Hirect Limited (HIRECT) Q1 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to the Q1 FY27 Earnings Call of Hyrex Limited. This conference call will contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectations of the company has on date of this call. These statements are not the guarantees of future performance and involve risk and uncertainties that are difficult to predict. As a reminder, all participant lines will be in the listener-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during a conference call, please signal an operator by pressing star, then zero on your touch-tone phone. Please note this conference is being recorded. I now have the conference over to Mr. Saramya Nevetia, Chairman and Managing Director of HIRAC Limited. Thank you, and over to you, sir.

Good morning, everyone, and thank you for joining us for the Q1 FY27 Earnings Call of IREC Limited. I am pleased to be joined by our newly appointed Executive Director and longtime CFO, Mr. E.K. Nemanee, our new Global Chief Executive Officer, Mr. Anand Chizambaram, who I am delighted to welcome on his first earnings call with us. And our Chief Executive Officer, Mr. Manoj Nair, along with SGA, our IR advisors. Before I begin, a brief word on our leadership. Mr. Nimani, who has served the company for 34 years, has joined the board as an Executive Director while continuing as our CFO. Mr. Chidambram, who joined us as the Chief Global Growth Officer, has now been appointed as our Global Chief Executive Officer. He is the one who spearheaded and achieved our recent breakthroughs internationally. And of course, Mr. Manoj Nayar, our CEO, who continues to lead our India business, focusing on revenue growth, operational excellence, and cost control. Meanwhile, I, the chairman and MD of Hyrect, will continue to build a highly dynamic and sustainable vision for the company and continue to personally oversee our R&D roadmap. Technology developments, M&A activities, and of course, engaging with you, our investor community. The structure reflects the company that we are building. Strong Indian technology, backed by efficient operations, supporting growing global businesses with disciplined financial stewardship. The recent months have marked an important milestone for HIRAC. Over the last few years, we have been steadily building capabilities across power electronics, traction systems, railway electronics, and advanced engineering. We are now seeing these capabilities come together in a much more meaningful way. HiRECT is increasingly moving from being a supplier of individual components to becoming an integrated systems and solutions company. This transition is at the heart of our long-term strategy. It allows us to participate in a larger part of the value chain, increase the content we address in every locomotive and train set, build deeper technology capabilities, and then take these capabilities into new products, new customers, and new geographies. Let me now take you through the business segment by segment. First, high-req business, orders, operations, and margins. We understand that Q1 order intake looks flattish. However, this quarter does not define the year that we have planned. We have participated in several tenders where we are at leadership positions, either L1, L2, or L3. These orders are expected to come in soon. Ordinarily, these finalizations would have come within Q1. There are multiple factors which have caused this delay. Primarily, the global geopolitical environment, which has led to certain temporary pivots within the government. Furthermore, operationally, we are once again at a time where we face shortages in the electronic segment. We have not been severely affected by it yet, but the industry has. Leading to lopsided inventory at customer's end. We overcame this challenge a few years ago, and we are certain we will mitigate this challenge once again if it poses a threat to us. On the copper front, by manufacturing these highly critical copper conductors in-house, we are improving control over an important input for our transform business, It's also creating an opportunity to develop a separate business serving We see this kind of vertical integration as an important part of building a stronger and more competitive high-rect. It gives us great control over our supply chains, supports our core business, and at the same time, creates opportunity for additional revenue streams. There is already an impact of the corporate conductors. Had it not been for the corporate division, our gross margins would have been adversely affected. That means we have saved about 2% on the material cost. We are seeing some near-term impact on consolidated margins, as it was expected at the time of that. We see this as an encouraging validation of our engineering and manual It's also opening opportunities beyond railways. For the mining industry. Because it demonstrates the applicability of our power electronics in a demanding industrial environment where reliability, robustness, and uninterrupted performance are critical. These are initial prototype orders, which will be executed this year ahead of schedule. And once installed, we expect repeat orders in bulk quantities. Fourth, new and emerging business, Memu and Vandemetro. This is the evidence of our evolution. Recently, we secured our first memo train set development order from Modern Coach Factory, valued at approximately 60 crores. And welcome to the call. This is not only hiding. And the value we get. Fifteen crores. Increases by roughly 3 to 12. We are no longer participating through a single component. We are bringing multiple technologies together. These two orders are proof points that the technology roadmap we have been building for years is now beginning to translate into system-level opportunities. At the center of this transition. the trials to progress towards completion in the next few months. However, as per the new UVAM guidelines, they are now approved as a development source. For us, propulsion system is not simply another product in our portfolio. It's a platform around which we can build a much broader systems and solutions business by combining our transformers, motors, converters, control electronics, and other railway technologies. Our long-standing experience in rail power has provided us with the foundation to make this transition. As we look ahead, This remains very clear. We will continue to strengthen our core railway business while increasing our participation in higher value products and systems. We will continue to scale our traction transformers, propulsion systems, railway electronics, and other technology-led businesses. We will build on our entry into next generation train sets while also taking our power electronics capabilities into international and adjacent industrial markets. We believe this transformation provides the right platform for us to pursue our long-term growth ambition. The foundation has been laid, the technology platforms are taking shape, and we are now seeing early evidence of our ability to address larger and more complex opportunities. We will continue to evaluate opportunities in the areas such as mining, defense, marine, power management, and other specialized industrial applications and emerging tech sectors like AI and data centers, where our engineering and power electronics capabilities can create a differentiated solution. These adjacent applications are an important part of our broader strategy to diversify beyond our traditional markets. These quarters Flat order intake do not deter us from our vision. Our target for the year of achieving 30% growth stays intact, and the year so far has only strengthened our ambition. The ambition of becoming a $1 billion revenue company in the next five years now moves a few steps forward that we have received proof of concept. With that, I would like to hand over to our CEO, Mr. Manoj Nayak, for his remarks. Thank you.

