RITES Limited (RITES) Q2 2027 Earnings Call Transcript

Good morning, ladies and gentlemen. I am Kartikeyan, moderator for this conference. Welcome to the conference call of Rights Limited to discuss its Q2 FY27 and H1 FY27 results. We have with us today Mr. Rahul Mittal, Chairman and Managing Director, Dr. Deepak Tripathi, Director Technical, Mr. Krishnagopal Agarwal, Director Finance and Chief Financial Officer, I'm Mr. Prem Singh Meena, Director of Projects. At this moment, all participants are in listen-only mode. Later, we will conduct a question and answer session. At the time, if you have a question, please press star and one on your telephone keypad. Please note, this conference is being recorded, and in the interest of time and fairness to all participants, you are requested to restrict yourself to one question per participant. Time permits. You may come back in the question queue. Now, I would like to hand over the floor to Mr. Rahul Mittal, Chairman and Managing Director, Rights Limited. Thank you, and over to Esau.

Morning, everyone. Let me start with giving the Sefa 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. At the outset, I would like to just correct Karthikeyan. Director projects, Mr. Meena has not been able to join due to some exigency. The other directors are here and the company secretary. Let me give the opening of... Summary on our perception of the Q2 results. The performance has been muted, and An analysis of it shows that it is primarily due to two, three important revenue milestones sliding marginally by a few days and then 15 days into quarter three. So that has affected both the top line and the bottom line. Then that has had an impact both on YOY, both Q2 as well as H1 to H1. But the way the execution has been planned, we are quite reassured and confident that the guidance which we had given at the beginning of the FY and reiterated at the end of Q1, that remains on track. So that's the broad overview, and I'll get into details as we proceed ahead with the detailed questions.

Thank you.

Ladies and gentlemen, now we begin the question and answer session. If you have a question, please press star and one on a telephone keypad. In the interest of time and fairness to all participants, you are requested to restrict yourself to one question per participant. Time permits. You may join back the question queue. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. Ladies and gentlemen, if you have a question, please post star and one on your telephone keypad. The first question from the line of Gaurav Giridhar, an individual investor. Please go ahead.

Good morning, sir. Thank you for giving me the opportunity. I'd just like to ask that, how would be the margins going forward? Will they be, you know, on a growth trajectory? Will they be on the same level? How would it be?

Morning, morning, Gaurav. So, if you see the margins for Q2 and also if you see the margins on an H1, the EBITDA margins on a console basis are at 22% and 17% on the PATS margin. Which, as we have been giving the red lines for EBITDA margin on 18-20% and PACT margins for about 15-16%, these red lines we are very confident that even on a quarterly basis, on a half yearly basis and an annual basis, we will not breach in any way. However, on a particular quarter, based on the blend, because as you see, in this quarter itself, there has been a substantial contribution of the turnkey segment. YOY, there is an increase in about 70 crores in turnkey, whereas export, there is a dip of 60 crores. There was zero booking of export in this quarter. So, the blend change may, will, in fact, impact the margins, but overall, this is the levels, by and large, on an annual basis that we'll remain on, especially in the... Second half, as the export delivery picks up pace, it will be slightly higher margins compared to, obviously, the turnkey segment.

Okay. Thank you so much. I'll come back and see. Thank you. Ladies and gentlemen, if you have a question, please press star and one on a telephone keypad. Yeah, the next question from the line of Mr. Vishal Perival from PL Capital. Please go ahead.

Yes, thanks, sir, for the opportunity. Sir, I mean, though a brief has been provided in the presentation that the delivery for the Bangladesh coaches has begun, so I think it is mentioned one rate is already delivered. In terms of more numbers, can you provide, like, in this quarter, how many are expected, and then a quarter four, I mean, what sort of delivery we are expecting to make in this order?

