Titagarh Wagons Ltd
NSE:TWL
Titagarh Wagons Ltd
NSE:TWL
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Ladies and gentlemen, good day, and welcome to the Titagarh Wagons Q3 FY '23 Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Ms. Aashna. Thank you, and over to you.
Thank you, Mike, and a very warm welcome to everyone. On behalf of ICICI Securities, I would like to welcome you all for the investor update call of Titagarh Wagons Limited. We will start the call with opening remarks from the management, post which we will have the Q&A session.
I would now like to hand over the call to Mr. Prithish Chowdhary, Director, Marketing and Business Development for his opening remarks. Thank you, and over to you, sir.
Good evening, everybody. Firstly, thank you very much for taking time out to be a part of this call. I'm very proud and very honored to share with all of you that this quarter, the company has achieved its highest-ever turnover at INR 766 crores. Further, this year -- this quarter, we have seen a 101% growth in total income as compared to the last -- the quarter of financial year 2022.
In terms of EBITDA, the company has reported an EBITDA of INR 83 crores, which is a 75% growth from quarter 3 FY 2022.
This year, there are also several drivers this quarter that have been announced and that the company is looking upon very favorably and with a lot of interest. Firstly, the railways has seen its highest-ever budget allocation to the tune of INR 2.4 lakh crores. A lot of this budget will go into the -- into capital expenditures, such as Vande Bharat train sets, as well as train wagons, both of which are areas of interest to the company.
Secondly, this quarter, the company has attained major successes through the supply of its first traction motor from the company's state-of-the-art facility in Uttarpara. This was accomplished in the month of November 2022, and this opens the potential to a huge market, which can be tapped into and can also be used for the captive production of metro cars that the company is engaged in. This may also result in a substantial cost benefit for the company.
Thirdly, the existing capacity that exists with the company of 700 wagons per month. Against that, we have already achieved a production of approximately 630 to 650 wagons per month. This is almost the entire assessed capacity as per the Indian Railways. We are, however, working towards increasing this capacity further.
Fourthly, the company has participated in the very prestigious and well-renowned Vande Bharat tender in November 2022. This tender was for the supply of 200 trains with a maintenance contract of 35 years as well. This contract will be awarded to the 2 lowest bidders in a ratio of 120 trains to 80 trains. And the estimated value -- the total estimated value is to the tune of roughly INR 72,000 crores. The company is 1 out of 5 potential bidders in a consortium with BHEL, making the company the only truly [indiscernible] consortium as both the consortium partners are fully Indian. Further, as I mentioned earlier, with the new budget allocation that the railways has seen, the company also foresees further demand for these Vande Bharat train sets, therefore, indicating larger markets that will be available in the near future, and future opportunities for the company.
Lastly, the company has also participated in a tender for forged wheel sets in partnership with Ramkrishna Forgings Limited. And we have submitted a joint bid in response to the Indian Railways request for quotation. This will entail the company setting up a forged wheel manufacturing unit. If the company wins -- if the company is the successful bidder and wins the bid. The purpose of this bid will be to produce forged wheel sets in India for both the Indian market, as well as the potential export market, as well as to reduce the dependence on imported wheel sets from countries like China and other foreign nations.
As on date, the company has a standing order book of INR 10,130 crores with a good subsequent visibility.
Thank you very much. And I hand it back over to ICICI.
[Operator Instructions] We have the first question from the line of Kunal Sheth from B&K Securities.
Congratulations for a great set of numbers. My first question is pertaining to the wagons, the supply to Indian Railways. So you mentioned that we have reached about 650 wagons in terms of production, right? So what is our plan going ahead in terms of where do we aspire to reach over the next 2, 3 months, given the schedule that we have in terms of supply?
Yes. Thank you for the question. So as far as the capacity according to which the orders were placed by the Indian Railways was for 8,400 wagons per annum, which effectively means 700 wagons per month. As I had mentioned during the last conference call that our target will be to achieve 700 wagons per month. We have not achieved that target as of now in the last quarter, but we are confident of -- as was mentioned by Mr. Prithish Chowdhary just now that we have already touched 630 to 650 wagons in a month, not in the entire quarter, but in the last month of the quarter. And we are confident of being able to get to the 700 number in the next couple of months or so. And thereafter, we do intend to enhance it further to between 800 and 900 wagons.
