MC Interview | RITES aims to win orders at the rate of one a day for the next few months: Rahul Mithal

RITES CMD Rahul Mithal

Railways consultancy firm RITES will aggressively bid for export and consultancy orders in the remainder of 2023-24 and in 2024-25 to make up for the fall in revenues from the Indian Railways' quality assurance/inspection division, Rahul Mithal, the company's CMD, told Moneycontrol.

"In terms of order inflow across all my four streams of revenue, in the October-December quarter, RITES won more than 100 orders, which is more than one order a day, and going forward we are confident that this order win momentum will continue," he said.

RITES secured more than 100 orders worth Rs 612 crore in the quarter that ended December 31, 2023, to make up for the fall in its revenues and net profit in 2023-24 due to the Indian Railways reducing the rates for quality assurance/inspection tenders since the start of the year.

Out of the total order, Rs 270 crore came from consultancy orders, Rs 288 crore from exports, Rs 28 crore from leasing orders and Rs 26 crore from turnkey orders.

“The new rates of railway inspection are, on average, about 1/5th of the earlier rates," Mithal said, adding that around 60 percent of RITES’ quality assurance revenues came from Railway tenders.

RITES Ltd on February 1 reported a 12.5 percent drop in consolidated profit at Rs 128.78 crore for the quarter ended December 31, 2023. The company had posted a profit of Rs 147.18 crore for the year-ago period.

Income dropped to Rs 699.85 crore from Rs 703.38 crore in the year-ago period and the company ended Oct-Dec with an order book of Rs 5,496 crore.

Edited Excerpts:

When we last spoke after your Q1 results you had mentioned that RITES will look to aggressively pursue export and consultancy orders, how has that strategy panned out so far?

If you look at our last nine months, our total revenues have fallen 7.6 percent, EBITDA is down 15.1 percent, EBITDA margins are down to 26 percent from 28 percent and profit after tax is down 17 percent.

The fall in revenues from the railway inspection business has been a major challenge we have faced in the last three quarters and our strategy to mitigate this challenge has been to maximise revenue from the project consultancy stream.

Our project consultancy business, not including our railway inspection business, has grown by 21 percent, which is why despite a significant hit on our revenues due to the new railway inspection rates, which are 1/5th of earlier rates, revenues from our consultancy segment have grown by nearly 6 percent.

Our order book from the segment has increased to around Rs 2,600 crore from Rs 2,500 crore last year. We have also been pushing for export orders and in Q3 we won our first export order of about Rs 300 crore to supply 10 locomotives to Mozambique Ports and Railway.

Apart from this, RITES has also emerged as L1 for an approximate Rs 900 crore order from Bangladesh Railways to supply 200 broad gauge passenger carriages.

In 2024-25 RITES aims to return its revenues and net profit to the 2022-23 level and then build from there. We are confident in our ability to win more consultancy orders and move away from turnkey orders.

In around two to three quarters our first goal is to increase our topline to the 2022-23 level and then obviously the margins will be much tighter, then grow further and EBITDAs come as close to the previous levels as possible.

Apart from the order wins from CFM, Mozambique, and Bangladesh Railway, are there any other major export orders you are confident about?

As of now, we have participated in several tenders at some very aggressive bids which we've been doing for the last three, or four quarters. We have been bidding across geographies, both in Africa and other areas. So there are things in the pipeline. We are also in negotiation with certain agreements and contracts, and we are looking forward to some maturing in the coming quarters.

It may be premature to say something right now.

The Finance Minister Nirmala Sitharaman announced the creation of three new railway corridors, and the Railway Minister highlighted that around 440 projects have been identified to create these corridors. How many of these projects is RITES in the mix for and what can be seen as a realistic timeline for the creation of these corridors?

If you look at the capital expenditure push by the government for the last few years, a lot of capex has gone into creating new semi-high-speed alignments.

We have been getting orders from different sections of the Indian Railways for works like the identification of semi-high speed corridors, upgradation of corridors to semi-high speed, alignment studies, and connectivity projects. The announcement of these new corridors will be in line with the ongoing upgradation of the Indian Railways.

Similarly, if you look at the second corridor announced which will enhance port connectivity, we are already getting a lot of connectivity work from various clients like the PSUs, whether it is coal fields, steel plants, etc.

Going forward, as the government comes out with a more streamlined roadmap for the development of these corridors the scope of consultation work for RITES will only increase.

The Finance Minister also announced plans to upgrade 40,000 standard rail coaches to Vande Bharat standards, what is the opportunity RITES is eyeing in the same?

Yes. So we'll see how this pans out. We already are in the inspection business.

We have different verticals, our inspection vertical, and our technical design vertical. I'm sure that we will leverage some portions of this as this pans out.

The last time we spoke you had mentioned that RITES has signed a memorandum of understanding with the National Railways of Zimbabwe for the supply of rolling stock worth around Rs 650 crore, can you share details on that contract?

So far that contract has not materialised. The agreement is in place and we are closely working with them to help them get funding from the African Development Bank. The way things are moving, we are hopeful that the funding should get in place.

What is RITES’ capital expenditure, revenue and order inflow guidance for 2024-25?

Our aim for 2023-24 will be to consolidate and come as close to 2022-23 as possible, in terms of revenues. In 2024-25 we are hoping that some of these export orders will materialise and start contributing to our revenues.

We are aiming for a double-digit growth on the EBITDA level in 2024-25 when compared to 2023-24.

In terms of our order inflows, we will aim to grow our revenues from all four streams of revenue and maintain the pace of winning one order a day for the next two quarters.

You see our capital expenditure has been in the range of about Rs 120 crore-130 crore for the last few years, and there's going to be no major change in this model.