Texmaco Rail and Engineering Ltd (TEXRAIL) Q1 FY23 Earnings Concall Transcript

Texmaco Rail and Engineering Ltd (NSE:TEXRAIL) Q1 FY23 Earnings Concall dated Aug. 16, 2022

Corporate Participants:

Ashish Kumar Gupta — Managing Director

Ashok Kumar Vijay — Executive Director and Chief Financial Officer

Indrajit Mookerjee — Executive Director and Vice Chairman

Hemant Bhuwania — Vice President (Corporate Finance)

Analysts:

Navin Agrawal — Analyst

Kaustav Bubna — BMSPL Capital — Analyst

Parvez Akhtar Qazi — Edelweiss Financial Services Limited — Analyst

Sandip Sabharwal — Asksandipsabharwal.com — Analyst

Manish Innani — Prayas Securities Pvt. Ltd. — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Texmaco Rail Q1 FY ’23 Earnings Conference Call. [Operator Instructions]

I now hand the conference over to Mr. Navin Agrawal, Head Institutional Equities at SKP Securities Limited. Thank you, and over to you, sir.

Navin Agrawal — Analyst

Good morning, ladies and gentlemen. It’s my pleasure to welcome you to this earnings conference call on behalf of Texmaco Rail’s and SKP Securities. We have with us Mr. Indrajit Mookerjee, Executive Vice Chairman, along with his colleagues, Mr. Ashish Gupta, Managing Director; Mr. A.K. Vijay, Executive Director; Mr. Hemant Bhuwania, VP, Corporate Finance; and Mr. Ravi Varma, VP, Corporate Affairs and Company Secretary. We’ll have the opening remarks from Mr. Ashish Gupta, an overview on the financials by Mr. Vijay followed by a Q&A session. Thank you, and over to you, sir.

Ashish Kumar Gupta — Managing Director

Good morning, and I welcome my fellow colleagues and all the investors joining this call. And so let me start with an overview of the industry. So as you are all aware that we are in the business of railways and primarily manufacturing of wagons and the railway EPC work that we do. So if you look at the industry currently, I think that the industry never had it so good in terms of order book and visibility on the future. I’m very pleased to announce to the investors that Texmaco today has an order book, which is slowly inching towards a number of INR10,000 crores, which includes the wagon orders both from Indian railways, private customers, EPC business, etc. And so if you look at, theoretically, we are sitting on an order book of three-years [Phonetic] plus now. And it’s a very good time for the industry, a very good time for the company.

In fact, I am pleased to announce that we bagged our largest ever order from Indian Railways last quarter, which is INR6,450 crores, close to 20,000 wagons to be executed over the period of 39 months. Over and above that, we also have a very robust order book from private customers. So the scenario is very, very robust, and we are very happy with the current order book that we have. The railway industry is likely to invest much more into procurement of wagons and holding stock and related services on EPC.

So just to give you a brief of what this order is all about, see, typically, the industry has never produced more than 15,000 wagons in a year and today the entire industry is supposed to provide approximately 30,000 wagons annually. So from an industry point of view also it’s a very good scenario and very happy to announce that we have been able to bag these orders in a very, very competitive scenario. This is as far as the market outlook is concerned.

On the performance part, you must have seen the results. Mr. Vijay will speak about the results first, and then we will get back into the analysis of those result. So I will hand it over to our ED and CFO, Mr. Ashok Vijay to brief the investors on the Q1 performance in terms of numbers.

Over to you Vijay ji.

Ashok Kumar Vijay — Executive Director and Chief Financial Officer

Thank you Ashish and welcome again all the investors, and we are happy rather to welcome you in this investor conference, which is for the quarter one of the performance of Texmaco Rail and Engineering Limited. Although you will be not very happy about, you will be disappointed with the kind of performance which the company has done in the first quarter, there are reasons, but then reasons are more justification. We accept we have not been able to perform to the expectations of investors, but we can assure you going forward we are taking all such steps that,as Ashish already explained to you, the order book is very comfortable, and we are taking steps towards how we can increase the production and productivity by increasing shifts, by investing some money in the balancing equipment, making sure that the construction facilities are duly provided with the required working capital, so that the production and other things pickup, my dispatches pickup, and we will try to churn out one of the best performance which company can do over the years from now onwards.

Now to begin with, I’d like to — the results are there in your hand. And the performance of the company, although not good, but then I have to share with you, the gross revenue for the quarter one is INR305.09 crores. It is as compared to INR336.58 crores in the corresponding quarter of the previous year, which was unfortunately also impacted last year was by COVID surge. So this year although there was no COVID surge, but still we have not been able to improve the performance. The EBITDA, gross profit that is PBT, net profit after tax are negative INR3.62 crores, negative INR26.06 crores, and negative INR22.53 crores against a positive of INR41.57 crores, INR15.66 crores, and INR4.7 crores, respectively, in the previous year’s quarter one. This is the comparative performance which is just for the sake of your information I share, although results are already there in your hands so you have noted down.