So to answer your question, as far as the obligation or the contractual commitment to the Indian Railways, we would be in line with that in any case now. In terms of exceeding the commitment so that we have more capacity for either the private sector wagon demand or for getting additional share from the railways in future tenders, that is something which is work in progress, and we will report back to the market as soon as we are able to achieve that.
Sure. My second question is pertaining to the private wagon market. In your estimate, what would be the size of the private wagon market per annum? And what would be our share in the private wagon market?
So historically, we have always maintained a good share in the private wagon market. As it has been mentioned in the presentation also, we have now an order book of almost INR 1,200 crores from private wagon, which is in itself a substantial sizable order book, I would say. It's the highest-ever order book for private wagon market that we have had in the history of the company.
In terms of the total market size of the private wagons, it is not a very defined formula of the private wagon. The private wagon market depends upon the availability for wagons from the Indian Railways, the overall capital expenditure cycle from the private investors. But if we take a thumb rule, I would say, about 15% to 20% of the overall wagon addition or I would say anything between 10% to 20% of the overall wagon addition into the Indian fleet would happen from the private sector.
Sure. And sir, we mentioned about the supply for traction motors from our factory. And also, we have done a JV with R.K. Forgings for the forged wheel. So if you can give us some sense about how large this market potentially could be? And what could be our play in this market in terms of size?
So both are completely different from each other. The first one is the part of the transit and propulsion vertical. We have mentioned in the last investor call also, I had mentioned that in the last -- in the succeeding quarter, that is the Q3, we would intend to make the first sale from the propulsion division, which is what my colleague reported that we have been able to do that. It's just a developmental order execution. The prototype has been supplied for the traction motor. The propulsion division has 2 advantages.
One is a strategic advantage, which will be useful to reduce our cost of production for the metro coaches and for the trains that we produce. And on the other side, the market advantage, which is an export and domestic market for both propulsion equipment, as well as traction motor. We believe that the market size is quite large. I mean, there are companies who were doing business worth thousands of crores in propulsion and electrical business, which is including the traction converter and traction motor, et cetera. And we have begun in a small manner, but we do intend to become an important and a significant player in this segment.
As far as the forged wheel is concerned, this is a tender that we have participated and this is more by way of an information, which has been shared with the market. This is not a project which has already been taken up. This is subject to our winning the tender, the project will be taken up. So we would not be able to estimate the impact of this project on our financials or our initial future financials until unless we have a result of this tender, which is favorable towards us.
Sure. Got it, sir. And sir, my last question is pertaining to our CapEx. Can you help me with what kind of CapEx do we envisage over the next 3 years?
So we had already announced this in the last call also that, including the CapEx that has already been spent in the last 2, 3 years, we expect that for completing the entire projects that we have in hand that is likely to take another 4.5 or 5 years. The total CapEx estimated is about INR 1,000 crore. Having said that, our company has always tried to optimize wherever possible. And the CapEx is spent, not on the basis of a top-down approach, but a bottoms-up approach, which is effectively to achieve the capacity target.
For example, to illustrate the wagon capacity of 650 to 700 wagons that we have achieved, we have achieved with very limited amount of CapEx. And if we really look at the replacement cost or a greenfield cost for setting up that kind of a capacity or even the incremental capacity that we have achieved, it would be far higher than the CapEx that we have spent. So the CapEx that we have incurred in the last 3 years is about INR 300-odd crores, including the development of some of the product intellectual properties, et cetera. And we expect that over the next 5 years, 4.5, 5 years, we should -- including the INR 300 crore, we should be spending around INR 1,000 crores.
Sure. And sir, would it be possible roughly to give a sense of where this CapEx will be split as in what projects and what division?
The 3 divisions. We are only operating in the 3 divisions, the passenger transit and propulsion, the freight and SBD, which is shipbuilding, bridges and defense. So we have -- we will not be able to give you the breakup of the numbers, but it is on an overall -- since all 3 divisions are part of the same company, and we do have some capacities and facilities, which are inter-fungible between the divisions. Therefore, I will not be able to give you the breakup of the 3 verticals.
Sure. And best of luck for the future quarters.
We have the next question from the line of Sarvesh Gupta from Maximal Capital.
So firstly, on the...
Mr. Gupta, your audio is not very clear. If you could go off the speaker phone once?
Yes. Is it better now?
Yes.