So, yes, Rishal, morning. As I mentioned, this first rake, being the first rake, it required a lot of final checks, inspection by third party, etc. So, while you were targeting it at Q2, it slid by about 10-12 days, and in fact, that has an impact both on the top line and the commensurate bottom line of Q2. But once the first rake has gone and it is now being put into service there very shortly in Bangladesh, so the learning experience for both us and Bangladesh Railway will expedite the production for the subsequent rakes. I foresee that regular basis, while in the second quarter, I mean the quarter three, the second rake would near completion, but again revenue booking as you know in export happens and in final dispatch. So I would, while the efforts are on, but I think the deliveries of these subsequent rakes would happen Q4 onwards. And whether it is about two rakes or three rakes, we will try and fine tune. And by the end of this quarter, we'll get a better picture. But definitely at least about two rakes minimum in quarter three, only quarter four.

Okay. So, we have totaled 10 rakes. One is delivered, another two in the remaining part of financial year, and then seven will go to FI28. Is that fair to understand?

Yes, very much so. In fact, the balance seven rakes will pick up pace very soon after the second rake onwards because the design and the manufacturing and the acceptance will get streamlined. So the seven rakes definitely, they have to contractually also get finished in the next FY. So the pace of picking up the third, fourth reconverse will be very much faster.

Sure, sir. I think this is very helpful. Maybe a similar thing, if you can provide on Mozambique, that will be agreed, sir. I'll come back in the queue for more, sir. Sure, sure.

Thank you. Ladies and gentlemen, if you have a question, please press star and one on the telephone keypad.

We have a follow-up question from Gaurav Girigar, an individual investor.

Please go ahead.

Thank you so much for the opportunity again. Sir, I would just like to know the effects of the 8-day commission on our books, how will we impact right now?

Yes, Gaurav, I am glad you raised this point. This is a very important hit that we have for And, This will be the provisioning will start from the quarter four. We have already done the calculations, trying to fine tune it based on the last pay revision, which happened in 2017. And based on this, this is equivalent to like for the CDA pay scale, it is the eighth pay commission. For PSU, for the IDEA Pay Scale, it is the third pay commission, and it is effective from 1st January 2027. So, the provisioning as part of good governance has to be started from Q4. It's quite a substantial amount. We are still working out the exact numbers based on the last trend which was there, and considering our strength has increased quite substantially in the last 10 years, This provisioning will start from quarter 4 and will continue then on a regular basis on every quarter, even till even the final commission results, I mean the recommendations are approved.

Thank you. Thank you so much for the information. It's quite useful. Thank you.

Thank you. Ladies and gentlemen, if you have a question, please press star and one on a telephone keypad.

Ladies and gentlemen, if you have a question, please press star and 1 on a telephone keypad. The next question comes in the line of Lakshmi Narayan GK from Shema, Wealth Private Limited. Please go ahead.

I have a question for the opportunity. Sir, could you just give a gist of the export order which I had to be delivered, sir?

Morning. So, As I think one of your, I think Vishal had asked, the Bangladesh order, I had given the details, about nine rakes are left, which is about 182 coaches. 18 coaches went in the first race. And the major order which is ending is the ICVL Mozambique of five locomotives. So these are the major bulk orders. And as we said, we are trying to start in a short compressed time because this is a recent order, but still we are stepping up trying to start the deliveries of the Mozambique locomotives at least. The first locomotive in quarter. Major export of rolling stock orders. Besides, there are orders for the development that we did for conversion of the in-service diesel locomotives to Cape Gauge and Standard Gauge. Those are also there, but these are, those have been bits and portions of two locos, four locos, etc. And those are more of developmental orders, which may have a little longer lead time because as the first trial development, Department Locos goes and get approved, then the

Department Locos is purchasing deliverance.

Understood, sir. The next question comes online of Arian Shetty from Lenox Capital. Please go ahead.

Hi, thank you for the opportunity. So, I wanted to ask, is the FY27 growth guidance still realistic? Because H1 revenue grew about 5% and Q2 only about 1.5%. Again, the guidance that you have given of a double digit growth rate this entire year. So, to get there, I think you would have to grow about 14 to 15% in the remaining quarters. So, are we still confident about that growth in FY27 or will it be shifted to FY28?

Yeah, go ahead. Am I audible now? Yes, I think we lost some technical glitches.

Okay. So I was asking that if FY27 growth guidance is realistic. So if we look at H1 revenue, it grew about 5% and quarter two only grew about 1.5% against the double digit growth guidance that you have given for this entire year. So to go there, I think H2 revenue would have to grow at about 14 to 15%. So are we still confident about that growth in FY27 or some of it would be shifted to FY28?