Now I’d basically like to brief you on why this performance has been so, and division wise what the company is basically performing and what can be the outlook based on what Ashish just briefed you on this thing. So number one comes to the rolling stock division, which is the main division of the company because almost 70% to 80% turnover comes from here if you don’t consider Rail EPC. And if you consider Rail EPC, still 60% of the performance comes from here. So this division, number one, as Ashish just shared, has bagged the largest railway order in the history of the company, which is 20,067 wagons, and this is against the tender which was last issued by railways. We received the order in the month of May. The 20,067 order is to be executed in 39 months. And thereafter — so it means virtually 3.25 year. We have to gear up for this thing, and this year we have to perform for six months comparatively, so roughly we will have to do about 3,300 wagons. And from next year onwards, as per requirement of order, we have to deliver minimum 6,600 number of wagons.

On top of it the market in private sector is also buoyant, and we are getting good enquiries and good orders also. And in fact, rather, the deliveries are now little prolonged. I’ll explain you the reasons why it is so and all this thing. So, as far as the market conditions are concerned, we are seeing the railway has never seen — railway industry has never seen that kind of buoyancy in the market. The only thing which we need to do is now deliver, and that is what we are all gearing up towards that. Now it is not only that this is the order book. Even the railways has further indicated that they require further more wagons and there can be another tender. So the position is remaining positive and this is all emerging out of railway’s target of improving the freight haulage to 3 billion tonnes compared to 1.4 billion tonnes, which is present. And earlier the plan was for 2030, which has now — the minister wants to prepone it to 2027. So in five years if railways wants to improve almost 2.5 times, naturally the first and foremost thing which comes in this thing is the track and the wagons, so wagons and locomotives and tracks, these three are the essential and where the focus of railway is there.

And this is not that this is a one-time thing and all. Railway are basically assuming that, yes, their market share has to go up and more and more dependence on road has to be eliminated. Today the railway’s share is roughly about 27% of the total freight movement in India, which by 2030 the railway’s original plan is at least 40%, if not more. And just to give you the idea about this thing, it was 80% when India got independence. This is 75th year of that. It was 80% through rail, at that point of time, the movement. And with all the green movement, the pollution issues, reducing the carbon footprint and all those things, I think this focus on railway will increase more and more in the coming year. So this is how basically it is, and the railway has an ambiguous target of CAGR of 16.5%, which is none of the government segment has ever achieved before. This is what railway is.

Then apart from this there is a very robust demand coming out of private sector because they know pretty well the railway will be buying only standard type of wagons, which are the open and close types. Rest all the type of wagon requirement will be have to be met by them through their own sources. So all specialized wagon requirement need to be met by them. This apart the logistic movement, which is now picking up very fast in India and with the larger participation of the private sector, so we are having a big demand from new emerging logistic companies, and they are all giants in their field, including the multinationals like Adani, like NYK, like Sojitz, like GATX, like 2X [Phonetic]. So all these people are emerging very strongly in this field, including leasing companies and logistic companies. TCI is also coming in a big way. So it’s actually long list about this thing, and they all want to build up the population because they cannot garner the market share until the population of wagon is built up by them. So there is a sizeable demand which we see coming from this sector up to next three to five years. So this is how basically it is going about and gradually and gradually all the specialized manufacturers will look for manufacturing, will look for procurement of wagons for specialized freight cargos only. Like for alumina, the alumina wagon; for fertilizer, a fertilizer wagon; for foodgrains, the foodgrain wagon, and not the general types of wagon. So this will all give a lot of edge to the organizations in the segment to improvise on new designs, come with innovative ideas, and whereby the haulage capacity can be increased and freight incidence on the end user can be brought down. The order book, as we explained, is now close to INR10,000 crores.

And now I come to the basic reason that why we have not been able to perform. And the primary reason was nonavailability of wheelsets, which railways since they released the large order, the immediate instruction for the ministry came was this thing, no wheelset to be supplied by railway factory for private wagon users. And they permitted that private wagon users can import the wheelset for their requirement, including import from China. Good enough, but then the issue is this thing that demand is robust, import from China takes time, and suddenly when they cleared the imports, the prices also started shooting up, so we had to take up with all the customers, we had to renegotiate with the price because the wheelset price was based on the domestic prices, and the imported prices today has shot up. There’s international demand because of Russia-Ukraine war and Ukraine as a source being drying up. So China is remaining one of the reliable source only globally, and as a result, the prices in China has shot up and that is what we were trying to work out, negotiate and all these things. And Ashish will share with you later that how the results for this negotiation has ended up to this thing. It has been ended up positively.

Now the production — our production got seriously impacted because at the beginning of the year we have only the private sector orders. And since the wheelset for private sectors were not available, we were sitting on our haunches without doing any production or rather doing only the process production but not actually delivering any wagons. And if you see my performance for the quarter one, I made only 20 wagon for railway, which we have committed to them and delivered. Apart from that 100 wagons we could do only private, which [Indecipherable] manage. Apart from that no private and that is the result why we have it. Also, the order which we received this time was for a type of wagon which is BCNA. Now BCNA wagons we have not done in last five years from this plant. And as a result, we were required to do prototypes. And as you know, the prototypes takes two to three months, so we were busy doing prototypes, which I am glad to share with you has already been approved, and now we have started the commercial production from this month, and we have already started delivering this BCNA wagon. And you will see substantial improvement in deliveries during the quarter two onwards.

