a large number of orders on our various verticals doing railway consultancy, whether it is the alignment studies for fresh corridors, whether passenger or freight, whether it is the design of bridges, tunnels, or whether it is the quality assurance, et cetera. W e are, in fact, recently also, this quarter also, we have got our rail infra vertical has got orders, and even in this one month, we have got some fresh orders. A s far as we are concerned, all our verticals are getting orders from the rail infra, rail sector. Our rail infra vertical is getting orders.
Okay, fine. Thank you so much, sir. I will hand over the rest.
Thank you.
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 Parimal Mithani from Credential Investments. Please go ahead.
Hello. Good morning.
Yeah, morning, Parimal. Go ahead.
Yeah, sir, I just wanted to know, in terms of turnkey, I know we have a cost-plus business model, but are we still going to pursue more turnkey? Because the order book is mostly bloated with turnkey. How do we go from here, sir? Can you just highlight that?
No. So, see, as a business model, we are not really that is not something which is our business model. In fact, many of these turnkey, which you see of INR 4,500 crore, as I explained, our scope of work is totally of consultancy. At the time of signing the agreement in terms of accountal, et cetera, many clients prefer to convert it into a complete flow of the order or revenue through our P&L. So, in terms of our specifically pursuing that as a business model, as I said, that is not our business model. We are not an EPC or a construction company. The scope of work, and this is primarily in the rail infra and building verticals where and primarily, a bulk of it is in the building vertical, which if you see the breakup of those orders, they are educational institutions and some hospitals.
So that is basically the accountal method.
Okay. S ir, you mentioned in the call, regarding the JVs and all, there are couple of JVs over last three to four since we have been tracking the company, but lot of them have not seen any fructification or, you know. W here are we stuck with, or is there some afterthought that the JV is not in the right place, basically?
No, no. As far as we are concerned, we today have only one subsidiary, REMC, and one JV with SAIL Kulti, and both are doing extremely well. The one of the one which I mentioned, that was a new initiative, NICC, which has not been materializing as incorporation of a new JV. And the other one was a project-based RITES Afrika JV, which was there for quite some time, and now that we have processed for its closure, because that project, for quite some time, there were no fresh induction of projects. W e do not have any many JVs or subsidiaries. There are only two that I mentioned, REMC and SAIL Kulti.
No, sir, my point is in terms of concept we had with DNV in terms of consultancy.
Sorry?
We tied up with a global company called DNV for consultancy business. Is there any fructification to that, or what is the status if you can just-
No, no. Those, let's be clear, they are not JVs. These are partnerships or MOUs which is done for various business initiatives. This is for part of our quality assurance business, and we are working with them in the quality assurance vertical. We have a large number of entities, both domestic and international, who complement and supplement our strength for various verticals. We have 13 different verticals, but we don't have any incorporated JVs or subsidiaries except these two, REMC and SAIL Kulti. As I said, RITES , which is under closure.
Okay, sir. Thank you, and all the best.
Thank you. Ladies and gentlemen, if you have a question, please press star and one on your telephone keypad. As there are no further questions, I would like to hand over the call to the management for their closing comments.
Thank you. Thank you very much. I am glad that the key elements were covered by each of the questions which were asked. This is just to reiterate, which I said at the outset, that while the performance of Q2 has been muted, I do not see any major reason to deviate from the overall guidance for the year, which if I summarize again, was a double-digit growth on the top line. Even with the blend mix as well as the provision, which will be a substantial amount for the Pay Commission to be done in quarter four, despite that substantial hit, we will definitely try and see to surpass the profits or the bottom line of the last year.
The margins being, as I said, EBITDA margins on a consol basis, red lines of 18%-20%, and PAT margin of 15%-16%, and definitely continuing at the rate of one order a day and targeting INR 10,000 crores order book. T his guidance which I had given at the beginning of the FY and reiterated at the end of Q1, all of these we are on track for this current FY. I am sure the subsequent two quarters in H2 will see faster and better execution so as to be able to adhere to this guidance. Thank you. Thank you very much.
Thank you, sir. Thank you all for being a part of the conference call. If you need any further information or clarification, please email at investors@rites.com. Ladies and gentlemen, this concludes your conference for today. Thank you.
Thank you.