Thank you, Suramya. I would like to take a few minutes to talk about what, in my view, is the most important foundation behind Hyeric's next phase of growth, our engineering and technology capabilities. At Hyeric, we have always believed that sustainable growth in the railway business has to be built on strong engineering. Over the years, we have moved from individual power electronic products towards increasingly complex railway systems, and we are now strengthening this capability further through our investments in people, R&D, and product development. Today, we have more than 200 engineers across our R&D centers in Mumbai and Hezbollah, with the Mumbai center focused on our core technology development. And as of us, strengthening our software and digital intelligence capabilities. More importantly, our innovation pipeline has expanded to more than 50 products under active development, covering areas such as propulsion systems, brake systems, converters, HVAC systems, digital intelligence, and EMS. As the CMD also mentioned, We are already seeing these capabilities translate into new opportunities, including our entry into next-generation drain sets and our first U.S. orders. We are also strengthening the manufacturing side to complement this engineering capability. At our Satpur facility, we have increased traction transform capacity by 20%. From 60 transformers per month to nearly 75 per month, enabling us to support growing demand while improving manufacturing capability. The Sennel facility's flexible and efficient layout has capabilities across propulsion systems, battery chargers, traction motors, HVAC systems, and our specialized copper conductor facility. This combination of in-house engineering, manufacturing, and validation gives us greater control over product quality, localization, and time to market. Ultimately, we believe this engineering depth and technological superiority will be Eric's strongest competitive advantages. We are confident. That the investments we are making today in our engineers, R&D, and technology platforms will provide the foundation for Highlight's next phase of growth. I would now like to invite our new Executive Director and CFO to take things forward.