Now regarding the wheelset thing also, we are — at least the railways are now gearing up by themselves importing the shortage items that is the axles from China and the assembly at their end because they have the availability of the wheelsets. So that is the — at least with that particular maneuvering, the railway has been able to supply the required quantity as of now for the railway orders. So we don’t think that there will be challenge in receiving the wheelset to meet the railway obligations, and railway will do whatever they require because the ministry will be very keen the deliveries must come whether they import the wheelsets or they import the axle and assemble the wheelset or they divert the maximum quantity towards freight, all these measures railways will be taking so that availability of the wheelset for this railways is there. Regarding private, we have also placed orders for import and our delivery will start coming from sometime from November onwards. And once the delivery start coming from November onwards, then we will start delivering and accordingly we have given delivery schedules to all our customers for private wagon orders. Now with this basically we foresee that the wagon division, especially the rolling stock wagon division, will be doing well — will start improving from quarter two and do the best performance during quarter three and quarter four as of now as the situation emerges.

Coming to Steel Foundry division, now Steel Foundry division also was — in first quarter was impacted for couple of reasons, main reason, number one, as there was no suction [Phonetic] in the wagon plant was there, so there was no production which was feasible to make and store because it requires a whole lot of working capital and all these things. As it is our working capital is really blocked in whatever material we have already produced, which was awaiting the availability of wheelsets. So Steel Foundry in the first quarter did suffer the production and all these things, but from second quarter onwards as the delivery in the wagon front is improving, the suction [Phonetic] has also improved and accordingly the Steel Foundry is also gearing up to produce to the requirement of this thing. The positive for us is this that the kind of requirement which emerges out of the wagon requirement which we need to deliver to the railways will require a amount of casting, which today is a challenge for Steel Foundry to produce, and we have to really gear up, make sure that our production capacity will improve substantially from what we have been doing over years and meet the requirement for the wagon, so that the wagon plant is not wanting for this thing.

On top of it, as you know, we have a large export commitment which we would certainly like to meet because the export market we have developed with a lot of efforts over the years, and this export market which we have developed has now started yielding results to us as new customers are also approaching us, and they are all coming from developed countries. And the demand pattern over there also is improving because of the global turmoil, but we are restricting our obligations to them to the extent basically we can only meet the requirement and not committing any additional quantity as of now until and unless we have been able to improve on the production or improve the capacity of our Steel Foundry.

The Steel Foundry, as you know, has never produced more than 20,000 to 21,000. It is a maximum production they ever achieved. Now we have planned the production capacity to increase gradually first to 30,000 and then to 35,000. This, of course, requires some capex — requires some balancing equipment, some minor shared [Phonetic] expenses and all these things. We will be carrying out all these things. The plans are all ready, but yes, we are targeting to increase the production capacity to almost 36,000 tonnes, which will be in operation from next year middle.

With this, I think we will able to meet both the domestic as well as export requirement and once we’ve stabilized that, then we’ll look through the possibility that how can we further improve without making any massive capital investment. And moreover as you aware, in Calcutta, expansion of capacity is restricted because we come in the Orange Zone, and we are not able to expand the smelting [Phonetic] capacity. With this whatever innovative we can do we are doing, and we are making sure that the production goes up.

Regarding Rail EPC division, our operation suffered a bit because the prices of all the commodities, which are going in this thing had shot up like nobody’s business, due to again the global turmoil which is going on, the steel and other — all commodity items, they have shot to the roof, resulting in this thing that, yes, the margins have really seriously impacted. And whatever we are doing, we are trying to restrict ourselves so that we are not serious challenged on the working capital front, and whatever funds are available to us, to that extent only we are doing this thing. We are not booking any orders. Details we will share with you once the question-and-answer session starts and Ashish takes over that.

And other divisions are basically doing the steady level. We are not focusing too much on those divisions because they are comparatively very small. And when the demand is so strong and bullish in the rail wagon sector, that’s the area where we are focusing today. So this is the basic summary of the working result which we have this year. Now I will hand over to Ashish to summarize and add further to this.

Ashish Kumar Gupta — Managing Director

Thank you, Vijay ji. So before I proceed further, may I request our Executive Vice Chairman Mr. Mookerjee if he has something to add before I proceed on further remarks on what Vijay just told?

Indrajit Mookerjee — Executive Director and Vice Chairman

No. Thank you, Ashish. I think you go ahead. If there is something which I can chip in and add value, I’ll do it at the end. So why don’t you carry on.

Ashish Kumar Gupta — Managing Director

Thank you, sir. Thank you. So picking up from where Vijay concluded, in terms of if you look at the last few months, primarily our major loss has been because of availability of wheelsets and the uncertainty around it. And this is something which is a controlled item. We could not do anything about it, and therefore, were not able to produce. In fact, if you look at the results, our WIP or the inventory went up by approximately INR75 crores. We had wagons ready produced, close to 200 wagons ready and produced just waiting for wheelsets. And so we did not stop the production. We kept producing so that when the wheels start to come, we can look to cash as early as possible. Because see we’d already procured all the raw materials and steel for the wagons when this embargo came from the Railway Board, and later they allowed imports of wheels. The import of wheels actually the entire wheel market globally is also undergoing a churn because one of the major countries supplying wheels globally is Ukraine, and as you are all aware, because of the war going on, this entire market is completely disrupted, and so the entire world is moving to China.