Yes. So first question is on the gross margin profile. So, I guess, this quarter, your gross profit, as well as the other competitors' gross profit has come down on a quarter-to-quarter basis. So are there some material price pressures that we are seeing to fulfill this current contract of the Indian Railways? Or because this is slightly counterintuitive because raw material prices have generally been on a downward trend? Or is it because of some contract-specific sort of the requirement that your margins are a little bit lower on this contract? So that's my first question.
So the -- as far as our contracts are concerned, sir, most of our contracts are with the price variation clause, which effectively are -- which means that the increase or decrease in raw material prices are passed on either which ways. So when there is a decrease in commodity pricing, the benefit of that is passed on to the customer. And when there is an increase in commodity or raw material prices, we are reimbursed for that increase or decrease.
Having said that, on a quarter-to-quarter basis, I have always maintained that our EBITDA margin that we can expect is between 8% and 10%. And in the current quarter also, we have done 10.7% of margin, including -- or EBITDA margin, including the other income. If we exclude the other income, still we are at about 9.6% -- 9.48%. So we are pretty much in line with our target. I will not be able to speak about competition, but I can speak for ourselves that as far as we are concerned, we are pretty much on target.
As regard the comparative EBITDA margins of previous quarters, I've also mentioned that quarterly comparison of EBITDA margin in our sector is -- will not give a very, very reflective picture because we execute many contracts. Some have a higher margin, some have a lower margin. And when we speak about our targeted margin levels, we talk about a blended margin of different contracts. So as far as the expected margin guidelines are concerned, we maintain that we would be able to keep a sustainable EBITDA margin of between 8% and 10% and there is no pressure on the margins for the reasons I explained just now.
So generally, in a manufacturing setup when you are aiming for almost now from a low -- very low capacity utilization, you're going for a very high utilization of almost 100%. There is an element of fixed cost, employee costs, corporate overheads involved. So shouldn't you sort of expect your EBITDA margins to grow and grow beyond the traditional band of 8% to 10%? Or when you take up such a large order, you sort of sacrifice your gross margin in a way that it comes back to your normalized margins? Because otherwise, because you have fixed costs and also ideally it should increase, right? It should not be in the same range as it was when your utilization was far lower than this?
It's a very good academic discussion, but I don't think that I'll be able to answer that. I would be only saying that when we do our -- there is always a trade-off in a tender of trying to get volumes versus trying to get margins and balancing the 2. So in the whole picture, we are able to position ourselves that we have been consistently the market leaders. And in order to be the market leader, sometimes one has to take a strategic pricing policy.
Understood. Now, in terms of your CapEx plan of INR 1,000 crores over the next 4, 5 years, even at the current profitability, this would mean almost 4 years of EBITDA or more than that. So how are you planning to fund it because this would again be slightly heavy on the balance sheet, even a INR 250 crore per year sort of a CapEx, given the current scale is sort of not -- it will lead to no generation of the cash as such? So how do you look at cash generation? And how do you look at this CapEx of INR 1,000-odd crores?
I mentioned that this is CapEx over a 8-year period. So it's about, on an average, INR 150 crores, and this is an approximate number, which will be based on projects that we are able to undertake. Many of them are project CapEx, so the cost can be charged to the project itself. So, of course, the company has maintained a very prudent policy. We have reduced our debt significantly to become a net 0 debt company, long-term debt company. And I can only say that the company maintains a very prudent and conservative policy in terms of overcommitting or leveraging itself.
[Operator Instructions] We have the next question from the line of Parvez Qazi from Nuvama Group.
Congrats for a great set of numbers. Sir, a couple of questions from my side. It would be great if you could update us about the status of the Pune Metro order and also the CRRC order?
Sure. As far as the -- am I audible?
Yes, sir.
Okay. So as far as the Pune Metro is concerned, we have already executed, delivered up to 15 trains and -- out of 34, and we are well within -- well on track to deliver the complete number of trains within the first half of the next financial year.
As far as the Bangalore CRRC project is concerned, the facility setting up of the stainless steel line is already underway. We have already ordered all the major equipments, and we intend to start production in the second quarter or maximum the third quarter of this year -- of the coming financial year. So either in the second quarter or the third quarter of the coming financial year, we will start delivering the coaches.
And a couple of questions for Anil ji. Sir, what is our current gross debt and net debt for the Indian entity?
Parvez, Anil this side. So the net debt for the Indian entity is basically the working capital debt. So the net debt is at INR 150 crores as of December. And --. Just 1 second, Parvez, I'll just give you the gross number.
Maybe we can move on with the questions. He'll just come back with the answer.