Thank you, Mr. Nayar. Good morning, everyone. Let me take you through the financial performance for the Q1 of FY27. Starting with the consolidated financial revenue from the operations grew 20.3% to 258.4 CR, supported by healthy underlying business momentum across the operations. The gross margin increased 32% on Q2 to Q2 to 73.2 CR versus 28.3%. Consolidated EBITDA stood at 13.2 CR, which is due grew by 45.4% year-on-year and increased 57% sequentially, with an EBITDA margin 5.4%. The consolidated margin was impacted by the ongoing integration and scale-up of the LUNTE funds, which resulted in higher employee and operating expenses along with increase in other operating costs. As highlighted earlier, we expect this year-term impact to continue for another three to five quarters. As LUNTE progresses towards breakeven, following which margins should improve at the business scale. Profit before exceptional item and tax route at 8.1.CR, which also reflect a significant sequential improvement. Pat after minority interest route at 9.4.CR, with the quarter, includes the exceptional gain of 3.5.CR arising from the sale of Deha Dundra. Coming to the standalone performance, a revenue from the operations grew 10.1% on YYT to 36.4.CR. Driven by healthy education across core railway business and sustained traction across key product segments. Gross profit increased 7.2% on Y2Y to 60.3 CR. While gross profit margin stood at 25.5%, the moderation in gross margin was primarily due to the higher raw material cost and increased input cost volatility due to the West Asia crisis. Despite the volatile operating environment and high raw metal costs arising from the West Asia crisis, we were able to maintain healthy profitability with stand-alone EBITDA 25.1 CR witnessing a growth of 3.2% year on Y2Y and EBITDA margin of 10.6%. Stand-alone patch stood at 15.5 CR registering a 17.8% on year-to-year growth. This is all from my side. I now open the floor for Q&A.

Thank you, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on your touch-down telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question comes from the line of Subhi Gupta with 3Nedra Asset Managers. Please go ahead.

Thank you so much for the opportunity. Sir, my question is that the capacity that we have put for the copper conductors. Sir, I think 60-70% is for our own capital use and others we will sort of sell. Sir, how much is CTC and how much is enameled, papered and silated copper conductors?

So, if I may answer this, the overall 350 metric ton capacity that we have installed, the CTC capacity is about 220, but this is expandable, because we may not be using the entire 220 for ourselves immediately, but this is expandable. Best of it is BICC and EPICC. EPICC has much higher capacity, more than 350 metric time.

Okay, sir. And so how much do we expect, you know, how much of a revenue share do we expect to get from this incoming means? Any range or idea on that?

At this point of time, we are focusing on more internal consumption. We have started taking few orders. This year, we will be primarily focusing on the internal consumption, while we establish credentials for the external orders, primarily in the power sector.

Excellent. Thank you.

Thank you.

Thank you. Our next question comes from the line of Deepak Puriswani. It's for Investments. Please go ahead.

Thank you for the opportunity, sir. Sir, just wanted to check it out a couple of things. Firstly, on the propulsion system, for this year, if you can update us, how has been the railway tendering? I think every year in the month of July, there has been a tendering for the procurement of propulsion stars. Thank you. How are we placed at this point of time for these opportunities? If you can please update on that.

So, currently we have tenders which are in pipeline, which are in the processing stage in the sense all production units have released tenders for propulsion units. Like RCMB mentioned that there has been a delay in the tender processing. This is moved to this quarter. So, we expect some of these tenders to get finalized towards the end of this quarter. So, to your question, yes, we have propulsion system order tenders in pipeline.

Okay, and secondly, on the... Metro and Vande Bharat train, if you can please update on the, I mean, from the annual perspective, how are we seeing the tendering activity for these kinds of businesses?

I'm sorry, can you please repeat?

So, what is the annual tendering for the, this Mehmood train or transit orders for the Vande Bharat and Metro projects?

So, the Memo tenders are primarily in the range of about 200 to 250 train sets in a year, which has already been tendered by all the three coach factories. One way, Metro is the first tender, as we have already mentioned. So, that's all for this year. There are certain Monday Bharat and some other configuration of Monday Bharat that is in pipeline, but we are actively participating in wherever the transit tenders are currently being pursued. So whatever orders have come through are all part of this year's requirement.

Okay, and finally, if you can also give a sense about this IGBT converter opportunities for the mining segment, which we are looking to explore at the U.S. market, from the prototype stage to when we would be moving to the full-fledged product development or tendering activity, what kind of opportunity are there in the U.S. market for these kind of segments, and which are the other markets which we can explore for this product.