Happy to inform that we have been able to block capacities in China. We have opened our LCs [Phonetic], and we are expecting delivery to start. So I would say it was a blip in our performance in terms of number of wagons that we have produced. We’re happy to state here that we should be able to cross approximately we are planning to cross 900 wagons in Q2. The other thing which I would like to mention here to the group is, if you look at this railway order, it is typically a three-year order — 36-month order to be delivered in 39 months, wherein the first three months actually have been allocated for the purpose of preparation of prototypes, ramping of the supply chain, etc. So to that extent, I think we are well prepared and we are going full throttle next month onwards. And our prototype approvals have been done. We have started the production now, and wheels have started to flow in.

So to that extent, we are very confident that now we should be — we will go full throttle in terms of execution. In fact, happy to announce that we have strengthened our teams. We have recruited a lot of youngsters now. We are getting into a three-shift operation, already started actually. And so we will look forward to delivering now in the next few quarters. And this blip which was there in Q1 should be thing of the past. And [Indecipherable], if any, from the investors.

Questions and Answers:

Operator

[Operator Instructions] The first question is from the line of Kaustav Bubna from BMSPL. Please go ahead.

Kaustav Bubna — BMSPL Capital — Analyst

Yeah, hi. So I had a few questions. Firstly wanted to understand clearly why has Texmaco specifically faced the shortage of wheelsets, because if you look at another listed competitor, in their rolling stock division they haven’t really suffered as much as this company? So if the shortage is going on from Ukraine because of shift in supply from Ukraine and also government diverting wheelset supply for public needs, other companies should be affected, too, right? So why only Texmaco from at least the listed peers who we investors can see from?

Ashish Kumar Gupta — Managing Director

Yeah. No, I think it’s a very good question, so thank you. So if you look at our opening order book beginning of the year, we did not have any significant railway order. So therefore, we could not get those supplies. The other thing which happened was these wheels come in two diameters, one is a 1,000 mm dia wheelset, other is 840-millimeter dia wheelset. Now as luck would have it, most of our order book, primarily 80% of my private sector order book needed wheelsets of 840 dia, and RWF has not been producing these wheelsets since January because they did not have the molds to do it. The production was supposed to start in the month of March, which is what we had based our production plan on. But unfortunately, even until the month of June, this production did not start. So therefore, it is a product mix which did not allow us to get those wheelsets. And so I hope I’ve answered your question.

Kaustav Bubna — BMSPL Capital — Analyst

Yeah. And the next question is, as per your press release, Ashish, you will be leaving the company for greener pastures. So could you just let us know — give us some clarity on who will take over your position, what is happening on that front because we have got any clarity on that yet? And also could you, on that point, just reflect during your duration as MD, how has the company evolved because clearly delivery is still lacking, so could you speak a little about those two points?

Indrajit Mookerjee — Executive Director and Vice Chairman

I think I’ll let Ashish give an answer to the point two, second part of your question. The first point I would be volunteering to answer. So Ashish, please go ahead with the second part of the question, which is the question of the evolvement and the evolution of the business during your tenure.

Ashish Kumar Gupta — Managing Director

Yeah. So actually, last two years have been spent on improving the strength of the organization in terms of efficiency improvement, cost reduction initiatives, right-sizing the organization, getting back our mojo on design and our technical prowess. So the last two years have been typically spent on preparing for the future. In fact, that is the theme that the entire management is working on is to get back our face back in the sun and also to strengthen the organization in the long term. So if you look at the way we have performed in terms of reducing our creditors, reducing our banking exposures, so lot of strengthening of the system has been done in the last two years.

There has been lot of focus on the market development. If you look at we have the largest order book as far as the private sector is concerned, and we have strengthened our marketing team, we have a fresh team. We have been going around the market developing new wagon designs. We also entered the export markets once again. We have recently done a very, very innovative design for a steel company in Africa.

So the entire focus has been — see, it’s not a thing that you can achieve overnight, but yes, last two years has been very, very focused on preparing for future, and so I think as a company we have done very well. And today we are, as you know, we are sitting on a very large order book, and the order book is much beyond what the Indian Railways order book is. And very happy to say that our focus on delivering good quality, innovative design has come back, and we are now focusing on niche products with higher margins. So that is how I would sum it up last two years what we have done. I would now invite Mr. Mookerjee to respond to the first part of the question.

Indrajit Mookerjee — Executive Director and Vice Chairman

Yes. Firstly, I would like to start by wishing Ashish all the best in his future endeavor. This was a personal decision of Ashish to look for, as you said, greener pasture. I would say more than greener, I think sometimes you look at future and you get good opportunities and you don’t like to give it up. But Ashish had a very eventful — short but very eventful year because there are lot of things he has changed. And I think he has mentioned very clearly that these take time. You just can’t make it to happen overnight. But the way we look at — we see that we are in the process of emergence, and we would be back to our glory as we used to be very, very soon. So that’s my personal impression. And also, I think it’s a genuinely realistic impression because lots of things are happening.

Before I come to the specific question of the Managing Director, I would like to say once again and emphasize that we got caught napping I think during this quarter because we wanted to have a proper mixture of the private and the railway order so we obviously had a large chunk of private orders which should get us better margin, whereas the peers were continuing with the railways orders because they had pending railways orders. So we got caught napping because of the wheel supply. And because of the wheel supply, when railway wheel factory factor decided that they would only make supplies for the Railway wagons, we had no wheels.