Sure. And what is the current order book in Firema and how do we see that performance going ahead?
As far as Firema is concerned, as we've already said that the numbers are not consolidated in the parent balance sheet, in the Titagarh Wagons balance sheet. But having said that, Titagarh Wagons owns 49% shares with Firema. And the order book in Titagarh Firema is close to EUR 500 million and the performance is starting to improve now. The new contract for the Lazio is also under production. We expect that the production of the -- the targeted production of Titagarh Firema will be achieved in the first quarter of the coming financial year. That is from April onwards we should be seeing the targeted level of production in Titagarh Firema also.
Sure. And lastly, would it be possible to get a breakup of the order book segment-wise among the freight, passenger and the shipbuilding, bridges and defense?
It has already been given in the Page 4 of the presentation.
Parvez, it's in Page 4.
Unfortunately, we don't have access to the presentation.
Okay. So I just think we'll upload it, but we'll send it across. I can share the numbers with you. It is INR 8,600 crore for freight business, INR 1,176 crore for passenger rolling stock and INR 341 crores for SBD.
We have the next question from the line of Sanjay Awatramani from [ Hamara Capital ].
Sir, almost all my questions have been answered. But...
I can't hear you, Sanjay.
Sanjay, if you could go off the speaker phone, we are unable to hear you very well.
Hello. Are you able to hear me now?
Yes, much better.
Yes, it's better. Sorry, we weren't able to hear you before.
So this order book, which you mentioned of INR 10,000 crores, what is the time line to the execution for executing this order book INR 10,130 crores?
So different orders have different schedules of execution. But on an average basis, I would say this has to be executed in the next 2.5 to 3 years at the most.
Okay. 2.5 to 3 years?
That's right.
And if I may request that if you could provide me the breakup? I think I lost my line when you were giving the breakup of this order book.
So we shared in the investor presentation also, but I repeat it for you. It's INR 8,600 crores for the freight wagon rolling stock, INR 1,176 crore for passenger rolling stock and INR 340 crores for the shipbuilding, bridges and defense.
We have the next question from the line of Akshay Kothari from Envision Capital.
Sir, when is the Vande Bharat award expected to be out? Any details on that front?
Unfortunately not, it's a tendering process. So, I mean, the tender was submitted on the end of November, 30th of November, I believe. And normally, such large tenders take time for evaluation, technical evaluation and so on and so forth. But I would just like to add that this is a tender for 200 Vande Bharat as was mentioned by my colleague Prithish and the overall requirement that has been including the current budget announcement is for 1,000 Vande Bharat trains.
So I believe that the opportunity for this segment is quite substantial. And our company is very uniquely positioned for several reasons. Number one, we are the only Indian company and in fact, the only company in India, which has facilities for both aluminum and stainless steel coaches. Once we have implemented the line in the next couple of quarters for the Bangalore Metro CRRC project, we would have the stainless steel facility also. So while we are very keenly awaiting the results of the current tender, I would also like to mention that there are adequate opportunities that we foresee coming up in this passenger train segment, whether it is in terms of trains, which is like MRVC or Vande Bharat or metros like Bangalore and Chennai, et cetera.
Okay. That's great, sir. And sir, what is the current situation of rail wheel sets, if you can throw some light on it?
So railway wheel sets you said, right?
Yes. Availability of rail wheel sets I guess.
Railway wheel set are yet to announce by the railway because the capacity is -- the wagon production has gone up and the wheel set capacity also has gone up, but not on the same lines. But having said that, I have always maintained that there can be pressures from time to time. But on an overall basis, the railways have done a brilliant job in planning the availability of wheel sets. And as you can see, the railways are also doing future planning.
I mean it's in fact an interesting point that you raised because if you kind of look at the planning of the railways and the tenders that they have floated, whoever wins the tender whether it is our consortium or anybody else, the fact is the railways is going to give a guaranteed offtake for 20 years for 80,000 wheels per annum, which kind of sets the tone of what they're planning for the rolling stock market. So the railways have been doing their homework extremely well, exceptionally well I would say and have been planning the wheel sets also and have continued to do that for the future requirement.
Okay. That's right. Sir, now that we have deconsolidated the Italian subsidiary -- Italian associate I would rather say so I'm assuming that there won't be any qualifications as much as in FY '22 audit reports. And just to know because it was not very much clear. What was that material element which led to this qualification and to continue, currently what is the debt in the Italian subsidiary? I understand it is already deconsolidated, but still I think the Barrackpore land is still pledged so that hence the question.