I'm glad you asked that question because at the outset, as I said, some of the milestones slid by a few. The revenue realization slid by about 10-15 days into Q3. But the way we have looked at the planning for H2, we seem quite confident, especially, you see, in export of rolling stock, the revenue gets booked on a lumpy basis when the entire set gets delivered. So, but we are still quite confident that the guidance that we maintained of a top-line double-digit growth on a console basis, operating revenue, we are on track for that.

Okay, and just a follow-up on this, how much of the growth do we expect from exports versus turnkey work?

So both will step up. In fact, the Q2 as well as H1, if you see, the export booking was zero, and turnkey was a substantial amount, 100 crores plus YOY, H1 to H1. So, as I had mentioned in my previous interactions, the turnkey order book is also young. And that is why the execution has started picking up pace. These are all bulk of these turnkey orders of 4500 crores or about 18 months or 24 months, 12 to 18 months old. So they will definitely pick up pace even more in H2 and export having the first rake having gone will pick up pace. So H2, that's why we are confident that contribution from both export and turnkey will see a substantial growth with H1 and that's why we are on track to see that the top line has a double digit growth YOY.

Okay.

Thank you so much, and all the best.

Thank you. Thank you. The next question comes from the line of Priyankar Sarkar from Square64 Capital Advisors LLP. Please go ahead.

Good morning, sir. I hope I'm audible.

Yeah, Priyankar, go ahead.

The first question is, what is the sustainable growth rate that we can achieve in our consultancy segment? Because what I see that over the last, let's say, longer term of five-year horizon, right, we have grown in single digit, mid-single digit. So, is there a possibility of accelerating that or this is how it is going to be sustainable going forward next two, three years?

Well, I'm glad you asked that question, Priyank. In fact, you see, the consultancy has been, as you correctly said, in two, three years, in about single-digit growth, there's been a shift in a huge amount from nomination to consultancy in all elements, nomination to competitive bidding in all elements of our consultancy revenue, whether it is quality assurance, whether it is project consultancy, whether it is international consultancy. So, having stabilized in the order inflow on a competitive basis, our fresh order inflow is about 70% plus on a competitive basis in all our segments of consultancy, I am quite confident that while an upper double digit may be a difficult target right away, But on a near future, we definitely are able to see at least touching a double-digit growth in overall consultancy revenue.

Right, sir.

That's good to hear.

Second, sir, can you throw some light of, you know, I know you have given the EBITDA margin guidance in the past also.

Piyanka, I request you to come back in a queue for the second question, please. Thank you. Sure, I'll do that. Thank you.

Thank you, sir.

Next, we have follow-up question from Vishal Parival from PL Capital. Please go ahead.

Yes, thanks for the follow-up. Sir, regarding Mozambique also, can you provide some clarity? And follow-up is that, like, you know, in export, we have Bangladesh, Mozambique, and there's one more South Africa. So, similarly, if you can provide some clear, then the third order will enter into execution or revenue booking stage for us.

Yes, so Vishal, the two main orders in export of rolling stock are the Bangladesh and the Mozambique five locomotives, about 150 crores. So that the five locomotives, as I said, while it is a recent order and we have substantial time available as per the contractual conditions, but we are stepping up on the... Vishal, am I audible? Yeah, I think some techniques. So, the first locomotive, we are definitely aiming that it gets ready by quarter 4, and we are quite confident that that seems to be on track as of now, and we will definitely aim that we finish the order latest by H1 of the coming FY. That's the outermost limit. So with this, I think these five locomotives will be delivered well above before their targeted time. Bangladesh have already given the details. These are the two main orders. The other orders of South Africa and other countries in Africa are the in-service developmental loco where we have converted them from broad gauge to cape gauge. In fact, two locomotives are ready and they will be shipped out in the coming months because these are the first trial developmental locomotive. And these are a number of orders which have clubbed into about 20 odd locomotives of different geographies in the African continent. So they will be spread over a period of time being a developmental order. But once these developmental prototype locomotives reach there and stabilize, by next year, this will become a steady flow of locomotives both in delivery as well as getting further orders because this is a developmental effort made by us.

