Railways consultancy firm RITES will aggressively bid for export and consultancy orders in 2023-24 in order to make up for the fall in revenues from the Indian Railways' quality assurance/inspection division, Rahul Mithal, the company's CMD, told Moneycontrol.
Mithal said that the fall in RITES’ revenues and net profit in the first quarter of 2023-24 was mainly on account of Indian Railways reducing the rates for quality assurance/inspection tenders.
“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 comes from Railway tenders.
RITES is a transport infrastructure-focused engineering consultancy company, and a Miniratna Schedule ‘A’ Central Public Sector Undertaking under the Ministry of Railways.
Impact on revenue and profit
Mithal added that in the first quarter of 2023-24, RITES felt an impact of around Rs 15 crore on its topline and Rs 10 crore on its bottomline due to the new rates at which Indian Railways is awarding quality assurance/inspection tenders.
In 2021-22 and 2022-23, RITES had booked revenues of Rs 300 crore annually from its quality assurance segment, Mithal added.
Indian Railways issues tenders to firms to carry out inspections over a particular segment of the network to ensure that quality standards are met.
Mithal said that RITES is looking to prioritise its bottomline going forward in 2023-24 and will look to maintain its overall margins at around the 29 percent level.
RITES saw its Earnings Before Interest, Taxes, Depreciation, and Amortisation margins fall just 10 basis points to 29.6 percent in Q1FY2023-24 despite reporting a 10 percent fall in its consolidated operating revenue to Rs 544 crore and a 17.4 percent decline in its consolidated profit after tax to Rs 120 crore.
Export orders
Mithal added that RITES has emerged as the lowest bidder to supply 300 wagons and 10 locomotives to Mozambique Railways, and hopes the order will be finalised in 2023-24. The order is estimated to be worth Rs 500 crore in total.
RITES has a partnership with Jupiter Wagons to supply wagons for its export orders.
Similarly, Mithal said that RITES has also signed a memorandum of understanding with the National Railways of Zimbabwe for the supply of rolling stock worth around Rs 650 crore, which will be converted into a firm order once funding is approved by the government of Zimbabwe.
He added that RITES has bid for many international tenders in South Asian countries as well, and those are likely to fructify in 2023-24.
Focus on consultancy
Mithal also said that RITES is looking to increasingly bid for consultancy projects. He added that in the quarter that ended in June, RITES won 70 projects, and 60 of those were for consultancy work. All 70 projects were worth around Rs 300 crore, he said.
RITES will aim to have 50 percent of its revenues from the consultancy segment and will try to limit its revenues from the turnkey segment to around 25 percent, said Mithal.
"Project consultancy is a high-margin business for RITES and going forward we want to be a consultancy firm rather than a turnkey executing agency,” said the RITES chief.
As of June 30, RITES had an order book of Rs 5,700 crore, with consultancy orders worth Rs 2,683 crore, turnkey orders worth Rs 2,695 crore, leasing contracts of Rs 168 crore, and exports worth around Rs 56 crore.
RITES' subsidiary REMC had an order book of Rs 100 crore as of June 30.
Mithal added that RITES is a bottom-line driven company and is hopeful of recovering the Rs 19 crore in EBITDA loss seen in Q1.
Order book
Orders won by RITES in the first quarter this fiscal year include general consultancy for the Airport Express Metro Line in Hyderabad; a project management consultancy role for a railway siding in Danea-Kedla; creating a detailed project report for the Chandigarh metro; expansion of the Gurgaon metro; and creating a comprehensive mobility plan for Kolkata.
Mithal said that RITES is also eyeing consultancy work under the Indian Railways' Amrit Bharat Station Scheme. The scheme involves preparation of master plans and their implementation in phases to improve amenities at the stations, such as improving access, circulating areas, waiting halls, toilets, lifts and escalators besides cleanliness, free Wi-Fi, and kiosks for local products under the ‘one station, one product' scheme.
Mithal also said that the company, through its joint venture SAIL-Rites Bengal Wagon, is looking to win contracts to supply around 1,000 wagons to Indian Railways.
Finally, he added that RITES will maintain its capital expenditure guidance for 2023-24 at around Rs 100-125 crore, similar to what it had spent in 2022-23.
Last November, Mithal had told Moneycontrol that RITES will find it difficult to maintain its profit margin going forward.
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