And secondly also some of these private wagons required wheels of different dimension, which the railway factory failed to produce. And I do not know whether they have started producing now. Ashish, have they started producing 840 as yet or not yet?

Ashish Kumar Gupta — Managing Director

840 dia production has started but that will primarily go for the maintenance of the whole rolling stock, so there are no plans as far as railways — RWF is concerned to supply them for private manufacturers. So we already…

Indrajit Mookerjee — Executive Director and Vice Chairman

So as a result of that, as you all have seen, and I am sure you have seen what has happened to our inventory, the inventories went up by something like INR75 crores to INR80 crores because we made the wagons — we made half of them or full of them, except the wheels, and they were piling up. And that’s why had they had gone out in the market, we would have also had the same numbers as the peers have done. So I just wanted to clarify, of course, it has been very nicely clarified by both Mr. Vijay and Ashish.

Coming back to the specific questions of Managing Director, yes, we will have to look for a Managing Director to take us to the newer future because things are changing, railway is improving, we need to change, we need to improve our manufacturing technology, we have to bring in some managements tools, LEAN manufacturing qualities, more automations coming up. So the board has decided that we will go for a search of a Managing Director to replace Mr. Gupta. Of course, these things take time. It can’t be immediate, but we are on the search. Thank you.

Kaustav Bubna — BMSPL Capital — Analyst

Okay. Thank you so much. I’ll get back in the queue.

Operator

[Operator Instructions] The next question comes from the line of Parvez Akhtar Qazi from Edelweiss Securities. Please go ahead.

Parvez Akhtar Qazi — Edelweiss Financial Services Limited — Analyst

Yeah. Good afternoon, sir, and thanks for taking my question. Sir, couple of questions from my side. First, would it be possible to get a break up of the INR10,000 crores order book into various segments like Heavy Engineering, Steel Foundry, Rail EPC, etc.?

Ashish Kumar Gupta — Managing Director

I think, Mr. Vijay, you can…

Operator

This is the operator. The management line has been disconnected. Please be on hold while we quickly get them reconnected. Ladies and gentlemen, the management line has been reconnected. Thank you and over to you, sir.

Ashish Kumar Gupta — Managing Director

This is Ashish. Vijay ji, are you there?

Ashok Kumar Vijay — Executive Director and Chief Financial Officer

Yeah. We got disconnected. Now we have again joined back.

Ashish Kumar Gupta — Managing Director

So Edelweiss has question on the breakup of the order book, so can you please take it on?

Ashok Kumar Vijay — Executive Director and Chief Financial Officer

Yes, yes. Hemant, I think this is yours. Order book breakup.

Hemant Bhuwania — Vice President (Corporate Finance)

Order book, okay. So the total order book as on 30th June was INR9,525 crores. The breakup being: Heavy Engineering was INR7,900 crores; Steel Foundry was INR115 crores, Kalindee was INR960 crores, Bright Power division was INR350 crores, and other subsidiaries and associates are around INR200 crores.

Parvez Akhtar Qazi — Edelweiss Financial Services Limited — Analyst

And what…

Hemant Bhuwania — Vice President (Corporate Finance)

Out of Heavy Engineering…

Parvez Akhtar Qazi — Edelweiss Financial Services Limited — Analyst

Yeah. Please go ahead.

Hemant Bhuwania — Vice President (Corporate Finance)

Out of Heavy Engineering division, the rolling stock comprises of around INR7,700 and remaining INR200 crores is Hydro Mechanical, Bridges, and Hi-Tech.

Parvez Akhtar Qazi — Edelweiss Financial Services Limited — Analyst

Sure. And what would be the wagon order book in this?

Hemant Bhuwania — Vice President (Corporate Finance)

So the rolling stock wagon order is INR7,700 crores.

Parvez Akhtar Qazi — Edelweiss Financial Services Limited — Analyst

Sure. And my second question is regarding our current debt status. So what would be your current gross debt?

Hemant Bhuwania — Vice President (Corporate Finance)

We are having a long-term debt of around INR135 crores and a working capital debt of INR700 crores.

Parvez Akhtar Qazi — Edelweiss Financial Services Limited — Analyst

Sure. And my last question is, where do we see our debt levels going ahead, considering that we have a big plan of ramping up execution in Q2 [Phonetic]?

Ashok Kumar Vijay — Executive Director and Chief Financial Officer

Yes, I’ll take this question and I’ll answer to you. Basically, on the capex side, we are targeting to invest close to about INR100 crores. This funding will be done primarily from borrowing, which is we have basically already tied up some borrowings to the extent of INR75 crores, INR80 crores, and balance will be from generation. The working capital wise we are only looking for a ramp-up of about INR100 crores in the Engineering division because we need to really now increase the production nearly to double. As a result of this thing, there will be a big pressure on the steel and other requirements, which are all being bought in cash. So we’ll be looking for an enhancement of about INR100 crores over there. So that is where we are basically putting a break and want to restrict our borrowing to this extent only to achieve the production in respect of what we have explained to you earlier by — from here onwards. Thank you.