So, regarding the U.S. converters, we are bound by very stringent NDA clauses, so we cannot really discuss too much about it, but we expect to ship the product within six months, and once it is shipped, and they install it, and it's commissioned, and the performance is satisfactory, we can expect more orders. Today we cannot reveal the rating and we cannot reveal the configuration of this. Thank you.

Thank you for answering the question. Thank you.

Participants who wish to ask a question may press star N1. Our next question comes from the line of Madun James with Mood PMS. Please go ahead.

Hi, thanks for the opportunity. So, my question is regarding, so we are supplying... For example, we are supplying transformers, traction motors, converters, etc. And we are a development vendor for propulsion system. So, how does it actually differ? As in, in a propulsion system, you have all these components, if I'm not wrong. And where I'm coming from is that we recently came across a company which got listed called MV Electrosystems, which is claiming that they also have a full vendor approval for propulsion systems. So, they, and I understand Medha has also got that approval. So, if railways... Thank you.

Yeah, so the terminology propulsion system, it differs from application to application. So when we talk about locomotive, the propulsion system constitutes... Traction Converter, Auxiliary Converter, Vehicle Control Unit, and the Driver Display Unit. And the traction transformer, traction motor, HVAC system, brake system, everything else is bought separately. It's more like an a la carte sort of a situation. And when you move to train sets, and then the terminology changes, then the propulsion system means... The main converter, the auxiliary converter, the train control management system, the driver display unit, the driver desk, and it also includes the transformers and the motors and all other electrics and electronics that go into the train set. So that is the differentiating factor in terminology of both the different kinds of trains for inter-railways. And regarding our competitors, yes, there are a handful of them who are competing with us in different segments and different categories, but I would not like to comment neither positively nor negatively about any of our competitors, peers, or rivals. So thank you.

Yeah, so I think that gives a little bit more clarity. So what you are essentially saying is that for a train set, then your opportunity for revenue improves significantly from the 3 to 4 crores, which was mentioned in the previous call. So that would be upward 40-50 crores if I'm not wrong. Am I right in that assumption?

No, the numbers are skewed. It is 5.5 crores for locomotives. It is 15 crores approximately for a Memo motor coach and approximately 60 crores for a train set.

And one more on the same line. So, what would be the TAM for the propulsion system? So, if my ballpark numbers are right, I believe there are about 10,000-odd locomotives in the Indian railway system, and roughly about 1,500 locos get tendered every year. I don't know if the numbers are right. What could be the TAM that we are looking at? Where I am coming from is basically our guidance or our aspiration that we would be sort of a 1 billion revenue company in the next 4 to 5 years. I don't see that kind of a TAM from the railway propulsion systems per se because the numbers, whatever you are saying, and if my assumptions on the fresh rendering every year, then the TAM is significantly lower. Am I right or wrong? Can you give some clarity?

Yes, so there are two different things here. First is the ambitions that we have is not solely dependent or relying on Indian Railway Propulsion System. Indian Railway Propulsion System is a launchpad. If you talk about propulsion system for locomotives, yes, it is 1,500 annually, and then it is going to be tapered at 1,500, 1,200, more or less. But then the real increase of time is in the train set.

Mr. Mindun, could you please come back in the question queue for the question, sir?

Sure. Yeah, sure. Thanks.

Thank you, sir. The next question comes from the line of Nishita with Shafaya Capital. Please go ahead.

It's being recorded.

Yes. Hello. Am I audible? Yeah, so I had a few questions. My first question is on the Audible. You mentioned that a few of our orders were delayed. Can you quantify the orders that were delayed and which we are expecting in Q2?

No, we cannot quantify it because that would not be right for us today. But what I can tell you is that It's a matter of time.

By the end of FY27, what does our closing order book look like? If you can give some sort of guidance on that?

No, we cannot. Can we? No, we cannot provide that today.

