RITES Limited (RITES) Q2 FY23 Earnings Concall Transcript

RITES Limited (NSE:RITES) Q2 FY23 Earnings Concall dated Nov. 11, 2022

Corporate Participants:

Rahul Mithal — Chairman & Managing Director

Analysts:

Pujan Shah — Congruence Advisers — Analyst

Harshit Kapadia — Elara Securities Private Limited — Analyst

Venkatesh Subramanian — Logictree Investment Advisers Private Limited — Analyst

Rohit Natarajan — Antique Stock Broking — Analyst

Harshit Kapadia — Elara Securities Private Limited — Analyst

Shreyans Mehta — Equirus — Analyst

Viraj Mithani — Jupiter Financial — Analyst

Kunal Sheth — B&K Securities — Analyst

Parimal Yatish Mithani — Credential Investments — Analyst

Prasanth Gopal — Spark Asia Impact Managers Private Limited — Analyst

Ankur Sanwal — Individual Investor — Analyst

Presentation:

Operator

Good morning, ladies and gentlemen. Welcome to the RITES Limited Q2 FY ’23 Results Conference Call Hosted by Elara Securities Private Limited. As a reminder, all participant lines will be in the listen-only mode. And there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions]. Please note that this conference is being recorded.

I now hand the conference over to Mr. Harshit Kapadia from Elara Securities Private Limited. Thank you. And, over to you, sir.

Harshit Kapadia — Elara Securities Private Limited — Analyst

Thank you, Lizelle. Good morning, everyone. On behalf of Elara Securities, we welcome you, all for the Q2 FY ’23 and H1 FY ’23 Conference Call of RITES Limited. I take this opportunity to welcome, the management of REITs Limited represented by Shri Rahul Mithal, Chairman and Managing Director; Shri A.K. Singh, Director Projects, Shree, B.P. Nayak, Director Finance and Shri Joshit Sikidar Company Secretary.

We will begin the call with a brief overview by the management, followed by a Q&A session, I’ll now hand over the call to Rahul sir for his opening remarks. Over to you sir.

Rahul Mithal — Chairman & Managing Director

Good morning, everybody, and welcome to the. Call. I’ll begin with the safe harbor statement. The presentation which we uploaded on our website yesterday and discussions during the call today may have some forward-looking statements. These statements are considering 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.

Let me begin with a few opening comments. The Q2 results were as per our projections and our outlook that we started the financial year with. We saw a good sequential growth. And, there was a good growth vis-a-vis H1 of last year. There was a challenge in terms of the dip in the export revenue because as we had said in the early on the balance part of the export orders were evening out and, new orders were in the pipeline.

However, with. Very. Combined efforts of all our verticals we made good that shortfall by increased turnkey revenue. As well as maintained the margin, which was a tough challenge by concentrating on key consultancy high-margin areas. So, all-in all it’s been a good growth both, sequentially, as well as year-on-year and it reiterates the firm belief in our core strength, that even if one particular stream of revenue dips temporarily in quarter, we have the wherewithal and the inherent strength to be able to make-up both the top line and bottom line from our other streams of revenue.

With those opening remarks, I leave the floor open for all questions.

Questions and Answers:

 

Operator

Thank you. Ladies and gentlemen, we will now begin with the question-and-answer session. [Operator Instructions]. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, we request you to limit your questions to one per participant only. The. First question is from the line of Pujan Shah from Congruence Advisers. Please go-ahead.

Pujan Shah — Congruence Advisers — Analyst

Good morning, sir. My first question would be on the order books, sir if we see the order book currently we are at 5,000 crores and if you see the Q2 we have been at 5,200, I may it must be said that, it must be realized something on the order book but as the CapEx of the railways going on, so where do we stand on the exact point if, you can tell us to and the, second is which specific segment will be start contributing more on the. Order book side as we are seeing the Turnkey would be a better project mix, but also consultant is giving up the strength, so how has been going so far? And, yeah, so this is my first question.

Rahul Mithal — Chairman & Managing Director

Right. So, as you correctly said, our current order book is INR5,000 crores with the broad breakup of consultancy, about INR2,400 crores, turnkey, about INR2,000 crores the balance export from the current order is INR300 crores and leasing and subsidiaries total up to balance about INR300 crores. So with this broad break up, as I mentioned in my opening comments, going-forward in these two quarters, the balance export would definitely get over and see the. We are making all efforts to try and get the next export order as soon as possible to minimize the gap in the coming quarters from revenue realization from the export of rolling South Stream. Having said that, as we did in Q2 we, have a strong order book in turnkey also and there are number of orders which we are. Getting in turnkey or will get also we are aiming for that so that, you’re able to tackle the shortfall in one stream from increased revenue on the turnkey stream. Yeah, sir. But the question is majority if we moving out the flex [Phonetic], not losing, but if you’re completing the export and turnkey would be contributing more on this side. So, are we seeing the margin going somehow, some dip in the margins, because turnkey has almost, let’s say, 3.5% to 4% of the margin compared to the export of 22% so like how we [Indecipherable] margins going-forward. Yes. So, as you correctly said, then and, you can see that in Q2 again as I mentioned because the turnkey has much lesser margins vis-a-vis the export so the challenge on margins would remain however as we did in Q2 also we focused and picked-up some key consultancy projects which are higher-margin projects to try and make-good this shortfalls in margin vis a vis turnkey vis a vis exports, so that will be the going-forward for few quarters still we are able to again start getting revenue realization from the export future export orders.