Parvez Akhtar Qazi — Edelweiss Financial Services Limited — Analyst

Sure, sir. Thanks. That’s it from my side and all the best for the future.

Operator

The next question comes from the line of Sandip Sabharwal from Asksandipsabharwal. Please go ahead.

Sandip Sabharwal — Asksandipsabharwal.com — Analyst

Do you have any guidance for the kind of margins you’d be able to make and the operating leverage you will be able to capture as the order execution picks up?

Ashok Kumar Vijay — Executive Director and Chief Financial Officer

Let me take this question. As far as the guidelines for margin, I’m afraid, our company has a policy not going on that. But yes, I can answer your question in a manner whereby the productivity, which we are talking about and the kind of production we have basically planned, the margins are bound to improve because this industry is a volume game. And the moment the volume game — your expenses are more or less constant irrespective of what actually you are producing. So if you see my first quarter result, my expenses are still too high, whereas the production is hardly anything. So this is basically the trend of industry, and we cannot substantially control the cost in a quarter or two quarters if the production goes down. So as a result of this thing, once the production picks up, which is bound to do from quarter two onwards, automatically, the margins will start improving about this thing. And certainly, we are hopeful that we’ll end the year on a positive note. Thank you.

Sandip Sabharwal — Asksandipsabharwal.com — Analyst

And what’s typically the payment cycle which the railway follows?

Ashok Kumar Vijay — Executive Director and Chief Financial Officer

Yeah. I’ll again come for this answer. As far as the wagons are concerned, the payment cycles are fast. You need to — if your bills are in order and you have actually delivered the wagons to the railway as per their necessary approvals, the payment normally come not, in any event, 7 to 10 days. Normally, in a quarter end, there can be a challenge because railways have to get the new budget allocation from this thing. But then as far as capital is concerned, it is planned. And the fund availability is always there. The issue comes in case of Rail EPC. There also fund availability is not serious challenge, but the process of bill passing is something which is — always becomes a challenge. The process is very long, and it requires the kind of documentation which I hope, Ashish, you will be able to answer that better than me.

Ashish Kumar Gupta — Managing Director

Yeah. Thank you. See, fortunately, our big EPC projects are with the metro corporations and DFC. And these are typically well-funded projects. So normally, 45 to 60 days is the payment cycle that we get in the EPC business right now. And since most of these projects are not starved for funds, We currently don’t have a situation where we are not getting paid because funds are not being available, which typically becomes a case for government contracts, so we are well placed over there [Indecipherable]. And the private sector orders also the payments is not probably not an issue.

Sandip Sabharwal — Asksandipsabharwal.com — Analyst

And do you also have the capability to participate for these Vande Bharat trains?

Ashish Kumar Gupta — Managing Director

We are currently not in the passenger mobility business actually, so therefore…

Sandip Sabharwal — Asksandipsabharwal.com — Analyst

Okay, all right. Thank you.

Operator

Next question comes from the line of Kaustav Bubna from BMSPL. Please go ahead.

Kaustav Bubna — BMSPL Capital — Analyst

Yeah, I just had a few more questions. So on this private wagon order, could you give some sort of an indication on what the market size is or the business opportunity is rather for the next two years, so like how we know that Texmaco got a 20,000 wagon order from the public sector? Could you give some indication for the full market, what could the wagon order potential be for the next two years, and how does Texmaco — how much market share does Texmaco aim to have here? And what’s the point of all of this if there’s no wheelsets for — if there’s a shortage of wheelsets for this segment — for this opportunity?

Indrajit Mookerjee — Executive Director and Vice Chairman

Ashish, would you like to pitch in?

Ashish Kumar Gupta — Managing Director

Yeah, I’ll take it. You can pitch in…

Ashok Kumar Vijay — Executive Director and Chief Financial Officer

No, no, you take it. You are the better equipped.

Ashish Kumar Gupta — Managing Director

Yeah, I will do that. See, wheelsets now that the imports have opened, we have placed the orders for imported wheelsets, and this is already priced in as far as the offers are concerned. So wheelsets November onwards would not be an issue. So that is on wheelset issue. Secondly, if you look at the type of wagons which Indian Railways is ordering, so these are typically general purpose wagons. So this does not cover wagons to carry containers. It does not carry — it does not cover wagons to carry fly ash, alumina, cement, etc. So that is a plus. The demand which is coming from the power sector, because now if you look at NTPC is going for its own rakes, big steel companies are buying their own rakes now. So railways typically would be selling the general purpose demand. I would assume that close to 2,000 wagons every year would be ordered by the private sector every year for the next few years. I’m not talking about next two, three years. And if you look at the National Rail Plan also, the plan is there up to 2026 and 2030, a substantial amount of wagons will have to be procured by the private sector to actually achieve their plan. And so the market will continue to grow. And typically, Texmaco has been getting a lion’s share of this market. And we have been typically 50% plus on the customer acquisition as far as the private sector is concerned.

Kaustav Bubna — BMSPL Capital — Analyst

Okay. And what is the margin difference between private and public?

Ashish Kumar Gupta — Managing Director

So that is — Vijay ji?

Ashok Kumar Vijay — Executive Director and Chief Financial Officer

Yes, Ashish, sorry.