Yes. So that's right, I mean it is deconsolidated and we've already disclosed all the facts in our results. So I think all the details are available in the results. In terms of there is -- I didn't understand about your point on qualification. I don't think there are...
There's no qualification on the stand-alone financials.
But there was a qualification on the consolidated part, right.
Yes. There is only a consolidation on the consolidated financials and that too also it is relating to the consolidation of the Firema results prepared on a management basis, which is we have clarified that in the results. So the stand-alone [indiscernible].
Sir, what is the current debt at Firema?
So the current debt -- the net debt at Firema is at INR 333 crores and the gross debt is at around INR 640 crores or INR 650-odd crores.
Okay. And one more in the other expense in FY '22, there were some irrecoverable claims of around INR 23 crores. So what was that actually?
In which? You're talking about which quarter?
I'm talking about the annual report, FY '22. So are these on the private side or...?
No, I don't think so. I mean what we can do is if you agree because we did discuss about the quarter and then you can...
I actually tried to reach out a lot of times through even the IR associate partners, but I think we could not fix up a meeting so that's why I have to ask. Anyway, we can take it offline then.
We'll make sure my colleague, Saurav Singhania, will ensure that he reaches out to you.
We have the next question from the line of [ Rajesh Bhandari ], individual investor.
And the results given are excellent. And will we be able to keep the increase in the turnover in the same way that we have been doing?
And yes, it is our endeavor to continue to do that. We have a good runway ahead of us. We have good visibility. We have been able to ramp up. If you really look at the company in 5 years; 4.5, 5 years ago we were at an annual revenue of INR 300 crores, now we are at an annual revenue of INR 766 crores. So from INR 75 crores to INR 766 crores on a quarterly basis let us say. So obviously there has been a journey that has been traveled and we are very confident and we are very committed to continue with this journey.
So '23-'24 we can expect turnover would be more than INR 3,500 crores.
I would not be able to give you any forward-looking numbers, but I can only say that the runway ahead of us is clear. We have a good visibility. We have an order book of INR 10,100 crores. So definitely our company and the entire team is committed towards achieving execution of these and additional orders that we are able to procure during this year.
[Foreign Language] Do we have the capacity to execute such orders in time?
Definitely, sir. I mean the Indian industry is very capable, very competent. The problem that used to remain was lack of visibility and the government now is taking up long-term plans of [Foreign Language]. So Indian industry, I'm not talking about ourselves alone, but the Indian industry as a whole is fully geared up to...
[Foreign Language] So is a God send opportunity for any railway-related company so we'll be able to [Foreign Language] the place also and the infrastructure [Foreign Language] we are geared up.
Absolutely. That's exactly what I would say, sir, we are fully geared up.
Okay. [Foreign Language] But by the way talking on Vande Bharat, [Foreign Language]
That is because this is a start-up business for us. We have just started up this thing. Our capacity for the -- I think this is a very interesting question that you have asked, sir. [Foreign Language] at least 70%, 75% the margins will improve.
[Foreign Language]
That's right. Right now it is 20 coaches per month and with the addition of the stainless steel line and all of that, our target is to enhance this capacity to 40 coaches per month.
40 coaches because [Foreign Language] that margin is much better if I see on that small value 15%. [Foreign Language]
Again it is a question, as I mentioned in a question asked by a previous gentleman, [Foreign Language] that is a right equilibrium that has to be struck between volume and profitability.
Right. [Foreign Language]
In some of the business there [Foreign Language].
Okay. [Foreign Language] NCLT status, that chapter is closed now?
Yes, that chapter is closed.
[Foreign Language]
[Foreign Language]
[Foreign Language]
As we have explained in our notes to the account, the total investment in the books of Titagarh Wagons -- investment value in the books of Titagarh Wagons in the Italian associate stands at INR 3.70 crores.
INR 103 crores?
No, INR 3.70 crores. [Foreign Language]
[Foreign Language]
INR 3.70 crores is the downside potential.
[Foreign Language]
I have disclosed the numbers. [Foreign Language]
[Foreign Language]
We have the next question from the line of Panjul Agrawal from Green Portfolio Private Limited.
Sir, first thing that I want to know is what is the current bidding pipeline?
I'm sorry, I could not hear your question properly, ma'am. Could you repeat?