Pujan Shah — Congruence Advisers — Analyst

And if. I could…

Rahul Mithal — Chairman & Managing Director

Thank you. You can come back in queue for your question. Okay, okay, okay. Thank you sir.

Operator

Thank you. The. Next question is from the line of Venkatesh Subramanian from Logictree Investment Advisers Private Limited. Please go ahead.

Venkatesh Subramanian — Logictree Investment Advisers Private Limited — Analyst

Hi, sir, good morning. Two questions, sir. One is, after the completion of the current order book, which I presume can happen over a two-and-a-half year, if you can just give me — give me a guideline on this 5,000 execution timeframe. And during which course, what kind of growth can we assume in terms of the order book being replenished so if I take FY two-three years down the line. If we have to maintain a growth rate, what kind of order book visibility, can you give us, sir?

Rahul Mithal — Chairman & Managing Director

So to put your question in perspective, we are seeing an order book of 5,000 which as I said has a breakup of turnkey of about 2,000. And moving forward, again, as. I have been reiterating in the past also, we are primarily a consultancy company and we will remain so. However having said that, about 25% of our turnover would be from key turnkey projects also. So, to keep that in mind and seeing an overall topline and bottom-line growth of our steady double-digit, we foresee we will have a balance between the turnkey and consultancy order books so that we are able to maintain the top-line and bottom-line bottom-line growth as I mentioned.

Venkatesh Subramanian — Logictree Investment Advisers Private Limited — Analyst

I got it sir. So, which means if this current order book of 5,000 crores gets executed in the next, couple of years or something what do you expect that over the next years, we will be having an order replenishment coming in which will be equivalent or higher to the current order book, sir?

Rahul Mithal — Chairman & Managing Director

Definitely we are already pitching in all our various streams of revenue and I see a substantial order book. Across we would do it diligently and carefully balance between the streams of revenues so that we, maintain our overall bottom lines and margins.

Venkatesh Subramanian — Logictree Investment Advisers Private Limited — Analyst

Okay, sir to factor-in over a three to five-year period.

Rahul Mithal — Chairman & Managing Director

I think you can come back.

Venkatesh Subramanian — Logictree Investment Advisers Private Limited — Analyst

Sir, is it reasonable to expect. 15% growth from right top line?

Operator

Sorry to interrupt Mr.

Rahul Mithal — Chairman & Managing Director

I think you can come back in the queue answered. I have answered my questions. Thank you.

Venkatesh Subramanian — Logictree Investment Advisers Private Limited — Analyst

I’ll do.

Operator

Thank you the next question is from the line of Rohit Natarajan from Antique Stock Broking. Please go ahead.

Rohit Natarajan — Antique Stock Broking — Analyst

Yeah. Thank you for this opportunity. Sir, my question is confined to export orders, I’m given to understand that you are looking at $100 million kind of individual packages in Africa or maybe some other countries like that. What is the quantum of what is that number that you are targeting in terms of export order. And even if you win this order, it is highly unlikely that the work can begin in 12 months or is that the understanding right or is there any short-term quick to execute kind of orders that you are looking for?

Rahul Mithal — Chairman & Managing Director

So, very correctly put, when we started this financial year, we had an order book balance of export for about INR450 crores, out of which we had we have executed in H1, about INR150 crores. And as I had mentioned earlier also that these orders were about two years-old pre-COVID and no orders — fresh orders could be generated during the COVID time, our efforts are on in the last few months across various target countries to be able to get an order. But as you again correctly said, from the time we get an order and the time that it manifests in revenue, because by the time it gets manufactured and shipped it’s a good 12 to 18 months, so our effort is to reduce this time gap or quarter gap between these orders finishing and the revenue generation from the fresh orders. So, I would foresee definitely a gap of about two to three between the fresh revenue coming up and this revenue finishing in the stream in special only and specifically in the exports stream.

Rohit Natarajan — Antique Stock Broking — Analyst

Yeah in terms of order inflow number, order inflow target?

Rahul Mithal — Chairman & Managing Director

So right now that is speculative. As I said, we are targeting three-four countries and we are quite confident that somewhere down the line as soon as possible, the effort is to minimize the gap as much as possible. As I mentioned it could be two-three quarters’ GAAP or effort is to reduce this to maybe one or two quarters, so that as it transition rather than a sinusoidal curve, it should be as much as a flat or a growth curve in terms of export revenue.

Rohit Natarajan — Antique Stock Broking — Analyst

Thank you. I will get back in the queue.

Rahul Mithal — Chairman & Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Shreyans Mehta from Equirus. Please go ahead.

Shreyans Mehta — Equirus — Analyst

Yeah, thanks for the opportunity. Sir my first question pertains to our turnkey segment. We are seeing a good amount of revenue bookings this quarter, so just wanted to understand in terms of the quarterly run-rate, is this the run-rate we should look forward in third quarter and fourth quarter or we are still at those initial stages and there could be some healthy ramp-up in coming quarters?

Rahul Mithal — Chairman & Managing Director

No, now the turnkey are — all our projects are in-full swing. And as you see the sequential growth in turnkey between quarter one and quarter two itself, there is quite a substantial growth of about 30%. And the current trend of Q2 turnkey would remain. In fact, we would be pushing it more in the coming two, three quarters. As I said to be able to as much balance out the drop in export stream revenue for the next two-three quarters.

Shreyans Mehta — Equirus — Analyst

Got it, Got it. Got it. Sure. Sure And sir, my second question is pertaining to the balance sheet.

