
RITES Ltd
NSE:RITES

RITES Ltd
RITES Ltd., originally established as a public sector enterprise in 1974 under the Ministry of Railways, has carved out its niche as a globally recognized engineering consultancy firm. The company's inception was a strategic move to provide consultancy services in rail transport management to operators across Asia and Africa. Over the years, RITES has expanded its horizons beyond railways into a more diversified portfolio, including urban development, highways, ports, airports, and inland waterways. This diversification was not merely an expansion of services, but a calculated approach to leverage its engineering prowess and expertise in multimodal transport infrastructure.
The company generates revenue primarily through fee-based consultancy services and turnkey projects. This involves providing comprehensive project management services, from feasibility studies and project planning to design, engineering, and execution. RITES also deals in the export of locomotives and rolling stock, catering to the specific needs of international clients. Through a blend of domestic and international contracts, RITES Ltd. has grown into a robust entity in the infrastructure engineering sector. Its business model thrives on long-term relationships with governmental clients, securing a stable stream of income and bolstering its reputation with successful project delivery, thereby creating a sustainable growth trajectory.
Earnings Calls
In the recent earnings call, RITES Limited reported a challenging Q3 with a year-over-year decline of 15-16% in revenue and profit, yet a sequential improvement in key metrics. The company achieved record order inflows totaling over INR 1,900 crores, raising its order book to an all-time high of INR 8,000 crores. For FY '24-'25, RITES aims for top-line growth of at least 20% and targets to maintain EBITDA margins around 20% and PAT margins of 15-16%. The upcoming quarter is expected to drive revenue from significant projects, including international orders, signaling strong future performance.
Good morning, ladies and gentlemen. I am moderator for this conference. Welcome to the conference call of RITES Limited to discuss its Q3 and 9M FY '25 results.
We have with us today Shri Rahul Mithal, Chairman and Managing Director; Shri Arun Kumar Singh, Director Projects; Dr. Deepak Tripathi, Director Technical; and Shri Krishna Gopal Agarwal, Director Finance. [Operator Instructions] Please note, this conference is being recorded. [Operator Instructions]
Now I would like to hand the floor over to Shri 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.
So let me start with a brief overview of the Q3 performance before we leave the floor open for questions. So as you see, the Q3 Y-o-Y has a dip of about 15% to 16%, both in top line and the bottom line. If you see sequentially, there has been an uptick in all the parameters, whether it is the top line, whether it is the EBITDA, the PAT and in fact, both the EBITDA margins and PAT margins also have been seen about a 1% growth. So this is in line with our focus, as we've been saying right from the beginning of this FY in line with our focused strategy of improved execution.
The second prong of our two-pronged focused strategy was to get aggressive order inflow. And as you must have seen, this quarter has broken all records. We've got about 110-plus orders totaling to INR 1,900-plus crores, which is nearly equivalent to the INR 2,200 crores, which we got in the entire previous FY. And it is about 3x the order inflow of quarter 2. So that's the kind of order inflows. We have maintained a strike rate of one order a day now successively for 4 quarters. We've got an order book now of INR 8,000 crores, which is an all-time high.
So the performance to my mind, while Y-o-Y, definitely, there is a dip, but in terms of the performance of Q3, in line with our stated two-pronged focused strategy of improved execution and aggressive order inflows has been in line with, as I said, our guidance and as our strategy at the beginning of this FY. And this would be the trend that we see moving forward into Q4.
So with those opening remarks, I leave the floor open for questions, and I'll come to specifics in response to questions.
[Operator Instructions] The first question comes from the line of Vishal Periwal with Antique Stock Broking.
Congratulations on good order win. Sir, in terms of execution, I know I mean, like inflows has been pretty robust. So when do you see execution picking up, particularly, say, for turnkey? Though we have orders, but on a year-on-year basis, revenue has declined last quarter also and this quarter also. Any color on that will be helpful, sir.
