Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Order book increased by 11% from March 31 to June 30, with an addition of over INR 1,300 crore in orders across various sectors.
- Received significant export orders, including INR 900 crores from Bangladesh and INR 300 crores from Mozambique.
- Strong performance in securing orders, averaging nearly one order per day over the last two quarters.
- Strategic partnerships with NHAI and DMRC to leverage growth in infrastructure projects.
- Conscious decision to ramp up employee strength to execute the growing order book, with a net addition of about 250 employees.
Negative Points
- Q1 performance was muted, with significant impacts from changes in the inspection of IR business and export business.
- Export revenue dropped from INR 35 crores in Q1 last FY to nearly zero in this Q1.
- Margins in the turnkey segment were lower, with EBIT margins around 1.2% compared to the usual 2.5% to 3%.
- Increased competition in export orders leading to lower margins compared to previous years.
- Employee costs have risen due to the ramp-up in anticipation of new orders, impacting short-term profitability.
Q & A Highlights
Highlights of RITES Ltd (BOM:541556, Financial) Q1 FY25 Earnings Call
Q: Can you provide insights on the margin trends for consultancy and turnkey projects?
A: (Rahul Mithal, Chairman and Managing Director) The consultancy EBIT margin of 40% is likely the new normal. For turnkey projects, margins typically hover around 2.5% to 3%, varying quarter to quarter based on the stage of execution.
Q: What are the plans for the current export orders, and when will revenue start to be booked?
A: (Rahul Mithal, Chairman and Managing Director) We have two major export orders: INR900 crores for Bangladesh coaches and INR300 crores for Mozambique locomotives. Revenue from these orders is expected to start by Q1 of next FY, with efforts to ship some units by the end of this FY.
Q: How is RITES adapting to the shift from government CapEx to private CapEx?
A: (Rahul Mithal, Chairman and Managing Director) RITES has a balanced portfolio with both government and private clients across various sectors. We leverage growth in infrastructure CapEx from both sources, ensuring a steady flow of orders.
Q: Will the margins for export orders be lower due to competitive tendering?
A: (Rahul Mithal, Chairman and Managing Director) Yes, margins for the new export orders obtained through global competitive tendering will be lower compared to previous orders. However, the focus is on maximizing revenue across streams to grow absolute EBITDA and profit.
Q: What is the guidance for the current year and the next?
A: (Rahul Mithal, Chairman and Managing Director) Q1 performance was muted, but efforts will be made to build up revenue and margins sequentially from Q2 onwards. The aim is to reach as close as possible to last FY's levels despite the challenges faced in Q1.
Q: Can you provide details on the recent agreements with NHAI and Delhi Metro?
A: (Rahul Mithal, Chairman and Managing Director) The agreements with NHAI and Delhi Metro are natural partnerships, leveraging our expertise in highway design, quality control, and metro projects. These partnerships will contribute to our revenue as opportunities arise.
Q: What is the status of the Zimbabwe order and other potential export opportunities?
A: (Rahul Mithal, Chairman and Managing Director) The Zimbabwe order is progressing slowly due to funding arrangements. We are also exploring other export opportunities, including competitive tenders and in-service diesel locomotives, with a positive outlook for securing more orders this FY.
Q: How has the quality assurance (QA) business evolved, and what is its revenue contribution?
A: (Rahul Mithal, Chairman and Managing Director) The QA business has shifted from being predominantly IR to 55% non-IR clients. The new regime has impacted margins, but we aim to stabilize and grow the QA revenue to previous levels.
Q: What is the order inflow guidance for FY25?
A: (Rahul Mithal, Chairman and Managing Director) We aim to maintain an average of one order per day, with substantial growth in the order book expected by March 31, 2025, compared to March 31, 2024.
Q: Are the non-IR orders obtained through nomination or competition?
A: (Rahul Mithal, Chairman and Managing Director) Most non-IR orders are obtained through competition. The trend has shifted significantly towards competitive bidding, with about 80% of recent orders being competitive.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