Operator

Sorry to interrupt, Mr. Mehta. May we request that you return to the question queue? But I am done only with only one question. Sir, we are restricting questions to one per participant. Thank you. The next question is from the line of Viraj from Jupiter Financial. Please go ahead.

Viraj Mithani — Jupiter Financial — Analyst

Yeah. Good morning, sir. Can you give me the breakup of your margins in the order book? As I see the consultants in turnkey are more or less equal. And, your comments on RE NPL [Phonetic], which is INR100 crores, it would be nice if you can just throw some light on it that’s it form my side. No. I didn’t get your point regarding margins in consultancy and turnkey being similar. Consultancy? No, no, sir my point. My question is the margins on the all the segments of the order book consultancy, export, lease and turnkey and RE [Phonetic] is not growing as per admin — it’s just INR100 crores, but what I read in the railways somewhere that, they are planning some huge solar this things are we benefited by that is what my question was.

Rahul Mithal — Chairman & Managing Director

So margins are — in the various segments, the margins have been good. In fact the consultancy, margins have been in the range of about 30%-plus, the inspection and QA and consultancy combined have been in the range of 40%-plus. Exports have been steady about 22%, 23% and turnkeys have been in the range of about 3.5% to 4%. So, so these are these trend of margins. As I said the mix of revenue has been the focus has been to try and buffer the drop in export by concentrating on high margin areas.

As far as our REMCL is concerned, REMCL is focusing on the the growth pattern would be seen as these initiatives in the solar area fructify in the coming quarters. They are — they are work-in progress. And as they mature into finite revenue generators, you will see some growth in the — further upward growth in the REMCL contribution to the revenue.

Viraj Mithani — Jupiter Financial — Analyst

Sir, like over the next three years REMCL can be big on next five seven years because of this push towards renewable and all? We can expect some huge top-line coming from is it fair to — that’s what my.

Rahul Mithal — Chairman & Managing Director

REMCL would definitely see some growth. the quantum of growth, we would — I would not like to speculate, but we are definitely our REMCL is the nominated entity for doing all renewable work for Indian Railways and we are exploring a number of areas in this field. As the coming quarters as they mature into finite orders, we would be seeing the actual amount of growth which we can see in this sector.

Viraj Mithani — Jupiter Financial — Analyst

Okay, sir. I’ll come back in the queue. Thank you.

Rahul Mithal — Chairman & Managing Director

Right, right.

Operator

Thank you. [Operator Instructions]. The next question is from the line of Pujan Shah from Congruence Advisers. Please go ahead.

Pujan Shah — Congruence Advisers — Analyst

Thanks for the follow-up, sir. Just wanted to know the, turnkey, turnkey. Order book completion like if we take the INR1,900 crores of orders, so what is the estimated date of completion? Is it two years, three years.

Rahul Mithal — Chairman & Managing Director

You see normally turnkey projects vary anything from two to four years, because of some of them having issues of land acquisition, some of them, but on an average. I would say good turnkey projects take about two, two-and-a-half years years and some of them take anything from three-and-a-half to four years, so median time for turnkey projects is anywhere between three years, approximately.

Pujan Shah — Congruence Advisers — Analyst

Okay. Okay. Got it. Okay. That is [Indecipherable].

Operator

Thank you. The next question is from the line of Shreyans Mehta from Equirus. Please go-ahead.

Shreyans Mehta — Equirus — Analyst

Yeah. Thanks for the opportunity. Sir, a few clarifications on the balance sheet side. One in terms of our debtors, which were roughly around 700-odd crores have moved to around 840-odd-crores, so is it pertaining to the export orders? And secondly what — CWIP has gone up from 60-odd crores to 76-odd crores. So, what’s the reason behind that? And lastly on the CapEx guidance for the year.

Rahul Mithal — Chairman & Managing Director

So. I think you asked three questions in one, but just to quickly tell you as far as debtors is concerned, that’s a temporary spurt. In fact the good news is that all our export orders the debtors, most of them are getting cleared Sri Lanka which had a outstanding of about INR118 crores, INR100 crores we have received recently, so the bulk of it is received and all our efforts are on also to reduce the balance quantity from Mozambique, so that’s not a worry at all. The debtors temporary is a temporary book [Phonetic].

Further, the — I think the second question you asked was. I don’t recollect, what was it?

Shreyans Mehta — Equirus — Analyst

CWIP.

Rahul Mithal — Chairman & Managing Director

So I didn’t get your question again.

Shreyans Mehta — Equirus — Analyst

So, sir, CWIP as on March was 58-odd crores, which has now moved up.

Rahul Mithal — Chairman & Managing Director

So that is basically the building project, which is there which has contributed temporarily to growth in CWIP. And as far as CapEx is concerned, CapEx we are in the range of about we normally always remain about INR125 crores, INR250 crores and we would be maintaining that trend to we have already done as of now INR79 crores in H1. So, I think we would be on track to maintain about 150-odd crores.

Shreyans Mehta — Equirus — Analyst

Got it. Got it, got it. Thank you and all the best, sir. Thank you.

Rahul Mithal — Chairman & Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Kunal B&K Securities. Please go ahead.

Kunal Sheth — B&K Securities — Analyst

Hi. Thank you for the opportunity, sir, my question is pertaining to if you can give some sense about the pipeline in the domestic market, especially on the consultancy side. And also if you’re sharing any guidance on order inflow for the current.