Yes. Vishal, so specifically for turnkey, you see the dip Y-o-Y has been as the older turnkey orders, like, for example, railway electrification, et cetera, they have now nearly reached their completion. And the fresh order inflows in the turnkey segment and overall, in the last quarter and this FY, these, whether it is turnkey consultancy or Expotech will start generating definitely revenue Q4, Q1 onwards. And as I said, Q4, we would strive to continue the sequential trend. But if you see on a Y-o-Y basis, I definitely see the coming FY '25-'26 on at least a 20% growth on the top line, which would result because of these revenues flowing in from all whether consultancy, Expotech or in turnkey. So this is our target, our aspiration to see a 20% top line growth in the coming FY vis-à-vis the current FY.
Next question comes from the line of Vinamra Hirawat with JM Financial.
I hope I'm audible.
Yes, Vinamra, go ahead.
So I just had one question, which is on exports. So now we have Bangladesh and Mozambique, both in our order books. I want to know what percentage of these will be executed in FY '26, the time lines of these orders and the margins for these orders. Last year, we had like 21% in exports margins. Is it higher than that for these orders? And an update on Zimbabwe, if possible?
Yes. So let me first break down your question into 3, 4 parts. First is in terms of execution. We have an order book of export of about INR 1,300 crores, which includes Mozambique, Bangladesh and South Africa. So these will definitely -- as I said, they have a lead time of about 12 to 18 months. So we foresee order -- these orders start giving us revenue in the next FY, and at least to a minimum of 40% of this order book of INR 1,300 crores in Expotech, we aim at least on a minimum 40% odd to see the revenue realization in the coming FY. As I said, the export revenue gets booked only when the bill of lading is -- happens. So that's why there is a staggered revenue booking.
In terms of the Zimbabwe, you asked question, well, still it is not part of our order book and the funding, which is being sourced by them from Afreximbank that is still being pursued jointly by the National Railway of Zimbabwe and us, but it is still to reach a finality. We are hoping that it does so because it's been a long time since it's been in the process.
In terms of margins, these orders, both Bangladesh and Mozambique have been for the first time in the history of about 4 to 5 decades on a competitive basis, the Bangladesh order was a global tender, an EIB-funded tender. So margins cannot be in the range which were there in the line of credit EXIM Bank tenders, where margin was much lesser. So the 20-odd percent margins, which have been traditionally there in the export extreme, the margins will be much, much lesser. Each order would have a different margin. So on a blended basis, it would be -- would work out to lesser. But overall, by and large, it would be definitely much lesser than 20-odd percent, which has historically been there in the export extreme.
Next question comes from the line of Nemish Sundar with Elara Capital.
Am I audible?
Yes, Nemish, go ahead.
Yes. Sir, just continuing on the exports question, I just wanted to ask, so how is the export pipeline now? And are we expecting any export order this year? Or could we expect a big order next year in line with your guidance of one big export order a year?
In fact, I must tell you, we broke the hiatus about 4 quarters back, and we made a target that we'll try and get an export order every quarter. And we have maintained that. The last 4 trailing quarters, we've got an export order in every quarter. We -- there are a lot of bids in the pipeline, and we will continue to strive to get at least one export order in every quarter. Some could be big, some could be of a lesser medium size. But definitely, with the kind of opportunities and the aggressive bidding that we are doing, not relying on the traditional line of credit opportunities, which are hardly there now in terms of export of rolling stock. So we foresee that we will maintain this trend of getting fresh Expotech orders in the coming quarters.
Next question comes from the line of Shreyans Mehta with Equirus.
Sir, one bookkeeping question. What would be the net cash on our books as on date, our own cash?
So our cash balance is about INR 609 crores. And the rest we keep as a client fund, which is separate, which we don't -- that's a client fund about INR 2,600 crores, which we do not take on to our balance sheet. So that's separate and account is separate. So our cash balance is about INR 609 crores.
Next question comes from the line of Viraj with Jupiter Financial.
My question is now more than around 45% of the revenue coming from the turnkey. So is it going to be a new normal now for us because of the kind of circumstances we are in because the turnkey pie is increasing, so -- and the margins are lesser there. So even the margin -- new PAT margins also would be new normal?