Sir, my question is what is our current bidding pipeline?
We have a very large bidding pipeline. We will not be able to disclose exact number of tenders for competitive reasons. But the number of tenders for all the divisions that we continue to bid are quite substantial.
Okay. Sir, actually 1 thing I was really concerned about was that the share of losses of joint ventures and associates have increased sharply to INR 7.36 crores in this quarter. So sir, actually it seems like Italian operations are still leading. So would you like to comment on that?
As far as the Italian operations are leading is concerned, as I explained in the previous caller, the company is now an associate and the accounting that is done for the company is on equity method basis. I would say that the Italian operations have also started picking up very well. The losses have started coming down. We are very hopeful that the company will stop or will turn EBITDA positive in the coming quarter. In the Q4 of the current financial year and going forward, it will be able to turnaround. Having said that, as far as the stand-alone Titagarh Wagons is concerned, our risks have been kind of capped, downside has been capped.
Yes, I do understand that. Sir, like is there any expenditure due to which the losses are incurring in the Italian subsidiary or the revenue? Are you not able to generate revenues on that? Also the legacy contracts are over I guess, right?
Almost over. That's exactly why the losses have started to come down, but there are some which were pending which are getting over. These are all contracts which are very old so they kind of have -- there is always the tail end of the storm as they say which continues. But now more or less, they are all over. Actually that has been done in the company; a couple of sites have been merged into the parent site, number of people have been reduced, fixed costs have been reduced, the management restructuring has been done. So a lot of action has been taken in order to bring back that company into health and we believe based on all the actions and the current status and the European market which is also picking up, that the company should be able to stand on its feet and start delivering positive results in not so distant future.
Okay. And sir, what is the operational status of Falta Shipyard?
Falta Shipyard we have only acquired the facility and I had mentioned this in my several interactions that this is an infrastructure that we are keeping it prepared. Our focus and our allocation of resources would first continue towards the first 2 verticals and then only we would take up the third engine to our growth. So the first 2 engines of our growth should be fully fired, which is freight rolling stock and the passenger rolling stock and after that, we will take up the third one which is the SBD on full traction. Till that time, we will continue to strengthen ourselves in that segment, but not allocate too much of resources while keeping ourselves ready.
[Operator Instructions] We have the next question from the line of [ Ankur Kumar ] from Alpha Capital.
Sir, most of my questions have been answered. Just question on the passenger volume segment. You said there is around INR 1,100 crores type of order book so can you comment on execution timeline for this business?
Sure, sir. As I mentioned that most of these orders are between 2.5 to 3 years and the same is the situation for the passenger rolling stock. All the orders that we have in hand should be executed in the next I would say 30 months at the most.
But sir, in terms of when I look at quarterly segmental business, we are doing INR 150 crore type revenue per quarter. Is that correct? And it will take 2 years to complete this INR 1,100 crore?
Right now what we are doing yes is about the amount that is mentioned there, but as I mentioned that this is in the ramp-up phase. We are now producing just about 1, 1.5 trains per month. We will ramp it up to 15 to 20 cars in the next couple of years, within that.
Sure, sir. And on Vande Bharat, it is a INR 72,000 crore opportunity and even if we can win the smaller one, then also it's quite substantial.
It is the opportunity and of course it's a tender business so we do not know whether we'll be the successful bidders or not. So we have just disclosed that what we have participated in and we have also explained that this is the 200 train tender. There are announcements to add on several more trains. So whether this or the other, we believe that there is a very large opportunity in the Vande Bharat segment that exists for a company like ours.
And sir, I heard the number of INR 72,000 crores?
It would be around that much. I mean this is just an approximate. It could be anything 10% plus/minus or 15% plus/minus.
We have the next question the line of [ Kunal N ]and from Alpha Invesco.
Yes. Am I audible?
Yes, we can hear you.
So I just wanted to ask can you just give me the update on the propulsion systems business? I mean we were with partnership with ABB and all and you said that you do get the orders, but it's not completely operational on regular basis. So can you just give update on what is happening in propulsion system? That's all.
Sure. I just mentioned that we made our first dispatches for the propulsion system, which is for the traction motor in the last quarter. This is a very, I would say, key business to our overall plans and strategy. It is not yet fully operational because we are in the developmental stage. But we believe that in the coming financial year we should be in execution stage and there are prototype approval testing period. So the real commercial advantage of this vertical for the propulsion will start coming in from FY '24-'25.