Rahul Mithal — Chairman & Managing Director

So as far as the pipeline and consultancy is concerned, we have been pitching and getting a lot of orders. In fact in quarter two itself, we got a total of 70 orders worth about — total 70 orders. Most of them consultancy — about 60-plus are consultancy, totaling to about 400-odd crores — sorry the total 70 orders totaling to about INR440 crores and, out of 70, about 60 plus are consultancy orders. And including the recent one which we got for Ahmedabad Metro Phase 2 also. So going-forward across sectors, whether it is the consultancy in metros or buildings or highways or smart cities we have a, number of orders in pipeline in turnkey also we have been pitching to maintain a healthy mix in our top-line of about 25% for various key projects in turnkey and one most recent order which we declared to the exchange also which we’ve got is the Bangalore Metro turnkey order, which our share is about INR250 crores. So in terms of the total order whether in consultancy or in turnkey, the trend is good enough and we hope to build upon it further in the coming quarters.

Kunal Sheth — B&K Securities — Analyst

And, sir, any guidance that you are sharing for the current year?

Rahul Mithal — Chairman & Managing Director

So we see our growth pattern as you see in sequential growth as well as year-on year growth. If you see H1, that’s a good double-digit growth. And, I think, we are on track to be able to be able to maintain that, if not better.

Kunal Sheth — B&K Securities — Analyst

Sure. Thank you, sir.

Operator

Thank you. The next question is from the line of Rohit Natarajan from Antique Stock Broking. Please go ahead.

Rohit Natarajan — Antique Stock Broking — Analyst

Yeah. That’s Rohit Natarajan. Thank you. So thank for this follow-up. Sir, if you could touch upon the REMCL part, there are two segments one is the trading model and the ownership model part of the solar assets portfolio that you have. Could you give us some color on it, where exactly is the incremental addition going to happen in that vertical?

Rahul Mithal — Chairman & Managing Director

So, we hardly have any. Ownership model in solar. We don’t have any ownership model in solar. The REMCL is very clear. As per the plan for last about more than a year or two that all future developments in REMCL in the renewable whether it’s solar or wind or any renewable energy is in the the developer mode. So basically REMCL gets revenue as the — the not as not as the turnkey revenue, per se, doesn’t own any assets, except one that has the windmill at Jaisalmer, which is about few [Indecipherable] old. Moving forward, also REMCL would be not investing any CapEx and owning any asset in any renewable form of energy.

Rohit Natarajan — Antique Stock Broking — Analyst

Okay. Thank you. That’s largely clear. If I may squeeze in, one more question?

Operator

Sorry to interrupt Mr. Natarajan.

Rohit Natarajan — Antique Stock Broking — Analyst

Sure.

Operator

Thank you. The next question is from the line of Viraj from Jupiter Financial. Please go ahead.

Viraj Mithani — Jupiter Financial — Analyst

Yeah. Sir, my question is we’ve been basically consultancy company, but when I see today the order book is up we are like more or less equal equal on turnkey and consultancy, so what is our sense going-forward. I understand this is stopgap arrangement with the export order being low. But if you can do some sense going-forward in terms of consultancy growth, domestic, international and some color on that will be helpful.

Rahul Mithal — Chairman & Managing Director

You see consultancy, the timeframe of execution of consultancy orders is, much, much lesser compared to turnkey orders. As I mentioned some time back that turnkey orders normally have an average of about three years plus for execution. So, at any stage of time, the order book breakup would show more comparable or maybe it should ideally be more also turnkey order book will gradually grow. We are aiming to make it grow so the — in terms of value breakup of the order book, the turnkey orders will always be more than the consultancy. But having said that, moving forward, we have been maintaining that we are a consultancy company and would remain so. Our contribution in consultancy to our top line would always be in the range of about 50%-plus and we would maintain that Turnkey would be in the range of 25% on a panned out basis, except maybe quarter-on-quarter, where some variations take place due to variations in the revenue inflow. But on an average basis, it’s year-on year that’s our we moving forward.

Viraj Mithani — Jupiter Financial — Analyst

And, sir the margins in Turkey is low, so what are the chances of loss being suffered by us is there something are we secured on those front or?

Rahul Mithal — Chairman & Managing Director

I already clarified that sometime back that margins in turnkey are always much lower and the margins are always taken care of by taking and concentrating on the execution of high-margin consultancy orders and that is what has seen that in-spite of export area, which is a good margin revenue stream dipping in Q2, our margins have been steady. We have a core EBITDA margin of 25%-plus, both in Q1 Q2 and we are maintaining that even if you see comparison year-on year.

Viraj Mithani — Jupiter Financial — Analyst

Right, sir. Okay. Thank you sir all the best.

Rahul Mithal — Chairman & Managing Director

Thank you.

Operator

Thank you. [Operator Instructions]. The next question is from the line of Parimal Yatish from Credential Investments. Please go ahead.

Parimal Yatish Mithani — Credential Investments — Analyst

Good morning. Can you hear me?

Rahul Mithal — Chairman & Managing Director

Yeah, sure. Go ahead.

Parimal Yatish Mithani — Credential Investments — Analyst

Sir, I just wanted to know can you give me the quality assurance number for H1 compared to last year?

Rahul Mithal — Chairman & Managing Director

Yes. QA revenue is INR187 crore with we won INR144 crore last year, which is a growth of about 30%.

Parimal Yatish Mithani — Credential Investments — Analyst

Okay sir. Thank you, sir. Thank you.