Viraj, so let me put the reply in a reverse manner. You see we have been aiming that the consultancy revenue remains definitely 50% plus, and that is what is going to remain. In some quarters, because the export revenue was not there, you saw a bigger contribution from the turnkey segment. But moving forward, as the export revenue will also be substantial, there will be -- on a quarter-on-quarter basis, there will be a mix of turnkey and export. Yes, turnkey would definitely have much lower margins compared to export, but the overall EBITDA margins of about 20-odd percent on a consol basis and PAT margins of about 15%, 16% on a consol basis, to my mind, as I've been indicating in the last quarter also, this is the bottom of the barrel that we have reached. And we would strive to maintain these levels of EBITDA and PAT margins on a consol basis with a blend of the different streams of high- and low-margin revenue.
Next question comes from the line of Nemish Sundar with Elara Capital.
So I just wanted to know in the quality assurance, I think we saw some dip this quarter due to some increased competition. So could you please give some more clarity on that?
There's not really a dip. The overall in quality assurance has been -- as you are aware of the change dynamics vis-à-vis last year, so yes, if you compare on a 9-month to 9-month basis, as the new order started kicking in from Q2 of last FY or Q3 of last FY, gradually, sequentially, there has been a dip in the contribution of quality assurance to the overall consultancy revenue. But in terms of sequentially now because of a larger client base, in fact, last FY, if you see the total revenue was about 60% from IR and about 40% from non-IR. That has flipped now. And now we are about 60% on non-IR in this quarter and about 40% in IR as a client.
So because of the larger base of quality assurance clients, whether it is state governments, renewables, solar, power transmission, oil companies, GeM portal, et cetera, the revenue mix is changing and the levels of quality assurance revenue contributing to the overall consultancy revenue is seen now -- will now have seen the -- as I said, again, a few quarters back, the bottom of the barrel is only going to increase now in sequential quarters because of the larger order book and larger client base.
Next question comes from the line of Viraj with Jupiter Financial.
Yes, sir. Regarding the guidance, you said in the last call will be matching last year's number, right? And so the current year guidance would be what last year plus 20% growth and 15% PAT margin? Is that correct to think? I mean that should be the basis for my analysis?
You see, if you see 9-month to 9-month, we've had a hit of about INR 200 crores on the top line. And if you break it down, this INR 200 crores, INR 100 crores is because of export revenue, which was nearly 0 this year in the 9 months. INR 50 crores is a hit because of quality assurance revenue and INR 50 crores is the hit because of turnkey revenue, which, as I said, the turnkey projects which were finishing. So this is a INR 200 crore hit in the top line. The bottom line hit in the 9 months is about INR 80 crores. This INR 80 crores, about INR 40 crores is because of this dip of INR 200 crores and another INR 40 crores is because of the dip in EBITDA margins Y-o-Y by about 5%. So that's the total trend for these 9 months.
That moving forward, and that's in terms of percentage, 9-month to 9-month, the top line has taken a dip of about 11% and the PAT has taken a dip of about 25%. So moving forward for this FY with, again, increased focus on execution in Q4, what we will definitely strive to come as close to the previous FY, we are aiming that the dip in top line should be at least below 10% and the dip in bottom line should be in the range of aiming to be 20% or at least aim below 20%. So that's as far as this FY is concerned.
Execution is going to be the focus for coming quarters as it has been. And this huge order book of INR 8,000 crores will start generating revenue Q1, Q2 onwards. And we are aiming, as I said, for the coming FY, a growth of at least about 20% on the top line vis-à-vis the FY '24-'25. And margins, we are aiming to aspiring to maintain at the current levels of about 20-odd percent on a consol basis EBITDA margin and about 15%, 16% PAT margin.
So sir, we'll be closing this year around INR 2,400 crores recurrence revenue, right? That would be the target to strive. Is that correct to think?
Yes. In terms of numbers, as I said, the aim -- we are about 11% down on top line, aiming to be 10% or below 10%, so somewhere in that range. And in terms of profit, we are about 25% down. So aiming to be about 20-odd in that range. So that Q4 execution will aim to bring the overall FY in that range.
So the Q4 would be the better quarter, we try to be the better quarter for the year. That's what it would be, right?