We have the next question from the line of Anand Venugopal from BMSPL Capital.
I joined the call late so forgive me if this is already answered. So I just want to know when do we kind of expect more rolling stock orders from the government? To achieve the target set in the National Rail Plan, how much more does the government need to order? So these are the 2 questions which I have.
So as far as the tenders are concerned, the tenders are mostly on an annual basis. Last year the tenders were floated where we got 24,000 wagons. We expect that new tenders should also get floated sometime in the coming financial year so I would say in the time horizon of April to October because railways has placed an order for the next 2, 2.5 years and now the orders which will be placed will be on top of that so either for higher offtake or for furthering up to 2030 the National Rail Plan. The orders that they have placed will get executed by FY '25.
So the railways are planning to kind of work backwards to ensure that the target of 2030 is met by way of additional rolling stock that is planned for the entire period of time. We believe, however, that based on our estimates and based on whatever we need that the railway in order to achieve that should be adding around 30,000 freight wagons per year at the minimum.
We have the next question from the line of [ Bhavya Sonawala ] from [ Samasa Capital ].
Just again on the traction motors, we had I think supplied a few of the prototypes. Just wanted to know has there been any response? And basically just trying to understand do you see this forming a decent part of our contributing to the revenue? Any thoughts on that?
Yes. So we supplied the prototype and we will hear about the -- I mean this is a process that has to be gone through, it doesn't get done so quickly. It takes time. But having said that, I mentioned a little while ago this is both commercially and strategically a very important part of our strategy.
We have the next question from the line of [ Alicia M ] from [ Invigin Capital ].
Sir, I understand that the current railway order of 24,000 wagons in 3 years, we were supposed to look at 700 wagons a month number to be able to supply it in the 33 months. It's almost been 8, 9 months and this just the feedback number, we did about 650 last month. Is there a delay or do we still believe that we will be able to achieve it in the timeline that was awarded of 33 months?
Ma'am. I can only say that we are running ahead of schedule at this point of time.
And is that because the incremental capacity will also first -- because like you mentioned earlier in the call, we are expecting to increase the capacity to 800, 900 wagons and that will help us cover up this run rate?
No, we are already running ahead of schedule. As we speak today, we are already running ahead of the contractual schedule.
Okay. Sure. And just in terms you were mentioning to the previous participant that the next round will come, say, in the next financial year, say, in the next quarter. Will the delivery or execution of that also be expected to start immediately or will this order first have to be executed before that can come up in the pipeline?
That is for us -- I mean this has to be seen, but normally we expect that the deliveries will be in continuation with the current contractual deliveries. But we will have to wait and watch what the tender says because we will not be able to kind of pre guess the tender conditions. But logically, we believe that it should be in continuation with the current delivery schedules.
And the [ schedule ] that we have outlined currently looks enough or we probably have to revisit it once the new tender is out?
We are already working on increasing our capacity. I mentioned this in the beginning of the call and so did my colleague, Prithish Chowdhary, that we are almost at our previously assessed capacity and now our target is to further enhance that capacity. We should be able to do that in the coming financial year.
We have the next question from the line of [ Ram Chakraborty ], an Investor.
And I congratulate you for the excellent set of numbers. Most of my questions have been answered. But if I may ask 1 thing. With your experience, logically can you kindly guess that this Vande Bharat tender if we get it, means some time in FY '24 the tender is going to come out, something like that? Can you just please guess if it comes out? Am I audible now, better?
There's static which is coming from your connection. Thank you for your wishes and your compliments, means a lot to us. And as far as the upcoming tenders are concerned, it would be very difficult if not impossible for me to make any guesses. What we can really speak about is the overall announcements that have been made by the railways and the fact that the railways announcement to implementation time has been on a remarkable trajectory or the track record of the railway has been very, very positive in the current government. So we expect that the execution of the announcement should happen quite fast.
Sir, the participant is no longer in queue. I would now like to hand it over to the management for closing comments.
So thank you for a very interesting set of questions and thank you for your time, everybody, to join in on the call. It's been always a great pleasure and very informative interacting, some of the questions which lead us to lot of thought processes. We do hope to continue this run, I would say, to continue to grow the operations. And as I mentioned several times, we have a good runway ahead of us and we have been able to build up the team and the facilities to grow the operation. And we look forward to continue to having your support and your participation like we have had in the past. Thank you.
Thank you. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us and you may now disconnect your lines. Thanks.