Okay. Sure, sir. I think this is helpful. I'll come back in the queue, sir.

Thank you very much, sir.

Thank you. We have the next question from the line of Nemesh Sundar from LRA Capital. Please go ahead.

Yeah. Hi, sir. Thank you for the opportunity and congratulations on a good set of numbers. Could you just throw some light on the Sri Lanka export order also? Like, how would you be, from when would you come and see delivery and how would it vary across quarters?

No, right now, as of last, of this Monday, we have been only declared L1, and being an important event and a substantial value, we declared it to the exchange. It's about 41 million USD, about 400 crores. We are hopeful that soon it should get converted into a formal LOA. The delivery as per the contractual requirement is 12 months from opening of the LC. So that again is a tight delivery schedule and we have already started preparatory planning for it. But as soon as the LOA comes shortly and the LC formalities are finished, we will try and deliver it within the 12 months. It is five sets of DMUs or seven coaches each.

Okay, thanks, sir. I will get back in with you.

Thank you.

Thank you. We have a next question from the line of Meghal Patil from A&B Capital. Please go ahead.

Hi, sir. Hello.

Your voice is out. Can you...

Sir, am I audible now?

Yes, thank you.

Yeah. Sir, I just wanted to know if there's any...

No, in fact, as we gave a declaration yesterday, as of now that JV is not materializing, this was an advanced state of negotiation, but as of now it is not materializing, so let's see, it's on hold right now.

Okay, okay. Okay, thank you. Sir, I had one more question. Sir, the contract staff has grown quite a bit, like by around 500 in a year, and our regular staff is falling. And so turnkey work now is nearly half our order book, and it is growing at like more than 60% while consultancy work is flat. So, I just wanted to know that over the next three to five years, do we see rights mainly as a consultancy or as a project execution company, and how will we sustain EBITDA margin if our next shifts?

So, the two elements to your question, one is that in terms of the employee strength, the regular employee strength is in fact not dropping. There has been a fresh induction of about nearly 100 regular employees which equalized the large number of superannuations which happened in about 15 to 18 months because rights being incorporated in 70s, 74, there was a huge induction in 1890. So, these are the people who are super, there is a peak of superannuation in these 3-4 years. So, the net strength of regular employees with this heavy induction has been same. It has not decreased. The contract employees has been substantially also increased because these are based on the project's deployment. As we have touched an all-time high order book in the last one, one and a half years and maintained a fresh order inflow of one plus order a day now, each of these projects require also deployment of a mixture of both regular employees and project-based employees. In terms of turnkey, the turnkey is, we are not an EPC company, we are not a construction company as I have reiterated several times. Even the turnkey order that we have about 4500 crores, none of them are EPC contracts. These are all cost plus turnkey where primarily our role is the same as a pure consultancy contract of a PMC. The only methodology difference is the accountant, whether some of the clients like educational institutions and hospitals, etc. prefer that the entire revenue and order book flows through our P&L. For example, if our fee is 5 rupees, instead of the order value being 5 rupees, it is 105 rupees. So that's the only difference. So we remain, we are and we will remain only a consultancy company. It's only a question of the accountant and obviously because the denominator becomes large in a turnkey order, it shows in lesser margin.

Sir, but still it will impact.

Ma'am, you can come back in a queue for your follow-up question.

Sure, sure, not a problem.

Thank you. Thank you. Ladies and gentlemen, if you have a question, please press star and one on a telephone keypad. Next, we have follow-up question from Priyankar Sarkar from Square 64 Capital Advisors LLP. Please go ahead.

Sure, thanks. You have already guided us for the margin, you know, bottoming out around 20 percent, but would you be able to give us a sense of is this the bottom, can we ever get back to the 25 percent plus EBITDA margin? Because I have been a shareholder of your company for the last five, more than five years. And over the years, the margins have just kept on going down and down. That's because of the mixed change, which I've also reiterated. All of us can see that. But would it be fair to say that margin radically can get back to 25% plus over the next 3-4 years? Or are we structurally down to that 20% margin level? I just wanted to get your thoughts on this.