Yes, definitely. Q1, Q2, Q3 have been sequentially improving. And definitely, Q4, we are aiming to be better as Q3 has been better vis-à-vis Q2 in all parameters, whether it is the top line, whether EBITDA, PAT and even margins have gone up by 1-odd percent. So Q4, we would aim that all parameters, we again aim that sequentially improve over Q3.
[Operator Instructions] The next question comes from the line of Viraj with Jupiter Financial.
Yes, sir, what would be our dividend policy? Would be the same as last year, around 90% payout?
Well, as you see, the dividend payout for quarter 3 has been about 95% plus, averaging out even if you take all the 3 quarters, it has averaged out to about 95% plus, which is in the range of the overall of last FY, which again was about 95.2%. So moving forward, we see -- I mean, I don't want to be -- but this is the trend that we would definitely like to continue. We don't see any major change in our policy. We are a low CapEx company and debt-free company, and we would like to maintain this trend.
Our next question comes from the line of Parimal Mithani with Credential Investments.
Sir, I just wanted to get a clarification in terms of consultancy. You had a tie-up with one of the global consultancy companies. How does that -- how is that tie-up going across, if you can throw -- elaborate? And in terms of Middle East, if you can throw light how are you progressing there?
Parimal, which tie-up are you talking about? See, we have -- in Middle East, we have a MOU with Etihad Rail, which is the leading player in rail infra. We tied up last year with Abu Dhabi ports. which has not only presence in UAE, but across Africa and Asia in ports and other infra like economic zones and logistic parks. So we are working with them. We are exploring various opportunities. And these are early days in the last few months. So I'm sure that we will -- we've already opened an office in UAE and moving forward, also working on the IMEC corridor. So these will definitely generate more and more opportunities and orders in the coming quarters.
Okay. And sir, in terms of my first question about the quality assurances, you had a tie-up with some global major for consultancy business in India. So can you -- I forgot the company name, but it was one of the companies that you had a tie-up for consultancy across that for, so can you throw light on that?
Yes. So that tie-up has already started yielding results. And we have got an order from Rail Coach factory Kapurthala for the safety audit of the electrical systems in the coaches being manufactured. And also, we are -- we've got an order for Vande Bharat rakes also, inspection of quality assurance of Vande Bharat rake. So that tie-up is giving us results.
Next question comes from the line of Vinamra Hirawat with JM Financial.
Sir, I just wanted to understand your power gen or REMC segment a little better, why we're not getting orders? And is this a segment that we can scale better in the future?
See, REMC has -- is primarily a consultancy company for power procurement for Indian Railways. And it has been showing a steady revenue of about INR 30-odd crores on every quarter, INR 35 crores, in fact, this quarter. It's showing a PAT of good INR 19 crores, INR 20 crores. This quarter, it has been INR 19 crores. It has given a good dividend. So it is linked to the power consumption as more and more electrification is happening, and it is definitely going to grow. One of its also revenues comes from doing renewable tenders for Indian Railways, which we got a revenue when we finalized one tender of RTC. And we have already -- other such tenders are in the pipeline. And as we finalize them, this would also add to the revenue.
Next question comes from the line of Viraj with Jupiter Financial.
Yes, sir, would you like to throw some light for the opportunities in terms of EMC project?
Pardon me?
The EMC, the South in -- the Middle East corridor, which government is thinking about, do we have any play there?
IMEC project, yes, the IMEC corridor. So as I mentioned, we have set up office in UAE. We are working with our 2 MOU partners there. Also, we are working here in close collaboration with the Shipping Ministry to develop certain digital interface for -- in this corridor, which is basically for ease of doing business, a virtual trade corridor. So these are definitely a huge opportunity for us both in terms of the India side and the UAE side for leveraging opportunities in this IMEC corridor. And I see in the coming years and quarters, definitely some orders more coming up in this.
Okay. And any numbers in terms of addressable market size?
See, this is early days of development of this corridor. And our engagement with various players in this has already started. And it will be unfair to give right number right now, but you can appreciate that the opportunities are huge and our presence there and our MOUs in UAE as well as our working already with the various stakeholders on the Indian side have opened up a huge number of opportunities. And I'm sure in the coming FY, you will see some finite orders coming up in this regard.
Next question comes from the line of Shreyans Mehta with Equirus.