Operator

Thank you. The next question is from the line of Pujan Shah from Congruence Advisers. Please go ahead.

Pujan Shah — Congruence Advisers — Analyst

Yeah, sir. So, it would be a more basic on portion so on a railway CapEx side like what are we seeing? Are we in the mid cycle, are we in a completion cycle or what? Because. I think on a electric conversion from — from the diesel conversion, we have seen a great work and we have almost completed that part so on a railways CapEx side specifically for double gauge and all other. Think what are we seeing on specifically for our company and on a sector level.

Rahul Mithal — Chairman & Managing Director

So railway CapEx is — can broadly — the turnkey revenue can be broadly broken into three different parts. One is the electrification work, one is broadly the new line and other related doubling and other-related infra work and the third is station development work. so the new line and the electrification work as you correctly said is moving very fast and some whereby next year or latter part of next financial year we should be — the IR is also targeting most of the electrification, so we should be seeing that pattern.

The new line and doubling work currently orders, which we have are still are moving fast and they are in the good stage of execution. We we are also because this is a continuous evolving area, new tenders and new works at the opportunities are coming up which we have been bidding. And in station development, I mean, we recently got an order again just recently for Kollam station which is about CR160 crores so these are just the contract is the project is just about to begin so as you see there the mix among the three streams of various stages so this this inflow from rail infra work-in turnkey would continue and we are targeting to see a growth in this also as we bid for more station development as well as the new line doubling works that are coming out.

Pujan Shah — Congruence Advisers — Analyst

Okay okay and if — should I squeeze in one question or I’ll come back in the queue?

Operator

Sir, we would request you to come back-in the question queue.

Pujan Shah — Congruence Advisers — Analyst

Okay, okay.

Operator

Thank you. The next question is from the line of Harshit Kapadia. Please go ahead..

Harshit Kapadia — Elara Securities Private Limited — Analyst

Yeah. Thanks for the opportunity. Sir, just one question. On the quality assurance part of it, though the revenue growth has been around 30%, but when you look at the CapEx railway for the first half of this financial year, it has almost doubled, so do you expect the run rate for the quality assurance in the next half, that is for the H2 should we at much faster rate, maybe upwards of 50% 60%. That is how we should interpret or it will still remain at this 30% or 40% level?

Rahul Mithal — Chairman & Managing Director

No. You are talking of the turnkey growth of 30%. I think you meant turnkey rather than the quality assurance right?

Harshit Kapadia — Elara Securities Private Limited — Analyst

No because you so when you get a call [Phonetic] when you do a lot of check inspection work is more orders are given to the.

Rahul Mithal — Chairman & Managing Director

Okay. So, in terms of quality assurance the growth in Q1, Q2 the H1 vis a vis H1 last year has seen has seen a good growth. But moving forward there is. As I mentioned in few calls earlier that there is a policy decision by Indian Railways now. To go in for a panel of QA agencies so as that expands out in the coming quarters and, then it would be clear how is the percentage of work which gets divided between the four. Agencies which are paneled

Having said that, so maybe the percentage of our QA revenue from IR as a client would reduce to that extent, but we do lot of QA work for non-IR clients also across various sector and overall QA review — revenue we are targeting that, it remains we are able to absorb that drop in IR revenue and maintain the same levels or in fact going-forward to increase further.

Harshit Kapadia — Elara Securities Private Limited — Analyst

Understood, sir. Okay. I’ll join the question.

Rahul Mithal — Chairman & Managing Director

Thanks.

Operator

Thank you. The next question is from the line of Viraj from Jupiter Financial please go-ahead. Sir my question is on this turnkey business. Having having so margins what the we risks we run-in the proposed of loan execution commodity price going up so like can you use some of the color on that like the risks we run-in this business.

Rahul Mithal — Chairman & Managing Director

So yes turnkey has risks in terms of the timely execution cost and time overrun takes place, then obviously it results in more so with the latest policy of IR of coming with EPC tenders for example the latest order which we got for Kollam station turnkey that’s an EPC mode so the focus or the requirement of timely completion both, without time and cost overruns, so as to be able to maintain the originally envisaged margins is very-very crucial. So, yes, the care has to be taken more so moving forward as we get more turnkey orders in the EPC mode, because that would be the mode of tendering now for all IR it is the IR turnkey orders so yes the focus on timely execution and keeping a check so that the escalations that we and, while taking the order. Our be time overrun takes place, then obviously it results in more in cost the chances of cost overrun.

Shreyans Mehta — Equirus — Analyst

Are we equipped for that sir? We are residency company. Are we equipped to being a consultancy company are we equipped to drive business even [Phonetic].

Rahul Mithal — Chairman & Managing Director

We have more than because we have been doing turnkey for about five years now. And we are taking turnkey as the mix of our consultancy business as, I mentioned about 25% odd of our total revenue mix and we’ve taken take them on a selective basis both in terms of business selective choosing as well as strategic choice and we are more than equipped for the contracts that we take to execute them timely.

Pujan Shah — Congruence Advisers — Analyst

And how are we placed against our — okay. I will come in the queue, I’ll come in the queue.

Operator

Sorry to interrupt Mr. Viraj. The next question is from the line of Rohit Natarajan from Antique Stock Broking please go-ahead.

Rohit Natarajan — Antique Stock Broking — Analyst

Thank you. Thank you for this opportunity again. Sir, my question is related to-market share of your consultancy segment. How was it in the past how is it go into be in the future and also help us understand within consultancy the QA and non-QA portion.