Okay, no problem. And I just wanted to understand that the current 5% EBITDA margin that is done, is there any scope of the margins going lower or are these the sustainable numbers for at least next 4-5 quarters?

The consolidated margin, as I mentioned in the speech also, consolidated margin is lower because we have the going up in our advance entity, even the advance of the state level margins are much more, around 10.8 percent of it. Yes, so it will take some time, maybe three to four quarters, maybe it takes, okay. If you see that, what says, in March to June. Where we have done poor in the hospitality industry consolidated, it has been already improved.

Okay.

That is maximum. We are just expecting it to be five years, three to five quarters years to improve all this.

Okay. So, like, in four to five quarters, we can expect a little difference to be a bit-time location, right? Yes.

Yes, correct. Definitely.

Okay. Okay. Understood. Yeah. Thank you so much. That is it for now.

Thank you. Ladies and gentlemen, if you wish to ask a question to the management, you may press star and 1. The next question comes from the line of Ashish Souni, an individual investor. Please go ahead.

Sir, regarding this memo and Vande Bharat orders which we got, so who are our competitors and any margin profile for this order, if you can share, and this U.S. order, is it some sort of like trial order and it will ramp up after this trial order? Just give a color on that as well.

Yes, I've already covered this before. The U.S. orders are prototypes, and once they are executed, we'll expect bulk orders. For the train set orders, our competition profile is the same as the propulsion system and other electronic products that we serve. It's all the same competitors. We cannot give any indication of the margin profile product-wise.

Okay. And in your opening commentary, you spoke about propulsion, I think, 9,000 kilometers. So when do you think it can get completed and you can move from the development to the main vendor stage for the propulsion system for Indian Railways?

We expect the field trials to be completed in the next few months. However, at this point, it's perhaps more advantageous for us to stay in development. Because we are eligible for 20% of the tendered quantity, whereas there are about 6 or 7 different people in the approved source fighting for the balance of 80%. So mathematically, it makes a little bit more sense to be where we are at this stage.

Okay. And in terms of your own margin profile for this Memu, Vande Bharat, and Propulsion, which is the highest one for you? You don't need to give number, but at least from the ranking perspective, which is the one which is having higher margins for you?

I think, you know, obviously we have more clarity on the propulsion system because we are already into it, so that is obviously better, but Memo and One Day Metro, you know, we are still in the prototype stage, so we would not like to share more at this point of time.

And one last question about that 1 billion aspirations, when do you think strategy can come for the investors, like what you guys are thinking, because it was discussed in last on call as well as today also, but when is the strategy coming for investors to look at it?

No, the strategy is already in play. We will not make it public, that's for sure, but it's already in play because all of these things that are resulting into new orders is a part of that big aspirational ambition that we have. And you keep seeing different things happening throughout the year, and, yeah, that's what we're working towards.

Okay, so thanks on all this. Thank you.

Thank you. Before we take the next question, we would like to remind participants that you may press star N1 to ask a question. The next question comes from the line of Uzair Lali with AUSAC Financial Advisory. Please go ahead. Mr. Huzer, we can't hear you. Could you please use your headset? No, sir, you're still not audible. Can you speak a bit louder or use your headset?

Oh, yeah. Hello, am I audible now?

Yes, sir. Perfect. Thank you.

Yeah, sir. I have a question related to this propulsion system. Like, what is the delivery payment structure? Suppose we get an order for a propulsion system. The delivery lies somewhere around 18 to 20 months, let's say. So, what is the payment structure here? Is it milestone-based payment or will we get the complete payment after delivering the system? After delivery. Okay. And one more question, sir, like, what is our strategy for this defense segment? Like, what major products are we targeting? Any idea on that? And will it be, like, majorly are we targeting the domestic defense segment or we are looking for export also?

No, we are looking at multiple different avenues within defense locally at first. We don't know exactly what product it is, and we cannot disclose that, but it is within the existing code profile that we have.

Okay, that's all from my check. I'm just honest.

Thank you. The next question comes from the line of Sajal Raj with ZFlow Finance. Please go ahead.