Sir, how should one look at the Bangladesh export order in terms of execution and in terms of working capital? I know we've guided for closer to 40% coming from that INR 1,300-odd crores. But primarily, how should one look at the Bangladesh given the recent developments?
See, Bangladesh is about a INR 900 crore order. And there was a slight -- few months of a slight hit in terms of movement of this order, which has resulted in sliding of the execution to the next FY. We were hopeful that we would be able to execute at least 40-odd coaches by this FY. But because of those few months, it has slided into the next FY. But things have really picked up, and we are closely working with -- there with the Bangladesh railways. And I see that execution is definitely going to start by middle or latter part of the coming FY because there are -- the initial designs have been submitted for prototypes and they are under various approvals. And then -- once that is done, manufacturing is not going to take much time because these are -- we have a huge manufacturing capacity. And I see the revenue realization definitely happening by the latter part of the coming FY.
And sir, any color on working capital cycle? I mean, will the payments be swift?
So there will be a very minimal working capital requirement, and it will keep coming phase-wise based on the total production that happens. But it will be a very -- and that's the basic model. You see our working capital requirement in all our export orders is not a very substantial amount. It keeps phased out and we get certain advance also from all the orders. There are milestones for getting some advance. So the working capital requirement is not a very huge amount in any of these export orders.
Next question comes from the line of Vishal Periwal with Antique Stock Broking.
Yes, sir. Just a follow-up. I think you did mention like in terms of our consol level growth, we are looking 20-odd percent, so which is like an incremental revenue of INR 500-odd crores. And exports, then you mentioned segment-wise 40% execution that itself can give a INR 500-odd crores kind of revenue. But then like turnkey and other projects, there will be a bit of growth. So I think is it fair to say probably the growth will be much more than 20-odd percent in FY '26?
Vishal, I'm glad that you're doing numbers back of the envelope calculation very fast, catching on to the figures, which I'm saying. But as I said, 20% is the minimum that we hope. As you can see, our numbers are in front of you, and I'm being very transparent in quoting in the numbers and our aspiration also. But I think it's fair enough to say that because this FY has been hit because of the reasons and the breakup that I gave you already INR 200 crores, so in 9 months. So I think building up on this base, we see at least a 20% growth in the coming FY. But as you see, if you analyze the numbers and the order book, 20% at least is definitely doable.
Okay. And similarly, sir, for the margins, again, like the shift will be there for turnkey and export. So consol level margins can be a little lower, though growth can be there at the top line, but the margins can be a little lower. That's probably what I would gather. Is that fair to say that?
You see the consol level EBITDA margins of 20-odd percent and the PAT margins of about 15%, 16-odd percent, while in a particular quarter moving forward because of the blend of revenue may see some variation above this band. But averaged out over 6 months or an annual basis, considering that we've also got huge number of consultancy orders, both domestic and a good -- very good international orders and hopeful to get some more international orders, we feel that we should be on an overall averaged out basis, be able to maintain this range of about consol 20%-odd EBITDA margins and PAT margins about 15%, 16%.
[Operator Instructions] Next question comes from the line of Parimal Mithani with Credential Investments.
Sir, I just wanted to know, going ahead, will you be balancing the consultancy orders more compared to turnkey in terms of maintaining margins?
I'm sorry, your voice cracked, Parimal. Can you repeat?
Going ahead, in terms of order book, basically consultancy will be more part or the turnkey will be balancing both equally?
So you see in terms of order size because turnkey value of orders, they are much big ticket orders vis-à-vis the consultancy order, right? So even now today -- but still because we are still getting a large number of consultancy orders, one order a day overall, 110-plus orders in this quarter, a large number of good consultancy orders also. So INR 8,000 crore order book also in spite of turnkey being big ticket orders has 2,800 consultancy and 3,600 turnkey. So while -- they can't be compared in terms of value, but yes, the focus of getting more and more because our strength is consultancy, even the turnkey orders, which we are getting, we are not really a construction company. They are primarily consultancy design orders where the revenue is flowing through our balance sheet.