Ashish Kumar Gupta — Managing Director

Yeah, between the…

Kaustav Bubna — BMSPL Capital — Analyst

So I was asking what is the margin differential between a private — order from the private sector and the public sector?

Ashish Kumar Gupta — Managing Director

The Indian Railway orders they come with a price variation clause, so the risk in these contracts is very, very low. So I would say the margins in the private sector orders are significantly higher, but these are also not very simple wagons to make. These are more — the designs are more complicated and sometimes in those there are imported components also. So really can we give some — are we allowed to give some number on these margin difference?

Ashok Kumar Vijay — Executive Director and Chief Financial Officer

You can give the margin thing, but as you rightly said, the margins in respect of private wagon orders are comparatively higher than the railway order. Reason being this thing railway is a bulk buyer, so they generally go for a large tender where everybody is interested to participate, so margin is always under some pressure, whereas private orders go specific. And the focus of private parties are basically go for quality manufacturers. So they don’t buy from all-in general manufacturers. They only buy some quality manufacturers. And moreover, since they are owning the wagons, unlike the earlier days, when under LWI scheme, the wagons were owned by them only for namesake. The wagons actually were owned by railways then. And railway is only supplying them the number of wagons in respect to the rates, which they own and nothing more than.

But now the private sector is owning the wagons. The same wagons are coming back to them. The same wagon is being used and life of wagon, as you know, is 30 to 35 years. So that’s very important for them that they get a good quality wagon, whereby the cost subsequently is not much and the downtime is not much. Today, the maintenance is with railways. So maintenance is not a big worry to them. But certainly, still, if the downtime is there, then they are not getting that much of haulage movement for themselves. So these are the issues whereby the people are basically very selective when the private sector comes. And as a result, you will see the maximum coverage from private sector always come to Texmaco historically also and presently also.

Kaustav Bubna — BMSPL Capital — Analyst

Okay, great. And last question, when will the revenue start coming in from this INR6,000- odd crores government tender?

Ashok Kumar Vijay — Executive Director and Chief Financial Officer

I already explained in my opening statement that, yes, from quarter two onwards, this will start.

Kaustav Bubna — BMSPL Capital — Analyst

Okay, great. Thank you.

Operator

[Operator Instructions] The next question comes from the line of Manish from Prayas Securities Pvt. Ltd. Please go ahead.

Manish Innani — Prayas Securities Pvt. Ltd. — Analyst

Hello?

Ashok Kumar Vijay — Executive Director and Chief Financial Officer

Yes, please go ahead.

Manish Innani — Prayas Securities Pvt. Ltd. — Analyst

Just want to know the company acquired in 2013 Kalindee rail almost for INR800 crores and market cap of TEXRAIL itself is below INR800 crores. Are we ashamed all of us?

Ashish Kumar Gupta — Managing Director

I don’t know where from you got these numbers.

Manish Innani — Prayas Securities Pvt. Ltd. — Analyst

I know, sir. I am the shareholder of their company for umpteen number of years. Go back check your history.

Ashish Kumar Gupta — Managing Director

Number which you are giving…

Manish Innani — Prayas Securities Pvt. Ltd. — Analyst

I am just telling you the market cap of Kalindee Rail Nirman what we brought is for INR800 crores. After 10 years — almost 10 years, the market cap of TEXRAIL is below INR800 crores.

Ashish Kumar Gupta — Managing Director

Manish, let me first — you must be — your tone must be very conducive.

Manish Innani — Prayas Securities Pvt. Ltd. — Analyst

Absolutely. I’m too much disturbed.

Ashish Kumar Gupta — Managing Director

Please listen. Number two, your information is wrong. I can’t say anything more than that.

Manish Innani — Prayas Securities Pvt. Ltd. — Analyst

What do you mean by that?

Ashish Kumar Gupta — Managing Director

Kindly recheck your information, recheck your data. You are making some serious mistakes somewhere in your…

Manish Innani — Prayas Securities Pvt. Ltd. — Analyst

No, no, no. Gentlemen, what is the cost of acquisition of Kalindee Rail Nirman in our books?

Ashish Kumar Gupta — Managing Director

No, that we have to refer that record and all things. But it is not even INR100 crores.

Manish Innani — Prayas Securities Pvt. Ltd. — Analyst

Then you have to go back. Then you have to go back. You paid INR68 to INR70 per share for almost 12 crores shares.

Ashish Kumar Gupta — Managing Director

How much — how are you talking about? We didn’t buy all the shares. We bought only limited number of shares. So your calculation all are wrong.

Manish Innani — Prayas Securities Pvt. Ltd. — Analyst

Okay. So we bought a company for INR800 crores. You might not have paid the whole money, but you bought a company with a market cap of INR800 crores and today the market cap of TEXRAIL, after doing rights issues and several things, is below INR800 crores.

Ashish Kumar Gupta — Managing Director

I think this question cannot be answered by management because you are not willing to listen, so I am sorry for that.

Manish Innani — Prayas Securities Pvt. Ltd. — Analyst

You can explain me whatever you want.

Ashish Kumar Gupta — Managing Director

I told you that your numbers are wrong.

Manish Innani — Prayas Securities Pvt. Ltd. — Analyst

Okay. Agreed. So what is the status of Kalindee Rail Nirman, which we bought over a period of time.