Hi, sir. An audible? Hello.

Yes, you are audible.

Yes. So, sir, I just wanted, if possible, can you give a guidance on the number of propulsion units that you will be able to produce in a year when the approval comes?

So, if you're talking about the locomotive propulsion system, we gave up for about roughly 120 sets per annum, but we are staging the, you know, The facility for the quantities as we scale up the numbers. So, it's not an infrastructure issue at all. It is more about the numbers, the orders that we've taken. So, we don't see an issue with the production capacity. Okay. Thank you.

Uh, yes, Mr. Sejal, does that answer your question? Yes. Okay, thank you. Participants who wish to ask a question may press star and one. The next question comes from the line of Madun James with Moat PMS. Please go ahead.

Yeah, thanks for the follow-up. So, the question is regarding the development vendor status that we discussed now. So, are we the only development vendor currently for propulsion systems? As I understand, part of the question is that, as I understand, there are only two Indian origin full-service vendors, and then there are other multinationals like PMANJAM, Alstom, ABV, etc. for propulsion systems. So, do we have, does the railway push for Admadurbar or indigenization for the propulsion systems? Are they given any specific weightages, the likes of Medha and MB? And do we get the entire 20% development with the water in the tenders?

So, answer to your first question, yes, we are the only development vendor for the propulsion system. In terms of, you know, Rest of them are multinationals, as you said. But there is, as far as preferential treatment, there is no preferential treatment. It is more about the performance. So Indian Elvis qualifies the vendors based on the quality and performance, reliability of the product, and not any specific preference.

But recently we came across a

news item which says that, which has put up certain conditions, saying that the technology...

Oh, sorry to interrupt. Mr. Medhun, could you please speak a bit louder?

Yeah, am I clear now?

Yes, sir, you're clear.

Sorry. So, we recently came across a news item which says that the Indian railways have put up certain conditions where in which the technology has to be, either it has to be 10 years old or it has to be within India, and there are multiple conditions like that. So does that disqualify some of the multinationals or companies which have sort of acquired technology from the multinationals to participate in these propulsion tenders?

Sir, I think as far as our current participation is concerned, tender qualification criteria follows the UAM portal guidelines, and there is nothing that indicates that, you know, whatever you have just mentioned, this is not something which applies to our product range right now.

And does it benefit you in some way so that some of the current players are sort of weeded out because of that?

The benefit is definitely in terms of the quality, reliability, and the design control that we have on the product. So because everything is homegrown, so we have 100% control on our technology, whereas... You know, few others may have to be dependent on external, you know, support. So, that's the benefit.

Oh, yes. Sorry to interrupt, Mr. Midun. Could you please come back in the queue for further questions?

Yeah, sure.

Thank you. Our next question comes from the line of Karvit Koheld with Serini Alpha. Please go ahead.

Hello. Am I audible, sir?

Yes, sir.

And thanks for your opportunity, sir. And my question on post-size, like quarter-run management care, We protected from exclusion clause on 4-5. And in standalone financial statements, we see margin on return compared. So can you tell us is there any trade charges and other costs or is there any exclusion clause area?

You see, the margins are maintained by large, but employees cost has a little increased, as we have mentioned in the initial month's speech also, we have the big targets for that. So we have recruited the number of employees, but the benefit will be seen in the coming year. But we can say today we have more than approximately 200 employees in the R&D also. If you are sure to analyze all this backup of the cost, etc., if you are sure to earn the increase in the in-place cost, we are done much better, so that's what is worse than that before, also last year.

Okay, okay. Means our escalation quality is the same, sir, as you mentioned this quarter.

Correct. Yeah, correct.

Thank you.

Thank you. Ladies and gentlemen, due to time constraint, that was the last question for today. I now have the conference over to the management for closing comments.

I hope we have been able to address all your worries. Thank you, everyone, for joining the call today. It was a pleasure to speak with you, and we look forward to continuing our engagement soon. Thank you.

Thank you. On behalf of HiRec Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.