So we are not really a construction company. That's very clear which I've been saying in my previous interaction. We are a pure consultancy company. And in the turnkey part of the orders are those orders which where the revenue flows through our balance sheet, but our strength is consultancy design, project management consultancy. So we will continue to focus on getting more and more consultancy orders and their increased execution so that the blended margins still remain at the appreciable levels, which I brought out.
[Operator Instructions] Next question comes from the line of Viraj with Jupiter Financial.
Yes, sir, I want some color on the export like going forward, what kind of the order size we'll be looking at and per quarter kind of export order, if you can give some guidance on that. And why you've been so much delay -- the delay in getting export orders is because of the geopolitical reasons or some other issues? That one question I have.
So second part of your question, you see it's not -- we have now started getting export orders after a gap of 3, 4 years. Last 4 quarters, every quarter, we have got an export order. And this is primarily because earlier for last 4, 5 decades, we used to get export orders on the line of credit opportunities, which were [ EOIs ] floated by the EXIM Bank for the line of credit opportunities. With those opportunities completely finishing or becoming very minimal, all these orders which we have got are on global tenders, on orders, on opportunities which have been funded by the client countries or multinational, multilateral banks.
So these are the kind of opportunities, which, as I said, we have bid also in various other tenders in various geographies, whether it is Africa, Southeast Asia, Latin America. So we will aim aspire to at least continue this trend in the coming quarters also of getting at least one order of an export order in one in every quarter. The size of these orders, obviously, can vary as you have seen in the INR 1,300 crore order book. So they could vary anything from about INR 40 crores, INR 50 crores to anything about INR 200 crores to INR 300 crores or maybe more. But I mean, because you are bidding in all various opportunities, it's very difficult to give one median size of an order. They could be as low as INR 50-odd crores and could up to INR 300 crores, INR 400 crores, INR 500 crores also.
And sir, what would be your margins in the export business would be new normal margins would be since we are on competition basis, so would it be around -- like what kind of margins we should be looking at?
Traditionally, export revenue was in the range of about 20-odd percent margins in the line of credit orders. These are all global competitive tenders, and they would have different margins for different bids, definitely substantially lower from the 20-odd percent. And as the revenue flows in from different orders in a particular quarter, the blended margins on an export stream of revenue would work out depending on the percentage of contribution of the various orders, but definitely much, much lower than the 20-odd percent and would be in the range of about 10-odd percent broadly.
That is net margins, right, 10%?
Yes, the EBITDA margins.
EBITDA margins is 10%.
Yes.
Next question comes from the line of Vinamra Hirawat with JM Financial.
Sir, just slightly more technical questions on the 2 orders -- export orders that we have. When will the 2 orders be fulfilled in terms of -- are they both like 3 to 4 years tenders where all the order will be fulfilled after like FY '29, FY '30. So just some color on that.
No, not really, not such a long time frame. You see as far as the coach order is concerned, the Bangladesh Railway is in a huge hurry to get these coaches. They are in extreme shortage of coaches, and except for this delay of a few months, they were, in fact, wanting about 40-odd coaches in this FY only, which has slided by about 6-odd months. So I definitely see even the locomotives order from Mozambique Railways, that definitely is moving very fast and will start generating revenue very soon in the coming FY. So with the way things are moving, these 2 bulk orders, which are there part of the INR 1,300 crores will definitely not spill over to more than maximum 2 FYs. That's the max to my assessment.
Okay. So both INR 1,200 crores, INR 1,300 crores should be put within 2 financial years?
Yes, definitely, for sure.
As there are no further questions, I would like to hand the call over to the management for closing comments.
Thank you. So this is a reiteration of our two-pronged focused strategy, which we are very clearly working on right from the beginning of this FY, understanding the overall environment and the change dynamics. The two-pronged focused strategy of improved execution and aggressive order inflows is what Q3 results show. And this is what we assure you that Q4 would move -- continue to move in that direction. And as I said, definitely on this solid base that we have built up due to our team's efforts, we see FY '25-'26 building up on this platform by generating both a good top line and a good growth on the bottom line. Thank you. Thank you very much.
Thank you, all for being a part of the conference call. If you need any further information or clarification, please e-mail at investors@rites.com. Ladies and gentlemen, this concludes your conference for today. Thank you.