No, I'm glad that you asked this. You see, you're correct. You've been following the company for five plus years. The margin reduction is not just on the blend mix. It is also because if you see the breakup of the order book five years back and see the breakup of the order book now in terms of nomination and competitive, there is a complete reversal. So, as of 30th September, which you must have seen in our presentation, it is about 60% plus on competitive and about 37% on nomination. And this is the order book. The fresh order inflow is about 70% plus on competitive and only about 30 odd percent in 20, 27, 28% on nomination. So, once you are competing on getting orders on a competitive basis, whether in domestic or international or in export, the Bangladesh export order was our first export order in 50 years on a global competitive tender basis. The Mozambique orders, both the Mozambique orders and the Sri Lanka, which we are L1, these are global competitive orders. So, with that trend now being there, the possibility of coming back to the margins of 25% plus EBITDA margins, which were there five years back, that is not a possibility at all. What we are doing strategically and we are keeping a very close watch that the red lines, as I said, of 20% and 15% PAT margins, that in no way should be breached.

Thank you, sir. Thanks for the clarity.

Thank you. Ladies and gentlemen, if you have a question, please press star and 1 on your telephone keypad. Ladies and gentlemen, if you have a question, please press star and 1 on the telephone keypad. Next, we have a follow-up question from Neme Sundar from Ellara Capital. Please go ahead.

Yeah, thank you for the follow-up. Thank you for the follow-up, sir. My question was on the quality assurance segment. Can you just throw some light on how was the performance during the quarter and how did I expect it for the remaining part of the year?

Yes, the quality assurance vertical is a classic example of, I was explaining to Priyank just before you, of a change, as you are aware, from the nomination to the competitive mode. And you have seen in the last two years, this has hugely recovered, not only in terms of the revenue, but in terms of the profitability. In fact, this quarter, there has been a growth of about 15% plus YOY on its contribution in the revenue to the consultancy revenue. So, the quality assurance in terms of its expansion, both in the Indian Railway and non-Indian Railway clients, to give you an example, we are, you know, doing the inspection of as varied items as items for these renewable energy items, which are software like PCs and tablets, etc. In any case, safety inspection of items like axels, rails, etc. And also, we've got the recent orders for AI-based tools for inspection of rails. So, quality assurance, there is a huge, huge revival, and this trend is going to continue. We have come out of the business re-engineering that we did for our quality assurance vertical.

Thank you.

Next, we have a follow-up question from Aryan Shetty from Linux Capital. Please go ahead.

Hi, sir. Sir, I wanted to understand what new are we doing in REMC? You've talked about renewable energy consulting and overseas work for REMCL. So, have any of those orders come through yet, and by when could they be meaningful?

Yes, RMCL is progressing on line of the diversification. In fact, just yesterday, we signed our MOU under this Renewable Energy Conference that has been happening in Italy with the Global ISA, International Solar Alliance, which opens up the opportunities for international consultancy by RMCL. We have already started tapping opportunities and giving EOIs. In terms of consultancy in renewables and net zero, etc., we have already got about 7-8 orders in the last 6 months, an order book of roughly about 10 crores, and this is a recent development. So, these will start generate, some of it has already started generating revenue in Q2, but by the end of this FY, next FY, this will be a substantial contribution in terms of the top and bottom line. So, both in terms of diversification in the domestic and in terms of the international consultancy in RMCL, the green shoots have already started showing. And in fact, as I said, quarter two, it has already started generating revenue.

Thank you.

Thank you. Ladies and gentlemen, if you have a question, please press star and one on a telephone keypad. Ladies and gentlemen, if you have a question, please press star and one on a telephone keypad.

Again, we have a follow-up question from Nemesh Sundar from LRA Capital.

Please go ahead.

Yeah, thanks for the follow. Also, just on a macro bit, are you seeing any slowdown in awarding of any rail tenders or like this year because of the elevated crude prices and the overall front, you expect that the railway budget this year could see any constraints in being fully deployed?