Rahul Mithal — Chairman & Managing Director

You see the we operate in consultancy in about eight different sectors the airports, highways, buildings, metro smart cities. So, to be able to give you individual figures in terms of market share that that’s a very — that’s. Very tough proposition, but yes that we can definitely say that our consultancy business, both domestic and international overall is seeing healthy growth there have been challenges in certain sectors of consultancy where like highways where more-and-more smaller consultancy firm are coming and the undercutting in margins have been going on so we maintain a certain level of consultancy and we don’t like to go beyond compromising beyond a certain level in terms of the quality of consultancy the quality of deployment of resources that we do for a consultancy orders so yes so there has been in certain areas there has been a dip in terms of the quantum of orders that we are taking however in certain areas which are our niche areas of consultancy for example. Metros or in terms of smart city planning in terms of. mobility plans or logistic plants we have been getting more-and-more orders on a competitive basis.

Rohit Natarajan — Antique Stock Broking — Analyst

Can. I have a follow-up on question?

Operator

Sorry to interrupt. Mr. —

Rohit Natarajan — Antique Stock Broking — Analyst

You can come back-in the queue please? Sure.

Operator

Thank you the next question is from the line of Parimal Yatish from Credential Investments. Please go ahead.

Parimal Yatish Mithani — Credential Investments — Analyst

I just wanted to know sir in terms of REMCL, currently if you can give a figure in terms of what percentage railway electrification will be handled and what is — of were there any capital that we can cater to currently?

Rahul Mithal — Chairman & Managing Director

REMCL handling about 70%-plus of the traction requirements of Indian Railways. And we are all efforts are to increase this further across states. Individual negotiations are on from various states so that the aim is to reach 100%.

Parimal Yatish Mithani — Credential Investments — Analyst

Okay. thank you, sir.

Operator

Thank you. The next question is from the line of Harshit Kapadia. Please go ahead.

Harshit Kapadia — Elara Securities Private Limited — Analyst

Yeah. Thanks again for the opportunity sir just one clarification. Since you mentioned part of your QA business will be now divided between you as well as other four firm. Would margin be also do you think could be reduced or it will remain the same.

Rahul Mithal — Chairman & Managing Director

No. definitely in terms of since there would be competitive price spread between the four and paneled agencies, so yes the margins both top-line the share as well as the margin so take hit in terms of the IT QA business. But as I said, we are already working on a number of non-IR clients which we have traditionally. We are working to expand them, and as also explore opportunities for QA internationally in railway systems as well as non-railway systems considering our legacy of, more than 40 years of QA to be able to take both the bottom line and top line in terms of this then from the IR as a client.

Harshit Kapadia — Elara Securities Private Limited — Analyst

Fair enough. Sir thanks for the clarification.

Operator

Thank you. [Operator Instructions] The next question is from the line of Viraj from Jupiter Financial please go-ahead.

Viraj Mithani — Jupiter Financial — Analyst

Yes, sir. My question is, how are we placed in the turnkey business against our other competitors like [Indecipherable] and if you can, give some color on that.

[Technical Issues]

Operator

Ladies and gentlemen, thank you for patiently holding. we now have line for the management reconnected over to you sir.

Rahul Mithal — Chairman & Managing Director

Yeah. Has he got disconnected? Next question please?

Operator

Mr. Viraj?

Viraj Mithani — Jupiter Financial — Analyst

Yes, sir my question was how are we place against the other government companies like in turnkey business like RVNL, and [Indecipherable]. So it because they also do more the same line-of-business what we do now.

Rahul Mithal — Chairman & Managing Director

No In terms of turnkey, yes, the turnkey is being done similarly by other sister PSUs, but as we said our core strength is that we do consultancy primarily across various sectors more than about sector and that’s our core strength which which is bulk of our revenue.

Viraj Mithani — Jupiter Financial — Analyst

Yes sir but my question is regarding turnkey — how are we placed against them, I understand that.

Harshit Kapadia — Elara Securities Private Limited — Analyst

I don’t understand in terms of how we place we do similar work and we win contracts in turnkey on a competitive basis. The turnkey nature of work is obviously similar whether it’s station development or railway electrification or building work or it is new line doubling. The turnkey nature of work is similar we get orders and competitive mode, not only from other railway, sister railway PSUs, but across other competitors also.

Viraj Mithani — Jupiter Financial — Analyst

So, more or less we do the same kind of work [Speech Overlap] okay.

Operator

Sorry to interrupt Mr. Viraj, may we request? Thank you. The next question is from the line of Rohit Natarajan from Antique Stock Broking also we would request participants if you have a question [Operator Instructions].

Rohit Natarajan — Antique Stock Broking — Analyst

Yeah. Thank you. Thank you for this follow-up. Once again I sort of a big-picture question like within the next five years where do you want to how do you want to see this execution being driven by, like will it be consultancy, will it be exports or will it be turnkey, help us understand the big-picture in terms of numbers what is the management thinking about it.

Rahul Mithal — Chairman & Managing Director

Yeah. I’m glad you asked this question we are clear as of now and moving forward year-on year and in the next five years also as you asked that our core strength is consultancy in the key areas about eight different areas as I mentioned. Some of them our niche strength where we have both domestically and internally we have a strength, domain strength legacy and we will continue to work on that whether it is the as I said the metros or the smart cities, the bridge engineering, tunnel engineering. I mean these are areas where we have core competence where very very few both the PSUs as well as private entities can match that and we win contracts than them on a competitive tender basis.