Ashish Kumar Gupta — Managing Director

Now that question is over. Now you are coming on the status of performance of Kalindee Rail.

Manish Innani — Prayas Securities Pvt. Ltd. — Analyst

Yeah. Agreed everything, including the TEXRAIL everything. In how many years you expect the shareholders of the TEXRAIL will be rewarded? See, everybody is getting salary, everybody is getting whatever they want, and shareholders are left in the lurk.

Ashish Kumar Gupta — Managing Director

Maybe that because the shares have not performed well, you are…

Manish Innani — Prayas Securities Pvt. Ltd. — Analyst

Of course, because the numbers have never been there.

Ashish Kumar Gupta — Managing Director

Navin ji, this answer I think better be taken by SKP. We cannot answer this question because…

Manish Innani — Prayas Securities Pvt. Ltd. — Analyst

Saroj ji, Saroj Poddar has to answer. That’s perfect.

Ashish Kumar Gupta — Managing Director

No, no, not Mr. Poddar. It is to be answered by Navin Pachisia. He is there on the call, but your questions are very — Kalindee has not performed well over the years. We understand that. We are working on that direction. And accordingly, results are there in front of you. And it is not that the management is taking salary without working. The management people are equally concerned and bothered about this thing, and they are putting their blood into it.

Manish Innani — Prayas Securities Pvt. Ltd. — Analyst

I don’t know where the blood is getting into it.

Ashish Kumar Gupta — Managing Director

Please refrain from such comments because being a shareholder, you are welcome, you are part-owner of the company. But please understand, we are also working sincerely, diligently, all the management team is working diligently about this thing. We are working our best on improvement. And if the management feels that, yes, the team is not doing well, management will certainly keep changing the team.

Manish Innani — Prayas Securities Pvt. Ltd. — Analyst

So let Pachisia ji answer whatever he wills.

Navin Agrawal — Analyst

Manish, this is Navin Agrawal from SKP. If you can have some specific questions, please take them up. In case there are some unanswered questions, I’ll share my coordinates with you. You can forward them to me. I’ll take it up with the management and get back to you.

Manish Innani — Prayas Securities Pvt. Ltd. — Analyst

Okay, perfect.

Navin Agrawal — Analyst

Yeah, perfect.

Manish Innani — Prayas Securities Pvt. Ltd. — Analyst

That’s fine.

Navin Agrawal — Analyst

So is there anything else that you have right now?

Manish Innani — Prayas Securities Pvt. Ltd. — Analyst

Just one thing how long will — see, traditionally — I don’t know how long all of you have been associated with the company. Traditionally, there is a company called — the other company — Titagarh Wagon used to be below TEXRAIL — market cap of Titagarh Wagon used to be always below TEXRAIL, and we are nowhere there.

Navin Agrawal — Analyst

Manish, the management will be able to answer questions related to Texmaco and not Titagarh.

Manish Innani — Prayas Securities Pvt. Ltd. — Analyst

I’m just sharing the comparison, that’s all.

Navin Agrawal — Analyst

No, no, I appreciate that.

Manish Innani — Prayas Securities Pvt. Ltd. — Analyst

I’m just citing you an example, that is all.

Navin Agrawal — Analyst

So if there is anything, please go ahead. Otherwise, you can share your concerns and queries with me, and I’ll take it up with the management and get back to you.

Manish Innani — Prayas Securities Pvt. Ltd. — Analyst

Okay, fine.

Navin Agrawal — Analyst

Yeah?

Manish Innani — Prayas Securities Pvt. Ltd. — Analyst

Yeah. Thank you.

Navin Agrawal — Analyst

Thank you very much, ladies and gentlemen. That was the last question in the queue. As there are no further questions, I’d like to hand over the conference to Mr. Indrajit Mookerjee for closing remarks. Over to you, sir.

Indrajit Mookerjee — Executive Director and Vice Chairman

Thank you, Navin. It’s been a pretty challenging time for us. And I think the management is all geared up, and I am not surprised that some of our owners, which is the shareholders, could be agitated, but I think I would only make one request to the gentleman who was very agitated for correct reason, is that we need your help to be patient because this company is turning around. And I think we will keep on seeing much, much brighter results to come from the next quarter. We had problems. We didn’t produce as we wanted to. But I think, as Ashish I think said in one of his remarks that it was a blip. We see huge growth potential in our Heavy Engineering as well as Steel Foundry, and we also see that we had certain issues and problems in our EPC business, which is Kalindee, which we are tackling, and it’s getting very much under control, so that the situations would be different in quarters to come. And the Bright Power is sitting with a real Bright Power, because we see a tremendous amount of opportunity coming into Bright Power.

So that’s in summary, I wanted this to be known to our shareholders because the results were not very good. So we ourselves suggested that let there be a conference to tell everyone why this blip had come in and how [Indecipherable]. So hopefully, we have been able to at least serve part of our purpose, and I would like to thank all of you for your patience not only in attending the conference, but also I would request you to hold on to see how we are moving and back us for our future growth. Thank you very much.

Navin Agrawal — Analyst

Thank you, sir. On behalf of SKP Securities, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines. Thank you and have a wonderful day.

Ashish Kumar Gupta — Managing Director

Thank you.

Ashok Kumar Vijay — Executive Director and Chief Financial Officer

Thank you.