Well, as far as we are concerned, we still continue to get a large number of orders on our various verticals doing railway consultancy, whether it is the, you know, the alignment studies for fresh corridors, whether passenger or freight, whether it is the design of bridges, tunnels, or whether it is the quality assurance, etc. So, we are, in fact, recently also, this quarter also, we've got, our rail infra vertical has got orders, and even in this one month, we have got some fresh orders. So, as far as we are concerned, all our verticals getting orders from the rail sector, our rail infra vertical is getting orders.

Okay. Thank you so much. I ran all the best.

Thank you.

Thank you. Ladies and gentlemen, if you have a question, please press star and one on a telephone keypad. Next, we have a follow-up question from Parimal Mitani from Credential Investments. Please go ahead.

Hello. Good morning.

Morning, Parimal.

Go ahead.

Yeah, sir. I just wanted to know in terms of turnkey, I know we have a costless business model, but are we still going to pursue more turnkey because the order book is mostly blotted with turnkey? So how do you go from here?

No, so, see, as a business model, we are not really, that's not something which is our business model. In fact, many of these turnkey which you see are 4,500 crores, the, as I explained, our scope of work is totally of consultancy. At the time of signing the agreement in terms of accounting, etc., many clients prefer to convert it into a complete flow of the order or revenue through our P&L. So, in terms of our specifically pursuing that as a business model, as I said, that's not our business model. We are not an EPC or a construction company. So, the scope of work, and this is primarily in the rail infra and building verticals, and primarily a bulk of it is in the building verticals, which if you see the breakup of those orders, they are educational institutions and some hospitals. So, that is basically the accounting method.

And okay, so you mentioned in the call, you know, regarding the JVs and all of it, I've signed a couple of JVs over the last three to four since we've been tracking the company, but a lot of them have not seen any fruitification or, you know, so what is the, you know, where are we stuck with or is there some afterthought that the JV is not in the right place, basically?

No, no. As far as we are concerned, we today have only one subsidiary, RMCL, and one JV with SAIL, SAIL, KULTI, and both are doing extremely well. The one of the one which I mentioned, that was a new initiative, NICC, which has not been metallizing as incorporation of a new JV. And the other one was a project-based Rights Africa JV, which was there for quite some time, and now that we have processed for its closure, because that project, for quite some time, there were no fresh induction of projects. So, we don't have any many JVs or subsidiaries. There are only two elevations, RMT and Sail Kulti.

No, sir, my point is in terms of, we had with DMV in terms of consultancy, and is there any, in terms of, we tied up with a global company called DMV for consultancy business.

So, is there any fortification to that, or what is the status you can do?

No, no. So, those, let's be clear. They are not JVs. These are partnerships or MOUs which is done for various business initiatives. And this is for part of a quality assurance business. And we are working with them in the quality assurance vertical. So, we have a large number of entities, both domestic and international, who complement and supplement our strength for various verticals. We have 13 different verticals, but we don't have any incorporated JVs or subsidiaries except these two, RMCL and CEL Kulti, and as I said, right now, which is under closure.

Okay, thank you, and all the best. Thank you.

Thank you.

Ladies and gentlemen, if you have a question, please press star and 1 on a telephone keypad.

As there are no further questions, I would like to hand over the call to the management for the closing comments.

Thank you. Thank you very much, and I'm glad that the key elements were covered by each of the questions which were asked, and this is just to reiterate, which I said at the outset, that while the performance of Q2 has been muted, but I don't see any major reason to deviate from the overall guidance for the year, Which, if I summarize again, was a double-digit growth on the top line, and even with the blend mix as well as the provision, which will be a substantial amount for the pay commission to be done in quarter 4. Therefore, despite that substantial hit, we will definitely try and see to surpass the profits, the bottom line of the last year, and the margins being, as I said, EBITDA margins on a console basis, red lines of 18-20% and back margin of 15-16% and definitely continuing at the rate of one order a day and targeting 10,000 crore order book. So this guidance, which I had given at the beginning of the FY, And reiterated at the end of Q1. All of these, we are on track for this current F1. And I'm sure the subsequent two quarters in H2 will see faster and better execution so as to be able to adhere to this guidance. Thank you. Thank you very much.

Thank you, sir. Thank you all for being a part of the conference call. If you need any further information or clarification... Please email at investors at rights.com. Ladies and gentlemen, this concludes your conference for today. Thank you.

Thank you.