So we will remain, we will continue to leverage that and grow in that turnkey as I mentioned would — is an important element, because it is required for our top line also and to buffer sometimes as you saw in this quarter drops in export take revenue. So we would target a healthy mix of turnkey aiming in the range of about 25% of our top line and export of rolling stock is a very good traditional area, a stream of business which RITES has been doing for 40 plus years. We have a lot of confidence in a number of clients not only in traditional clients in Southeast Asia and Africa but we are also exploring other possible clients in Latin America and Central Asia. So we will continue to target export. It’s a good high margin business which we have experienced both in commissioning and operation and maintenance of the exported rolling stock. So that will also continue to be a major part of at least 20%, 25% of our revenue stream.

Rohit Natarajan — Antique Stock Broking — Analyst

I appreciate this answer sir. Just in terms of numbers —

Operator

Sorry to interrupt Mr. Natarajan. Thank you. The next question is from the line of Prasanth Gopal from Spark Asia Impact Managers. Please go ahead.

Prasanth Gopal — Spark Asia Impact Managers Private Limited — Analyst

Hi sir. During last call you mentioned are aiming for 250 crores of export order to make sure in Q2 and Q3. Now I’ll give the exports numbers are low. So is it fair to expect majority of the order book will get matured in Q3 itself?

Rahul Mithal — Chairman & Managing Director

Yes, so I had mentioned at the beginning of the year also that the year started with about 450 balance export order book and till Q2 we are done by 150. So the balance 300 out of that, about 200 odd is the export order for the balance sheet which is maturing primarily into Q3 with some partly maybe spillover to Q4 and the balance about 100 out of 300 is for the regular operation and maintenance work of the exported rolling stock which will continue keep coming on a monthly basis.

Prasanth Gopal — Spark Asia Impact Managers Private Limited — Analyst

Thank you, sir.

Operator

Thank you. The next question is from the line of Ankur Sanwal, an Individual Investor. Please go ahead.

Ankur Sanwal — Individual Investor — Analyst

Sir, we have a joint venture with SAIL regarding vacant manufacturing of goods. What are the future prospect of the same company? And are we also invested into making passenger wagons?

Rahul Mithal — Chairman & Managing Director

We have joint venture as you correctly said with SAIL at [indecipherable] is served very good facilities, state-of-the art which has lot of capacity. We are not as of now we feel that there is lot of scope to leverage the existing capacity itself for more wagon manufacturer both for IR as a client as well as looking at export wagons from this facility. We are working on that. So that this facility can export wagons also so that we can directly use this rather than sourcing the wagons from another source.

Maybe, yes your suggestion is also at due course of time since the facility is there and it’s a very good infrastructure facility. We could look at exploring using it for some kind of passenger stock also.

Ankur Sanwal — Individual Investor — Analyst

Thank you sir.

Operator

Thank you. [Operator Instructions] The next question is from the line of Venkatesh Subramanian from LogicTree Investment Advisors Private Limited. Please go ahead.

Venkatesh Subramanian — Logictree Investment Advisers Private Limited — Analyst

A bit of a follow up from the previous questions. One is in terms of growth rates if I go back like six to seven quarters before and in one of the calls one of the key question there is asked was can RITES be like a topline company of 7,000-8,000 we’re talking about a billion dollar topline over a four to five year period there. Do you think that means a growth rate of broadly 18% to 20% over a period of time again gets into the big picture. Can you give us a guidance is there something like a vision that we can aspire for considering that you are a Supreme agency, you are in eight consulting segments and India’s infrastructure go through is going to be huge. Would that be kind of a number too farfetched or something realistic?

Rahul Mithal — Chairman & Managing Director

You see I’m glad you asked this question, so that it clarifies clearly our core strength and the way we are moving forward. See you must appreciate that consultancy orders are much lesser in terms of their value vis-a-vis turnkey ordered so to grow from a current level of about 2500, 2600 to 7000 in about four to five years the whole complexion would have to be primarily shifted more towards turnkey which then is as I broadly mentioned in our broad vision and strategy turnkey would be limited to about 25% odd of our total business mix. We are primarily a consultancy agency and we would look at watching the bottom line carefully also rather than just aspiring to be, 7,000-8,000 crores by taking turnkey order and sacrificing our margins.

Our focus has been as you compare whether it is quarter-to-quarter or year-on year or H1 to H1 has been a very important focus on maintaining our profit margins and operating margins also. So that has to be a balance between the top line and the bottom line moving forward. Thank you, sir. I’ll join the queue.

Operator

Thank you. [Operator Instructions] The next question is from the line of Parimal Yatish Mithani from Credential Investments. Please go ahead.

Parimal Yatish Mithani — Credential Investments — Analyst

Sir thanks for opportunity. I just wanted to know in terms using business or can do a pilot what do you think could be a mix due to — we are only talking about that business?

Rahul Mithal — Chairman & Managing Director

So leasing business is a good revenue and good source of both revenue and margins for us. And in fact we have been continuously getting orders from new clients also in the leasing area both in the operation and maintenance of the rolling stock that we leave and we recently got an order for INR6 crores for more of easing of local market and operation and maintenance order of the lease rolling stock of about INR19 crore. So we are — we have about 65 plus locomotives which we lease and which we operate and maintain besides that we do operation and maintenance of locomotives and wagons owned by the deciding owners also.

So this is a good stream and we will continue to see a healthy growth in it both in the top-line as well as the bottom line.

Operator

Thank you. Sorry to interrupt Mr. Mithani. Sir we have participants waiting in the queue. Thank you. The next question is from the line of Prasanth Gopal from Spark Asia Impact Managers. Please go ahead.

Prasanth Gopal — Spark Asia Impact Managers Private Limited — Analyst

Hi, sir. What will be the quantum of QA revenue from Indian Railways or just share of that Indian Railways of the total QA will be helpful.

Rahul Mithal — Chairman & Managing Director

You see to give a specific number of the QA revenue from a clients wise would not be a fair, but yes it is a substantial amount varies from quarter-to-quarter, but yes it’s a substantial amount and as I mentioned sometime back that with this — in the coming quarters this drop in the QA revenue from one client from IR both in terms of the top line and bottom line of IR as a client for QA revenue. We will be able to — we are aiming to get more than make up for it from our other non IR clients which is also quite substantial.

Operator

Thank you. The next question is from the line of Venkatesh Subramanian from LogicTree Investment Advisors Private Limited. Please go ahead.

Venkatesh Subramanian — Logictree Investment Advisers Private Limited — Analyst

Sir my question is on REMCL. This is a kind of claw back to 2021 transcript. What we — at that time what was the notes that was broadly in the time to close. REMCL could grow to be a top line of about INR350 crores in sometime and based on a particular kind of sharing model were, I think INR0.70 per unit generated will go to RITES. If you can just let us know what could be the –just reconfirm the revenue model in REMCL because it was a very bright prospects that were indicated saying this company could be quite large going forward. Some sort of a vision would help sir.

Rahul Mithal — Chairman & Managing Director

Look I think we’ll be at the stage which, you’re talking about is the — maybe it could be based on the assessment few years back that may be REMCL will work more on the CapEx asset model which as I said some time back in the last year or so a conscious decision has been taken that REMCL will work on the developer model from all developments in the renewable energy arena whether it is solar or wind. So the — with that the growth in top line which is in the range of 100 plus right now expected in the range of 100 plus right now to grow suddenly to 315 a year or two or so that doesn’t seem probable. It will be growing on a good yes, since it more and more electrification in the Indian Railways and targeting — IR targeting by next year complete electrification and also growth in traffic as we see in the coming — in these last few quarters, IR traffic has been a good growth both in passenger and freight. So with that the requirement of electric traction energy for IR is growing and then REMCL will see a good growth catering to IR traction requirements.

Operator

Thank you. The next question is from the line of Viraj from Jupiter Financial. Please go ahead.

Viraj Mithani — Jupiter Financial — Analyst

My question is, is there any news on the OFS where the Deepam that’s what my question because there is some press clipping about it in people sometimes ago sir.

Rahul Mithal — Chairman & Managing Director

I would not be the right person to answer it. I think Deepam would be the right agency to answer your question regarding that.

Viraj Mithani — Jupiter Financial — Analyst

Okay, sir.

Operator

Thank you. The next question is from the line of Ankur Sanwal, an Individual Investor. Please go ahead.

Ankur Sanwal — Individual Investor — Analyst

Sir after your joining of the company the company has seen memorandum of understanding with many marquee institutes of India and other countries. What is the thought process behind the scene?

Rahul Mithal — Chairman & Managing Director

I’m glad you asked this question. The key reason for this and we are constantly working on it across whether it is the academic institutions like IITs or whether it is key business top leading business companies like TCS, or other key PSUs we have been working on it so that we can complement our in-house trends with their expertise and be able to give solution to the client in various areas for example our right sustainability vertical is working to work on areas such as clean air program and the solid waste management. So we are looking at tie-ups and MOUs with various important institutions. So these are the kind of strategy which we have been following and we will continue to work on this so that we can bring the best to the client in whatever we lack in certain areas we can complement that with the expertise of the partner whom we partner with.

Ankur Sanwal — Individual Investor — Analyst

Thank you sir.

Operator

Thank you. Ladies and gentlemen that was the last question. I now hand the conference over to Mr. Harshit Kapadia for his closing comments.

Harshit Kapadia — Elara Securities Private Limited — Analyst

Thank you, Lisan. We would like to thank the management of RITES Limited with Rahul Mithal and along with his team for giving us an opportunistic to host this call. We will also like to thank all investors and analysts for joining for this call. Any closing remarks, Rahul sir?

Rahul Mithal — Chairman & Managing Director

Thank you, Harshit and the team for this opportunity for us to interact with our stakeholders and investors. We reiterate as I’ve said in the beginning that we have the core strength and a USP that we can target one stream if one stream did set a certain time our multi-sectorial presence ensures that we are able to protect both our top line and bottom line by suitable realignment from other streams of traffic — from other streams of revenue and with this strength we feel that moving forward we will leverage this sequential as well as year-on-year growth. We are on track for this financial year as a whole. Our two recent aggressive endeavors in RITES targeting more of international consultancy and RITES sustainability targeting new areas of sustainable pollution control and other sustainable initiatives. These we foresee giving us more contribution to both of our top and bottom line and our dividend which we have declared a second interim dividend of 4.5 which makes us cumulative dividend as 8.5 is also on track vis-a-vis the total INR17 which we declared as a dividend last year.

So all factors show that our company is on track for the entire financial year and I can only reassure all our investors that we will continue to leverage our inherent strengths and our expertise to take the company forward.

Operator

[Operator Closing Remarks]